The £237m Ranger Direct Lending fund has completed its latest Initial placing of C shares at an Issue Price of £10 per C share, raising £16m, according to regulatory filings, way below its £40m target.
Launched in May 2015, the investment trust is focused on investing in loans originated by direct lending platforms that are generally secured against assets with a typically low duration of around two years. Its loans are currently originated on 12 direct lending platforms across various categories including secured SME lending, real estate loans, invoice financing, equipment finance and platform collateralised debt.
Ranger actively selects loans from the platforms it invests and seeks to invest in assets with returns of 12-13 per cent (after expected write-offs). The fund, which is managed by Jack Antonini, Kenneth Scott Canon, Mark Dawson, William Kassul, Wes McKnight, Gary Melara, is on a discount of 6.7 per cent and targets a dividend yield of around 10 per cent.
Ranger Direct Lending has primarily US dollar exposure and is unhedged, therefore returns for UK investors have been significantly boosted by sterling’s weakness an it has been one of the more successful closed-ended online lending funds in 2016, partly thanks to the strong US dollar but also through successful performance in its portfolio.
The chart below shows its net asset value growth since its launch in comparison to the wider UK marketplace as measured by the LARI (Liberum AltFi Returns Index).
NAV Performance of Ranger Direct Lending Vs LARI since launch
Source: AltFi Data
In December 2015, Ranger pulled a targeted £135m C share issue, and instead raised £14.1m via a tap issue for 9.99 per cent of share capital and also raised through a £23.2m placing of new zero dividend preference Z shares (ZDP) on 4 November and £30m back in July 2016 via another ZDP issue. It recently put in place a placing programme of ordinary shares and/or c shares to raise up to £200m.
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The new shares were admitted to listing to the London Stock Exchange on Friday and are expected to convert into ordinary shares when at least 90 per cent of proceeds are invested.
The managers of the fund recently said that they had a strong pipeline of secured direct lending opportunities to deploy funds in line with its target return of 12 per cent - 13 per cent pa.
Analysts at Numis Securities say raising money with the shares at a discount was always a tough sell, but Ranger’s institutional backing helped.
“We are not surprised that Ranger has fallen short of its £40m [£50m] fundraising target given the shares are trading at a 5 per cent discount meaning smaller investors would be better off buying shares in the market, rather than participating in a fundraising,” Numis said.
“In addition, the fund is still to fully deploy the proceeds of its £23.2m November ZDP issue, which is expected by the end of December.”
This is somewhat mitigated, they add, by relatively limited trading liquidity as well as the shareholder register being dominated by institutional investors such as 34.9 per cent held by Invesco, 12.7 per cent BMO, 5.7 per cent Aviva and 4.6 per cent M&G.
“[They] may favour the large size of a secondary issue.”
The broader negative sentiment towards the peer-to-peer lending sector could also be a reason, they add.
“It has been weak with returns from peers, P2P Global Investments and VPC Speciality Lending, disappointing, leaving them trading on substantial discounts in excess of 20 per cent”.
