The SME Loan Fund plc is in discussions with New York-based SQN Capital Management to take over the investment management of the closed-ended fund.
The £52m investment trust changed its name from GLI Alternative Finance to the SME Loan Fund in September and at the same time appointed Cantor Fitzgerald to act as broker and financial adviser.
Currently, the fund has a somewhat complicated structure. It is managed by Amberton Asset Management - which is half owned by GLI Finance. Having launched in September 2015, it’s one of the newest of the five investment trusts that offer exposure to p2p and marketplace loans.
The new plan, if implemented, should address investors' concerns regarding conflicts of interest between the fund, its current investment manager and its largest shareholders as well as providing investors access to a broader range of investments, the firm said in a statement today.
SQN specialises in asset based leasing, and has about £1bn of assets under management including another investment trust listed on the London market: the £596m SQN Asset Finance Income Fund. SQN would charge a fee of 1.0 per cent p.a. of the SME Loan Fund’s net assets - reducing above £250m - and a structuring fee of up to 1 per cent of new investments, should the plan go ahead.
The initial target annual dividend will be 6.25p per share, increasing to at least 7p per share with from July 2018, and a target annual net asset value total return of at least 8 per cent.
Other proposals a placing of GLI Finance’s 48 per cent stake in the fund at 90p per share which represents a discount of 3.2 per cent to its most recent closing price (93p) and a 9.6 per cent discount to its net asset value (NAV), this the firm says will improve market liquidity.
The proceeds of the placing of £22.7m would also enable GLIF to repay a £14.86m syndicated loan which matures on 15 March 2017, allow GLIF to “simplify and strengthen its balance sheet”.
Should SQN take over as investment manager, Amberton will be retained as a sub-adviser in relation to the fund’s existing portfolio of loans. The SME Loan Fund’s second largest shareholder, the Somerston has indicated that it will vote in favour of the proposals.
Numis Securities’ analyst team says the investment trust has been a stock to avoid since its inception due to "inherent conflicts of interest" but that SQN's involvment could strengthen investor appetite.
“The proposals are designed to strengthen GLIF’s balance sheet, but it remains to be seen whether there will be sufficient interest to acquire GLIF’s 48 per cent stake at 90p. SQN has built a strong following among UK investors and intends to invest £7m of its own capital in the secondary placing.”