Ranger fund investor calls for portfolio wind down

Los-Angeles based Oaktree Capital Management has called for the managers of the Ranger Direct Lending fund to wind down the beleaguered portfolio.

Oaktree is specialist alternatives investment manager with $100bn of assets under management (AUM). It argues that the portfolio will be relatively easy to wind down as the as most of the assets are ‘relatively short-duration’. Should it cease recycling its capital into new loans, Oaktree says, the vast majority of the portfolio will convert to cash within eighteen months.

In a letter dated 11 April and addressed to Ranger’s board of directors, Oaktree – which owns 18.56 per cent of the Ranger Direct Lending investment trust - said it had increasing concerns over Ranger’s future viability. Oaktree is the fund’s second largest shareholder.

The letter said: “We are writing to you in the context of RDL’s on-going strategic review process…. In light of your invitation for Oaktree to make a proposal for the investment management contract, we contemplated a range of possibilities for Ranger including a continuation of or change in strategy based on information available in the public domain. Unfortunately, after careful consideration we could not see a viable path forward that either Oaktree or indeed any other investment manager could propose for the vehicle”.

It then went on to list a number of reasons; including Ranger's shares being too illiquid to attract large institutional investors, the direct lending market becoming increasingly competitive and difficult to scale and Ranger’s return targets too difficult to achieve.

Ranger has been beset by problems with the Princeton fund which it had a large stake in before the latter went bankrupt and Oaktree added that the exposure is “highly troubled” and with no current resolution in sight.

It also threw cold water on Ranger’s plans to add a co-manager saying a new manager would mean adding “meaningful transition risk to Ranger shareholders”, especially in light of the on-going Princeton legal process. It also said that by adding a co-manager may also lead to “suboptimal decision-making and misaligned incentives”.

Lastly, it said that both the investment trust vehicle structure is not ideally suited to specialty credit strategies and that having a North American credit portfolio was overly idiosyncratic.

“We have now come to the conclusion that RDL shareholders’ interests are best served by winding down the Company and returning its capital to its shareholders, which represents both the lowest risk and highest return path forward,” the letter said.

“Oaktree urges the Board to recommend the wind-down of RDL to its shareholders as its preferred option in the on-going strategic review process,” it added.

You can see the full open letter here.