Ranger Direct Lending Fund Launches on the London Stock Exchange

Ranger Capital

Today, a new direct lending fund from Ranger Capital will be listed on the London Stock Exchange. This will be the fourth fund of its kind to be listed on the London Stock Exchange. The offering for the Ranger Direct Lending Fund was oversubscribed at £10 per share with a total market capitalization of £135 million and will be listed with the ticker RDL. This isn’t Ranger Capital’s first venture into the lending space. Back in September of 2013, Lend Academy featured an article about the Ranger Specialty Income Fund, their private fund that invests in Prosper and Lending Club notes.

I reached out to Bill Kassul, who is Partner at the Ranger Specialty Income Fund to learn more about the new fund offering. What is most interesting is that Ranger Capital is a US based firm, but decided to list this fund on the London Stock Exchange. Bill mentioned that there were three reasons for this.

  1. The vehicle they are able to do the fund with is an investment trust. This is an attractive way for them to raise money, deploy the capital quickly and do a subsequent C share round to raise additional capital.  Bill noted that this is a perfect vehicle for a lending product. One alternative in the US would be a closed end fund. However, with a closed end fund, they can only raise the capital once and it is done. With the investment trust, potential investors can watch the fund and decide to invest in the future. In addition, opting for a closed end fund would affect the performance of the fund. Another option would have been a BDC, but with BDCs, investments are at the organization level. This didn’t fit with what they were trying to do with this fund.
  2. The cost to do a closed end fund in the United States would cost twice as much as it does in the UK. This would mean launching the fund at a huge discount since expenses are much higher.
  3. Perhaps the most interesting reason for launching on the London Stock Exchange is education. Bill mentioned that the UK market is much more knowledgeable than the US market. They are more aware of what is happening in banking and peer to peer lending. The UK market puts itself out there as being alternative lending friendly. Other funds have already helped educate the market and the story still needs to be told to investors and banks in the US. Bill did mention that we will get there eventually, but external forces are also playing a role and cited one factor being equities performing quite well.

This fund isn’t focused on peer to peer lending like their last private fund, but instead focuses on time tested companies who have been through the recent financial crisis. They look for companies with decades of history that offer complete transparency. Bill said that the team took a step back and pivoted to reach the decision to invest in a majority of secured loans. They have seen yields compressing on marketplaces like Lending Club and Prosper since they began investing in 2010. In addition, they actively select loans and believe the peer to peer lending marketplaces are moving towards more passive investing. Most peer to peer lenders are unsecured loans and their credit committee didn’t want to be over exposed in this area.  Since banks are moving away from lending in general, this was a good opportunity to launch this fund that will invest 75% in secured loans across multiple categories.

Being the only fourth public fund, it will be interesting to keep an eye on the funds and their performance. We will no doubt see more funds being launched in the future and hopefully will someday see a fund offering in the US.

Disclosure: This article is for information purposes only and is neither an endorsement nor a recommendation to invest in this fund. Also, I have received no compensation whatsoever for writing this article.

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Bryce Mason
May. 1, 2015 2:10 pm

Great to see. A 1% management fee and a 10% performance fee is pretty steep, but you can’t beat the easy access to this type of asset. The prospectus says the Ordinary Shares aren’t registered under the Securities Act of 1933 in the US, and therefore can’t be offered or sold within the US or for the account or benefit of US persons. However, I see the ticker in Fidelity. Does this restriction only apply to the initial public offering, and not the secondary market? I would consider buying shares as a good vehicle to increase my exposure while avoiding the capital losses issue.

Sarfaraz Sadruddin
May. 3, 2015 4:03 pm
Reply to  Bryce Mason

Isn’t Brendan Ross charging 1% AUM and 20% performance fees? I believe he is. By that standard, these are probably the “best” fee structure I have seen yet.

Prescott
May. 4, 2015 10:27 am
Reply to  Bryce Mason

Fees will come down over time, hopefully quickly. The pref fees have to go.

James Wu
May. 1, 2015 4:12 pm

Yet another milestone for making this asset class accessible to retail investors. Congrats to Bill and the Ranger Capital team.

Bryce, I agree it would be attractive if a US investor can purchase shares. Regardless, in the US a couple of the BDCs are already actively buying loans, so that’s a good way for investors to get exposure, although not as targeted as the Ranger vehicle in London.