[Update 3/25/2019: The SEC has now filed suit against Direct Lending Investments charging the firm “with a multi-year fraud that resulted in approximately $11 million in over-charges of management and performance fees to its private funds, as well as the inflation of the private funds’ returns.” Bloomberg has more on the story here.]
Direct Lending Investments is one of the largest fund managers in the alternative lending space. I was an early investor in their first fund and over the years I documented my returns and experience on Lend Academy.
Earlier this month Brendan Ross, the CEO of Direct Lending Investments, Inc., sent a letter to investors notifying them that they have suspended withdrawals and redemptions effective February 8, 2019. Lend Academy was able to obtain a copy of this investor letter, dated February 11, that provides some color into what happened. The reason given was the delinquency of a large holding, VOIP Guardian, a telecom receivables factoring company.
The total assets in the fund as of November 30, 2018 was $758 million and the principal balance with VOIP Guardian was $192 million or 25% of the total. What has happened apparently is the telecom companies that do business with VOIP Guardian have failed to pay their obligations. From the investor letter:
VOIP Guardian’s amounts due from these delinquent obligors is now $160 million, with the result that VOIP Guardian in turn remains unable to make its payments due to the Funds. We now suspect that the cessation of payments is the likely result of misconduct (although we have not yet determined by whom) and that a substantial portion of the $160 million may not be recoverable.
A recent Bloomberg article quoted the CEO of VOIP Guardian saying that some long time clients stopped paying their bills and that his company has done nothing wrong. We don’t know why these companies have stopped paying their bills and that matter is currently being investigated.