THE SECOND largest shareholder in the Ranger Direct Lending Fund (RDL) has recommended that the alternative finance-focused fund winds down.
In a letter dated 11 April 2018, Oaktree Capital Management described Ranger as “a sub-scale platform” with shares that are “too illiquid to attract large institutional investors, especially in light of its persistent trading discount to Net Asset Value.”
Oaktree added that the fund “operates in niche asset classes that are becoming increasingly competitive and are difficult to scale”, while its return targets are “increasingly difficult to achieve in the current credit market environment.”
“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 concluded. “Oaktree urges the Board to recommend the wind-down of RDL to its shareholders as its preferred option in the ongoing strategic review process.”
Oaktree – a global investment manager with more than $100bn (£71.6bn) in assets under management – recently disclosed an 18.56 per cent ownership stake in RDL, making it the fund’s second largest shareholder.
Ranger’s NAV has suffered over the past few months due to the company’s legal battles with Princeton, regarding its exposure to bankrupt lender Argon Credit. In December 2017, RDL reported a NAV Of 0.48 per cent, but this figure had dropped to 0.31 per cent by February 2018.
Oaktree described RDL’s exposure to Princeton as “highly troubled” with “no resolution in sight”. The investment manager added that “Ranger is below its high-water mark” and said that introducing a new manager or co-manager would pose a “meaningful transition risk” to shareholders.
Oaktree also stated that “Ranger’s evergreen vehicle structure is not ideally suited to its speciality credit strategies” and criticised the UK-listed fund’s predominantly North American credit portfolio as “an historical anomaly” with “little capital markets rationale going forward”.
The letter was signed by Patrick M. McCaney managing director and portfolio manager of value equities at Oaktree Capital Management.
McCaney requested a response from RDL’s board members by 18 April 2018, “after which date we will consider making this letter public in order to engage openly with a broader group of stakeholders”. The release of the letter suggests that RDL has not responded to Oaktree’s recommendation.
Oaktree went on to note the “relative ease and low cost of winding-down Ranger compared to many other investment trusts,” due to the relatedly short-duration portfolio and limited human resources impact. Oaktree suggested that the fund could be completely liquidated within 18 months.