By Daniel Lanyon on Tuesday 1 May 2018
The investment trust whittled the asset management giant down from 20 other hopeful applicants.
The board of the £213m Ranger Direct Lending fund has proposed Ares Management to run the troubled portfolio.
Ares is a large global asset manager with an investor base spanning institutions including pension funds, insurance companies and sovereign wealth funds.
Analysts at Numis say the potential appointment of Ares is broadly positive but notes the investment trust;'s share price hasn’t moved much yet on the news.
“On the face of it this is a positive development for the fund with the potential appointment of an experienced, well-resourced manager with access to deal-flow. However, a significant number of uncertainties remain about how any change will be implemented, and there is currently little detail about the expected shape of the portfolio or fees."
"A transition of the portfolio is likely to some time, as demonstrated by the on-going process with P2P Global Investment and VPC Speciality Lending. In addition, the existing manager, Ranger Alternative, has a 12-month notice period, which may mean it is some time before Ares are able to start implementing change.”
Ranger currently trades on a -16.2 per cent discount to NAV but this is distinctly lowered to a -2.9 per cent discount assuming full write down of its Princeton investment, according to Liberum’s analysts.
The appointment, which is still subject to shareholder approval, could see Keith Ashton and Jeffrey Kramer as designated portfolio managers.
Both are partners and co-heads of structured credit. They also sit on the investment committee of the Ares Global Structured Credit team, which has $5.8bn of assets under management (AUM), according to Numis. Ares Management, the broader group, has $106.4bn of AUM across credit, private equity and real estate. Its credit group $71.7bn of assets.
Twenty investment management firms engaged in the process and a shortlist of six met with the Board in March and April.
Ranger’s board opted for Ares' proposal on the basis that the future portfolio will consist primarily of private, asset-backed loans sourced and structured by Ares.
“The assets securing each such loan are generally held in a special purpose entity in order to achieve legal and economic separation from the credit risk of the specialty finance company that originated each pool of assets,” the board said in a release.
In addition the specialty finance company that originated the asset portfolio will be required to contribute an amount of capital, in the form of equity, to the special purpose entity.
“This capital serves as first-loss protection against losses in the asset portfolio securing each loan. In addition to other credit enhancements, this first-loss cushion reduces the potential for volatility in investment returns,”
In this manner, the Ares strategy is intended to stabilise both the income and the net asset value (NAV) performance of the Company.
Ares is currently underwriting asset-backed loan transactions on behalf of a number of large institutional clients. It is expected that the Company will invest in every eligible transaction alongside Ares’ other clients with similar mandates, thereby potentially participating in much larger transactions than the Company could on its own.
Ares will target a “high, single-digit dividend yield” to investors with the portfolio continuing to have a significant majority of its assets in US dollar denominated and US based loans with an increasing exposure to some Canadian and eurozone loans.
Ranger says shareholders accounting for over 39 per cent of the fund’s ordinary share capital have indicated that they are supportive of Ares being appointed as the Company’s Investment Manager.
“The Board will continue to work with its appointed advisers in seeking an appropriate transition process, which in all cases would be conditional on shareholder approval as described below. Ares’ appointment as the Company’s investment manager will also be subject to Ares’ satisfaction of on-going due diligence. As soon as possible hereafter a circular will be despatched to shareholders setting out the details of the proposed management arrangements and investment policy and calling a general meeting of RDL to vote on these matters. The vote can be passed on a simple majority of shares voted,” it said.
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