UK Investment Trusts Gain U.S. Appeal
The UK investment trust structure has been attracting US fund managers, who made up a fifth of the money raised on the London Stock Exchange’s specialist fund market this year.
Bill Kassul, partner at Texas-based Ranger Capital Group, told Markets Media the main reason for listing a fund in London was that the investment trust structure is not available in the US.
The Ranger Direct Lending Fund went public on the London Stock Exchange on 1 May and raised £135m. The investment manager was established in 2013 and is headquartered in Dallas.
“The closest structure in the US is a closed-end fund where you have to raise all the capital you need at one time,” he added. “If you want £200m this year and £250m next year then you would raise £450m at one time which gives you a cash drag.”
Ranger just wanted to raise money that it had the resources to invest in the following year. Other US vehicles also require equity investments in the lending platforms. In addition the cost of a US closed-end fund is about twice that of an investment trust.
“The UK investor base is much more educated on the fintech market,” Kassul added. “There are more funds in the UK, peer-to-peer lending has been around for longer and the government seems more receptive. In the UK there are also more investors focussed on yield.”
The Ranger fund seeks to provide shareholders with an attractive return, principally in the form of quarterly income distributions, by acquiring a portfolio of debt obligations that have been originated or issued by direct lending platforms. The majority of its investments are secured loans, in comparison to unsecured peer-to-peer lending, across sectors including real estate, auto, specialty finance and small business lending.
The company said in its prospectus that debt instruments originated or issued by direct lending platforms are an attractive and growing asset class that have the potential to provide higher returns for investors than other fixed income products.
In the initial public offering approximately 90% of the investors came from the UK but Kassul expects more US participation in the next fundraising. He said: “We met some big US investors before our IPO and they are likely to come back in the next round.”
Since the IPO the fund has invested in eight direct lending platforms, which are all in the US. The company is also currently performing due diligence on three others, which includes a European platform.
Scott Canon, chief executive of Ranger Capital Group, said in a statement that cutbacks in bank lending triggered by the financial crisis and new regulations have created a void which direct lenders are ideally placed to fill.
“The Ranger Direct Lending Fund is the first UK listed fund of its kind to offer permanent capital to the established and emerging direct lending platforms as they expand to fill this void,” Canon added. “The application of technology and access to online credit data sources provide these lending platforms structural advantages that are enabling them to grow and create a multi-billion dollar new asset class for investors.”
The London Stock Exchange Group said 14 funds listed on the exchange in the first months of this year to raise a total £2.3bn ($4bn), a 6% increase on the same period last year and the most money raised in the first half of the year for the last 10 years.
The exchange’s Specialist Fund Market now contains 25 listings and 11 are run by US fund managers. Alongside Ranger, two other US funds listed this year.
Gabelli Funds completed the £100m offering of a closed-end fund, The Gabelli Value Plus+ Trust in February. The fund invests in US equities and is run by Gamco Investors. The New York-based activist asset manager said it is the firm’s first direct entry to the UK investment community.
Marc Gabelli, portfolio manager and son of Gamco founder Mario Gabelli, said in a statement: “The UK market is highly sophisticated. We are delighted to be entrusted with the opportunity to grow wealth for the U.K. investor via the strengths of an investment trust vehicle.
In March VPC Specialty Lending Investments, owned by US-based Victory Park Capital, raised £200m to invest in opportunities in the alternative lending market. VPC said in the prospectus: “The online lending market continues to expand rapidly as both borrowers and investors recognize the advantages relative to the traditional bank lending model.”
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