Oaktree Capital Management and LIM Advisors have written to try to persuade shareholders to vote against the board’s proposal to install a new manager, Ares Investment Management, to resuscitate the fund.
The board served the existing manager Ranger Alternative Management II a 12-month termination on the day of its three-year anniversary last month following prolonged underperformance.
Oaktree and LIM are the second and third largest shareholders in Ranger Direct Lending, collectively owning 29.44% of the total outstanding shares.
Both firms claim that the board is not acting in the best interest of shareholders by appointing a new manager, which they say will dramatically alter the investment strategy of the fund.
Unlike the original fund, Ares intends to invest in structured credit products that will likely involve embedded leverage, which both investors believe will increase the overall risk in the fund.
It will also invest in assets with longer maturities, potentially leaving existing shareholders saddled with securities that are difficult to unwind, they claim.
Continuation vote
The board has still not scheduled an EGM to approve the Ares-related resolution, despite aiming to hold it on the same day as the trust’s AGM on 19 June 2018.
A majority of shareholders must vote to approve the change of the fund’s investment policy.
The fund is scheduled to have a continuation vote at its fifth AGM in June 2020, another reason why taking a chance on a new manager is risky, the pair of shareholders stressed.
“We note many of the fund’s alternative lending peers took more than a year to rehabilitate themselves,” said Nick Paris, director and portfolio manager at LIM.
“If the mandatory continuation vote at the fifth AGM does not pass, the fund would have to start winding down its portfolio when it has possibly just gone through an expensive restructuring process. A sensible and responsible board should verify that the fund has a future before embarking on such an expensive and time-consuming course of action.”
In light of this, LIM is calling for an earlier continuation vote so that all shareholders can weigh in on whether Ranger Direct Lending has a future.
Board overhaul
LIM has also called for the removal of director Chris Waldron for mismanaging the fund and losing money for shareholders.
The trust is fourth quartile over three years with a net asset value of 15.5%.
But this year, its share price has seen a recovery. It was the 10th best performing trust of the first quarter on a share price basis, posting gains of 3.9%.
However, shares are still some 70% lower than they were 12 months ago.
The biggest drag on NAV during 2017 was from a $55m investment in Princeton Alternative Income fund, which has cost millions in write-downs.
LIM said the handling of the investment was “a black mark against the board” and alleges it “failed to act expeditiously to protect and recover Ranger’s capital investment in Princeton following increasing bad news”.
Oaktree was similarly disillusioned by the board’s “woefully slow response to the Princeton debacle” which it said has resulted in massive shareholder value loss and “underscores the risk of inexperienced, slow-moving, and reactive oversight in specialty finance companies”.
“We believe that shareholders simply cannot afford to wait for the “next Princeton” to unfold under the current board – the board must be strengthened immediately,” said Oaktree managing director and portfolio manager, Patrick McCaney.
Oaktree is also calling for the board to be strengthened immediately and has nominated two new directors, Greg Share and Dominik Dolenec, for the upcoming election.
LIM has put forward Brendan Hawthorne and Eric Long as suggested board appointees.
