Another IPO targets 10% dividend yield

By offering smaller companies loans that the more traditional lending platforms cannot, direct lending has taken off since the financial crisis, caused by bank lending cutbacks. Over $50 billion was loaned in 2014, and investment trust Ranger Direct Lending Fund wants to take advantage of this void by raising up to £155 million when it lists on the London Stock Exchange early next month. A 10% annual dividend yield could be the prize for investors.

US-based investor Ranger Capital will float the fund, which aims to build a diversified portfolio of debt instruments - loans, invoice receivables and asset financing arrangements - originated or issued by a number of different direct lending platforms. Over 75% of the instruments it acquires will be secured by commercial assets and/or personal guarantees.

The investment manager - Ranger Alternative Management II - will only be interested in high-yielding debt instruments, with average targeted net annualised returns of 12-13% on the principal amount invested. Management plans to hand back at least 85% of its distributable income through quarterly dividends. Once the IPO cash has been fully invested, the firm will target an annual dividend yield of 10%.

It is quick to point out, however, that these are not profit forecasts, and that targets assume that investors are in it for the long term. "Accordingly, investors should not place any reliance on the target dividend or target net annualised return on investments in deciding whether to invest in the ordinary shares or assume that the company will make any distributions at all."

"Bank lending cutbacks triggered by the financial crisis and resulting regulation have created a void which direct lenders are ideally placed to fill," explains chief executive Scott Canon. "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."

Managed by Scott Canon, Ranger was launched in 2013 in Dallas, Texas. The closed-end fund is part of the Ranger Capital Group, which managed around $3.2 billion at 28 February. The board is made up of chairman Christopher Waldron, judgement and decision-making expert Dr Matthew Mulford, and Jonathan Schneider, who is also the executive chairman of Taurus Gold Limited.

Ranger is the latest in a long line of IPOs targeting fat dividend yields. Real estate investment trust Whitewood REFF was the latest last month. Previously, entu (UK) (ENTU), the Manchester-based supplier of home improvement and energy efficiency product, and peer-to-peer lender VPC Specialty (VSL) have lured investors with promises of chunky payouts.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.