We have known for quite some time that publicly listed funds were coming to the US but until recently we didn’t know when they would be made available. In June we learned that Stone Ridge was launching their fund under the ticker LENDX and last week we learned that RiverNorth had received approval for theirs.
The launch of publicly listed funds is an important marker for the marketplace lending industry. For the first time investors can access this asset class in a much easier way. In comparison public funds have been available in the UK for quite some time. We spoke with Philip Bartow, Portfolio Manager at RiverNorth and also dug into the prospectus to learn more.
The fund will be listed under the ticker RMPLX and will be available through several major fund platforms over the next few months. They can raise up to a billion dollars with the new fund although the initial investment will be lower with new investors coming in over time.
We also have an idea of the what platforms RiverNorth will initially be targeting. From the filing:
The Fund initially anticipates that a substantial portion of its Marketplace Loan investments will have originated from a limited number of platforms and that it may invest 25% or more of its Managed Assets in Marketplace Loans originated from each or any of LendingClub, Prosper and SoFi Lending Corp. The Fund may, in the future, invest 25% or more of its Managed Assets in Marketplace Loans originated from another or other platform(s).
The fund structure is setup as an interval fund and there will be a NAV that is priced each day. Investing is similar to that of an open ended fund as investors can purchase at the NAV price on any day, but the liquidity is similar to that of a private fund. Liquidity is offered quarterly and the total redemption amount will vary from 5% – 25% of the fund as determined by the board of directors based on market conditions, liquidity of the fund’s assets and shareholder servicing considerations.
As an interval fund, the Fund has adopted a fundamental policy to conduct quarterly repurchase offers for at least 5% and up to 25% of the outstanding Shares at NAV…The Fund will not otherwise be required to repurchase or redeem Shares at the option of a Shareholder. It is possible that a repurchase offer may be oversubscribed, in which case Shareholders may only have a portion of their Shares repurchased.
The fund also intends to use leverage. From the filing:
The Fund currently intends to use leverage for investment and other purposes, such as for satisfying repurchase requests or to otherwise provide the Fund with liquidity. Under the 1940 Act, the Fund may utilize leverage through the issuance of preferred stock in an amount up to 50% of its total assets and/or through borrowings and/or the issuance of notes or debt securities (collectively, “Borrowings”) in an aggregate amount of up to 33-1/3% of its total assets.
The other two important factors for investors are eligibility and expenses. There is a $1 million minimum investment which will apply at the individual investor level if the investor does not have an existing relationship with a RIA. If the investor does have a relationship with an advisor, the minimum would apply to the advisor which could lower the minimum investment per individual. As is noted in the prospectus:
The Fund expects that the Shares will be initially offered primarily to clients of registered investment advisers and other institutional investors.
Fees for management expenses are 125 bps, although it is waived to 95 bps for the first two years of the fund. Other expenses, related to servicing fees including accounting, custody etc. are 90 bps. The full breakdown and description of these expenses are below. Note that this does not assume the cost of using leverage. There is additional information on leverage expenses in the prospectus.
(1) The Fund has agreed to pay the Adviser a management fee payable on a monthly basis at the annual rate of 1.25% of the Fund’s average monthly Managed Assets. “Managed Assets” means the total assets of the Fund, including assets attributable to leverage, minus liabilities (other than debt representing leverage and any preferred stock that may be outstanding).
(2) The management fee is charged as a percentage of the Fund’s average monthly Managed Assets, as opposed to net assets. With leverage, Managed Assets are greater in amount than net assets, because Managed Assets includes borrowings for investment purposes and the liquidation preference of any preferred stock that may be outstanding.
(4) Loan servicing fees are paid to the applicable servicer of the underlying Marketplace Loans.
(5) Based on estimated amounts for the current fiscal year, including offering expenses payable by the Fund estimated to be $799,978. The organizational expenses of the Fund will also be paid by the Fund.
It’s great to finally see the 40-Act funds get off the ground and open up investing in marketplace lending to more investors here in the US. It will be interesting to see how well the RiverNorth fund is received, but Philip is optimistic given where yields are with high yield alternatives and the yield on 10 year Treasury bonds. If you’re interested in learning more about the fund you can do so by checking out RiverNorth’s official filing on the SEC website. If you are interested in investing directly you can contact RiverNorth through their website.