On Thursday, June 11, RiverNorth Marketplace Lending Corporation filed an N-2 with the US Securities and Exchange Commission. RiverNorth is a Chicago-based investment management firm founded in 2000 that specializes in opportunistic investment strategies. Many of RiverNorth’s investment products are structured as Closed End Funds (“CEFs”).
The N-2 is the filing made by an Investment Company with the SEC in order to launch a CEF under The Investment Company Act of 1940. In due course, the SEC will provide comments to RiverNorth and once RiverNorth has finalized its filing, it will presumably launch the fund and market it to investors.
First, this is the first filing for a CEF in the United States that has an investment strategy focused on investing in marketplace loans. Recently, CEFs have been launched in London by the Ranger Direct Lending Fund (May 2015) and the Marshall Wace P2P Global Investments Fund (May 2014), but the CEF structure has not been attempted in the US to date.
Second, a CEF, unlike other pooled investment vehicles currently in operation in the US (such as hedge funds or other limited partnerships), represents permanent capital, exactly the type of long term investor that origination platforms crave.
Third, most of the investors in CEFs distributed by the wire-houses are individual investors (albeit high net worth individuals). This brings the industry back in a sense to its origins of “peer-to-peer” lending – by allowing individual investors to gain access to diversified pools of marketplace loans without having to join each and every platform and hand pick loans one by one – and do so with professional management.
While many of the exact terms (including fees charged to investors in the CEF) were not disclosed in the N-2, several important terms and features of the Fund were described. The following is a brief summary:
- RiverNorth Capital Management, LLC will serve as the Fund’s Investment Adviser.
- The investment objective is “a high level of total return, with an emphasis on current income.”
- At least 80% of the Managed Assets of the Fund will be in loans “originated through online platforms that provide a marketplace for lending.”
- The Fund may invest in other “private investment funds that purchase Marketplace Loans.”
- The Fund may extend credit to a marketplace lending platform and/or invest in its equity.
- The Fund will not initially be listed on an exchange, but the Board of the Fund will seek a listing in the future.
- The Fund will be able to utilize leverage and borrow up to 50% of its total assets in accordance with the 1940 Act.
- Limited liquidity will be provided to investors in the form of quarterly tender offers for shares.
- The Fund intends to declare monthly income distributions but there is also a dividend reinvestment plan.
The above are just some of the highlights.
My prediction is that several N-2s will likely be filed in the future for Closed End Funds that invest primarily in marketplace loans. CEFs represent a permanent capital solution for origination platforms and investment managers (it’s the “Holy Grail” of capital for money managers). And for investors, CEFs are compelling too. The asset class continues to provide investors with strong returns. Additionally, CEFs provide other key benefits to investors in marketplace loans – including diversification, professional management and the promise of future liquidity.
In short: watch this space for more little filings with big implications.
Bill Ullman, Senior Advisor at Orchard, has over 20 years of financial services experience as an investment banker, operating executive, investment manager and Board member. Prior to starting his own firm, Right Wall Capital Management, LLC in 2006, Bill was a senior banker and executive at Bear Stearns and Merrill Lynch, always focused on the financial services industry. Bill advises a select group of clients on strategy and corporate transactions. He is on the Board of Van Eck Global, an asset management firm based in NY with over $30 billion under management and the Capital Returns Fund, a long short equity hedge fund focused on the insurance sector. Bill graduated from Princeton cum laude with an AB in History and has an MBA from the Anderson School at UCLA. A life-long squash player, Bill is currently a nationally ranked doubles player and former Captain of the Princeton team.