Hadrian’s Wall Secured Investments is the latest direct lending focused investment trust to close and return cash to shareholders.
The latest investment trust to call time in the direct lending sector is Hadrian’s Wall Secured Investments. It joins Ranger Direct Lending and Funding Circle SME Income, both of which are also in the process of returning cash to shareholders.
All three have produced “disappointing returns”, which have led investors to lose faith, notes analyst Numis.
In the case of Hadrian’s Wall Secured Investments, the trust was forced to make loss provisions against a couple of sizeable investments due to issues with the underlying loans. As a result, its discount ballooned to 39%. Over the past 12 months its discount has typically stood at 14%.
Numis adds: “The hit to sentiment has been compounded by limited disclosure, with the private nature of debt meaning that names of investments are not disclosed, and there is limited information about risk metrics either regarding individual investments or on an aggregated portfolio basis.”
On a one-year view the trust’s share price has plummeted 45%.
The name of the trust will change during the wind-down to HWSI Realisation Fund.
Shareholders face a wait to get their money back, however, with Numis estimating the bulk of capital will be repaid by mid-2022 and the whole process of closing down the portfolio completed in 2023.
The number of investment trusts offering exposure to the debt sector has soared over the past decade. These include opaque instruments such as asset-backed secured loans (ABS) and collateralised loan obligations (CLOs), as well as direct lending/peer-to-peer (P2P).
In part, this was driven by the trusts targeting a high level of income, in the region of 6% to 8% typically.
Over the years, though, the trusts in the sector have on the whole disappointed, a point made in our latest feature on niche trusts. There have been a couple of success stories, namely peer-to-peer lending specialists P2P Global Investments and Honeycomb Investment Trust, which have both seen assets rise on the back of solid returns since launch.
Numis adds it believes there still may be a place for direct lending investment companies, providing they have “sufficient scale to diversify the portfolio and provide some trading liquidity; an experienced management team, with a relevant track-record of credit investing; and improved disclosure, to allow investors to undertake some informed analysis.”