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COVID-19: -

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At the Hardman & Co Investor Forum presentation, RMDL summarised the investment opportunity as “RM Secured Direct Lending offers access to a diverse portfolio of secured loans with good collateral – overall the portfolio is high income due to the ability of the manager to capture the complexity premium”. It offers investors i) a high dividend yield (ca.9%), ii) a proven record in downside risk management, and iii) a non-correlated share price. Its monthly NAV has been very stable, driven by predictable net interest income. We examined these themes and how RMDL assesses, monitors and collects credit in our initiation report.

  • COVID comment: “It is the view of the Manager that RMDL’s portfolio of secured debt investments offers downside protection to capital, reduced volatility and above average yields given its diversification across real estate, hard assets, social infrastructure and “non-cyclical” mid-market-corporates”.
  • Other COVID considerations: RMDL marks to market its portfolio and may see volatility associated with sentiment-driven spread movements. The portfolio has 34 investments in 13 sectors, so there is a degree of diversification. 49% of the book is senior debt. An update was provided on 25 March for MTM movements.
  • Valuation: RMDL trades at a record discount to NAV (which is provided by external parties). The 25% discount is nearly equivalent to a total loss of the top five positions. There is hotel and gym exposure but, given the extent of security cover, and manager collection experience, actual losses can be expected to be modest.
  • Risks: Credit is key for any lender, and we have examined in detail the investment manager’s approach. We believe the right approaches to limit both the probability of default and loss, given default, are in place. The book has shown a surprising propensity to turn over. There are modest currency and key personnel risks.
  • Investment summary: RMDL offers investors a different asset class, with a substantial yield generated on a sustainable basis from long-term assets, with predictable income streams and a strong pipeline. Any lending business needs to correctly assess and manage credit; this is done by RM Funds, which has a proven track record of doing so consistently well.
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