When RM Capital, the investment manager for trust RM Secured Direct Lending (RMDL), launched in 2010, lending to businesses was not really in its sights. Lorenzo Migliorato speaks to portfolio manager Pietro Nicholls to find out how the business has evolved.
Co-founder James Robson came out of HSBC’s credit rating business and launched RM Capital primarily with trading in mind.
“Eight years ago we only had an agency trading business. We were trading government bonds and corporate credit between hedge funds, or pension funds,” says Pietro Nicholls, portfolio manager.
After the trading business came a currency hedging platform, and then a capital advisory business. Advisory is where Nicholls was brought in, and where he says the firm really started to step up.
“We were helping borrowers raise capital and find alternative debt providers, other than the banks,” Nicholls explains.
The advisory business brought to RM Capital a good £2bn (€2.29bn) over three years, Nicholls continues. Then in 2015, an investor and long-standing client turned to RM Capital with a proposition to handle the small-ticket end of its investments.
“They provided a line of capital for us, and that became our first investment vehicle,” says Nicholls.
That investment vehicle still exists, providing asset finance and leasing with a ticket size range of £100,000 to £4m – although unlike RMDL, it is a private fund.
After dipping its toes into direct lending, the group started working on the offshoot that would go on to become RMDL, and the fund eventually floated in London in December 2016.
Nicholls sees RMDL as an evolution to the advisory activity RM Capital was doing before, when it had a place in a deal’s flow, but had no capital itself to contribute.
“With RMDL, we could access our network of relationships in a completely different way. We moved from an advisory business to asset management.”
Not everything can be done in-house. For everything it cannot do, RMDL has to rely on a wide range of external service providers. However, Nicholls insists that this does not constrain its operations any more than it would in the case of banks’ asset finance units.
“A bank, too, has specialist teams, but they are still only bankers. I am not going to draft a legal document; a lawyer still needs to. I cannot assess a property, and neither can a bank, because you need a chartered surveyor. We only rely on external professionals for the things we can not do. The credit is done in-house and we will never, ever, outsource that.”
In presenting the fund to investors, Nicholls puts RMDL in a very specific niche – what the company calls “non-vanilla space”. In terms of ticket size, its boundaries are defined by challenger banks on one end and P2P investors on the other. As for product type, RMDL settled in what the company perceived as a grey area between asset-backed finance and unsecured cashflow lending.
“Our sweet spot is in the £3m-10m range,” says Nicholls. “That is where we still see ourselves in, say, two years. Some of the deals might get slightly bigger, but our ticket sizes will still stay in that region, because you do not want too much exposure to any particular investment.”
RMDL takes a diversification approach within each investment, securing the lending not just against material assets, like Nicholls sees other asset finance funds do, but against the whole business.
Nicholls makes the example of one of its clients, ExterionMedia, which handles advertising across London’s transport system. “We have security over its kits and equipment, but it also has a 10-year contract with [London transport authority] TfL. [The security is] against the entire business, everything that it has, instead of a specific asset,” he explains.
In October, RMDL raised £30m through a share issue, which it finished deploying in February. After that, Nicholls says, the business’s plan is just “more of the same”: more capital raises, and more asset-based lending. “We are quite boring,” he jokingly says of the staid nature of RMDL’s underwriting.
In August 2017, RMDL ventured into wholesale funding, with a £10m credit line to Praetura Asset Finance.
“We like Praetura Asset Finance,” says Nicholls, adding that another wholesale deal with an asset finance company is in the pipeline, as well as expansions into invoice finance and merging cash advances.
“[Asset-based lending] is all very attractive to us, and we want to do more,” he concludes.