Ranger Direct Lending (RDL), the troubled peer to peer investment company backed by Invesco’s Mark Barnett, has served notice on its fund manager Ranger Alternative as it looks to change direction and invest in secured loans.

The board of the £129 million company is recommending the appointment of Ares Credit Group in California to oversee a move into private, asset-backed debt, which it believes will stabilise the portfolio and generate a high dividend yield.

Launched three years ago, RDL’s performance has been blighted by the collapse of Argon Credit in December 2016 to which it was exposed by a stake in the Princeton Alternative Income fund. The company has been embroiled in a legal battle with Princeton over clarifying the extent of its losses and last month rejected a call from Oaktree Capital Management, its second largest shareholder after Invesco, that it should wind up.

According to the company, shareholders owning over 39% of RDL have indicated their support for the appointment of Ares, a loan and debt specialist with over $106 billion under management. It has begun to consult other investors and will put the switch to Ares and the change in investment policy to a simple majority vote at a general meeting of shareholders.

Under the terms of its management contract, Dallas-based Ranger Alternative will continue to run the portfolio for a further 12 months leaving investors with a lengthy transition as its stakes in lending platforms are sold.

Shares in RDL shed 11p or 1.4% to 790p as investors registered the uncertain future still facing the fund despite the resolution of its four-month investment review. The stock has gained 15% this year on hopes of a turnaround but still stands on a 13% discount to estimated net asset value of 967p, according to Morningstar, and yields 12%, another sign of the risk attached to its dividend. In the past 12 months its NAV has dropped 7%.

Under the proposals, RDL’s portfolio will be managed by Keith Ashton and Jeffrey Kramer, both partners and co-heads of Ares' structured credit team which oversees $5.8 billion of assets. They would invest RDL in a series of loans held in special purpose vehicles designed to ring-fence the assets from any problems at the underlying lenders.

In addition the specialist lenders behind the loans would be required to contribute equity towards a first-loss reserve, further protecting shareholders, said RDL’s board.

RDL is chaired by Christopher Waldron, a former James Capel stock broker who also serves as a non-executive director on UK Mortgages and JZ Capital Partners.

The company’s biggest investor is Invesco Asset Management, which holds a 28% stake held by Barnett’s High Income and Income funds. Oaktree owns 18.5% and activist investor LIM Advisors just over 9%, according to Thomson Reuters data.

The proposed restructuring at Ranger is another example of the changes in the nascent direct lending sector. Last year the manager of P2P Global Investments (P2P), which was struggling to hit its targeted returns, merged with the manager of the more highly rated Honeycomb (HONY). Both are also held by Barnett.