Investment Process

Ranger Specialty Income Strategy

The investment advisor conducts active evaluation and selection of lending sources on an ongoing basis to identify peer-to-peer and direct lending platforms which serve as intermediaries between borrowers and lenders.  As lending sources are identified, corresponding investment categories are subject to due diligence to establish an estimation of risk and expected return.  Portfolio allocations to investment sources and corresponding debt instrument categories are determined based upon the attractiveness of other available opportunities balanced with the potential diversification benefits amongst investments from other unrelated categories.  The strategy seeks investment in a broad distribution of borrowers and debt instruments generated by a variety of distinct lending sources and from multiple categories in order to manage risk and provide a predictable cash flow.

The investment advisor’s asset selection and due diligence process is divided into four disciplines:

Platform Operations & Performance Due Diligence

Initial due diligence is conducted on a lending platform based on an estimation of allocations to debt instruments offered or originated by that lending platform. Such due diligence includes an evaluation of past investment history as well as size and scope of present and future investment volume.  Appraisal of the platform’s business practices, past or predicted debt instrument performance, regulatory status and other issues and risks are also taken into account.

Platform Underwriting Due Diligence

The investment advisor assesses the platform’s own underwriting procedures with respect to borrower applicants. Direct lending platforms typically use multi-credit and risk rating models within their underwriting criteria used to assess the creditworthiness of borrowers. In addition, the emergence of big data processing has enabled direct lending platforms to develop a more efficient and effective means of analyzing and classifying credit risk across numerous debt instrument categories.

Borrower Applicant Due Diligence Undertaken by the Investment Advisor

The investment advisor’s additional credit analysis on such debt instruments is applied for investment in cases where the investment advisor is able to actively select investments pursuant to the relevant platform agreement. In addition to indicators such as credit scores, the investment advisor places emphasis on a variety of underlying factors from credit bureaus as well as other sources.  The investment advisor has also developed an artificial intelligence (AI) technology, TruSight Technology, which has been used with select portions of the strategy’s portfolio and actively used for investment selection since inception of the strategy.  When sufficient history of past loans from a lending source is available, the investment advisor will engage TruSight Technology.  When sufficient history is not available, investments are primarily selected based upon the underwriting rules and classifications used by the lending source in conjunction with guidelines developed by the investment advisor.

Monitoring of Debt Instruments

The investment process is reviewed on an ongoing basis by members of the investment team. Using a “dashboard” of key performance indicators and automated email alerts, members of the investment team are made aware of material changes in loan selection, investment amounts, loan performance, etc. Parameters used by TruSight Technology, when applicable, and the investment policies and procedures can then be modified by the investment team as they endeavor to adapt to the changing economic environment.

THE INVESTMENT OBJECTIVES AND METHODS SUMMARIZED HEREIN REPRESENT RANGER’S CURRENT INTENTIONS AND ARE SUBJECT TO CHANGE. RANGER ALTERNATIVE MANAGEMENT II, LP MAY PURSUE ANY OBJECTIVES, EMPLOY ANY INVESTMENT TECHNIQUES OR PURCHASE ANY TYPE OF INVESTMENT SECURITY THAT IT CONSIDERS APPROPRIATE AND IN THE BEST INTERESTS OF ITS CLIENTS WHETHER OR NOT DESCRIBED HEREIN. THE FOREGOING DISCUSSION INCLUDES AND IS BASED UPON NUMEROUS ASSUMPTIONS AND OPINIONS OF RANGER ALTERNATIVE, THE ACCURACY OF WHICH CANNOT BE ASSURED. THERE CAN BE NO ASSURANCE THAT THE FIRM’S INVESTMENT STRATEGY WILL ACHIEVE PROFITABLE RESULTS.