Debt fund RM Infrastructure Income (RMII ) has launched a strategic review after the board rejected a bid approach last month but realised it had to do something about the flagging share price and ‘consider its future prospects’.

In a shareholder update, the board said RMII was well positioned from an investment perspective but that the persistent share price discount, which trails net asset value (NAV) by 16%, and small size, with gross assets of £109m, created challenges in attracting investors and growing the fund.

The board is considering a number of options, including RMII’s continuation, a partial or full exit opportunity, a combination with another suitable investment company or fund, and a managed wind-down.

The review follows the triggering of a liquidity opportunity consultation that will be held at next week’s annual general meeting and will look at giving investors a chance to withdraw some of their money at close to asset value. The investment company’s shares traded below their NAV in the six months to 31 March.

RMII’s largest shareholders include Hawksmoor, CCLA and FS Wealth Management, which respectively hold 10%, 9.8% and 5.3%, according to Refinitiv data.

At the same time, the board has attempted to address the ‘various issues’ with the recent bid approach for its assets, including the lack of a full or partial exit opportunity for shareholders. This met with limited success but the board said it intends to hold further talks if the counterparty is ‘willing to substantially improve its offer’.

Numis analyst Ewan Lovett-Turner said the review was appropriate given the consultation was likely to see RMII shrink. The investment trust is already off many investors’ radars owing to its small size and persistent discount, despite delivering ‘solid’ underlying returns of 39.2% since its launch in December 2016.

He noted that the portfolio transition to social and environmental infrastructure that began more than two years ago had not improved demand.

‘A managed wind-down or combination with another fund appears the most likely outcome to us, although a merger may be hard to achieve without a significant strategy shift, given discounts in the direct lending sector,’ he said. 

Although their closed-end structure makes them suitable to hold illiquid private debt, listed debt funds have seen a spike in managed wind-downs. The departures of influential equity income fund managers Neil Woodford and Mark Barnett, who liked them as an alternative source of income, removed key institutional support.

VPC Specialty Lending (VSL ), SLF Realisation (SLFR ) and Secured Income Fund (SSIF ) are all in the process of winding down. In the property debt space, ICG Longbow (LBOW ) and Starwood European Real Estate (SWEF ) have adopted managed wind-downs.

RMII, an 8%-yielder that aims to have a positive social impact by lending to essential services, delivered a modest but positive return of 5% in last year’s bear market, while the shares gained 3.7%.

Managed by RM Funds’ James Robson and Thomas Le Grix de La Salle, the portfolio of 37 short-term loans is split 31% to healthcare, 28% to hotels and leisure, and 14% to accommodation.

This morning, the board announced a first-quarter dividend of 1.625p per share. The shares softened 0.7% to 77p, totalling a 7% slump in the year to date.

Stifel analyst Sachin Saggar said the lack of a cash offer could be a ‘sticking point’ given that ‘not all shareholders will be able to transfer their holdings, and so we would agree that the proposer would have to improve their offer for it to be accepted. At this point, we await further news.’

The trust’s corporate broker Peel Hunt maintained its ‘outperform’ rating on the strength of the strategic review, which analyst Anthony Leatham expects to narrow the discount. On Tuesday morning, the shares fell 1.9% to 76p, a 17.9% discount.