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Lord Rothschild: we're in 'the eye of the storm'
Chairman of RIT Capital Partners warns worst is not behind investors as global investment trust backs new hedge fund Eisler Capital.
RIT Capital Partners (RCP ), the global investment trust founded by the Rothschild banking dynasty, has made what it dubs an 'important' investment in anticipation of a difficult 2016.
In a move to strengthen its ability to preserve shareholders' capital, RIT backed the launch last year of Eisler Capital, a global macro hedge fund set up by Ed Eisler, former head of securities at Goldman Sachs.
Eisler, an Austrian who spent 17 years at the US investment bank, has joined the investment committee of J Rothschild Capital Management (JRCM), the trust's fund manager.
Although RIT has not said how much it has invested in Eisler, the fund reportedly raised $1 billion (£650 million) last September.
'His fund, with its focus on global macro investment opportunities, has been established to target returns over the cycle, with a capital preservation focus. In turbulent and volatile conditions, these skills could be of particular relevance and value,' said Lord Rothschild, RIT's chairman.
The move came after a decent 2015 for the £2.4 billion trust which saw its net asset value rise by 8.1% versus a 2.3% gain by the MSCI All Country World index.
Shareholders did much better than that, however, reaping a 22.7% total return as the share price moved from a 5.8% discount to NAV at the start of last year to end 2015 on a 6.9% premium, adding to the underlying portfolio return.
As Investment Trust Watch pointed out on Friday, some of that gain has been shed this year as the trust has fallen back to a small discount below NAV.
The fund, guided by chief investment officer Ron Tabbouche, benefited from the decision to reduce equity exposure in the fourth quarter as the economic outlook darkened and company earnings disappointed.
Writing in the trust's 2015 annual report Rothschild (pictured) was not surprised conditions had got worse as central bank policy-makers' forecasts become more pessimistic.
'Not surprisingly, market conditions have deteriorated further,' Rothschild said. 'So much so that the wind is certainly not behind us; indeed we may well be in the eye of a storm.'
On this basis, Rothschild expects 2016 to be trickier than the second half of last year, highlighting a litany of problems. These include the end of quantitative easing, the slowdown in China, instability in the Middle East and the fragile health of the European and US economies.
Rothschild also pointed out that the Greek situation remains 'fraught', while countries such as Brazil, Russia, Nigeria, Ukraine and Kazakhstan are deeply troubled following the collapse of commodity prices. He is also worried about the unsettled political situation in the UK amid a possible Brexit.
'The risks that confront investors are clearly considerable at a time when stock market valuations remain relatively high,' Rothschild said.
Rothschild notes there are some 'influential and thoughtful' investment managers who remain 'sanguine about markets in 2016 on the grounds that the US economy is in decent shape...to them the decline in markets may have more to do with sentiment than substance,' he said.
'[However] our view is that 2016 is likely to turn out to be more difficult than the second half of 2015. Our policy will be towards a greater emphasis on seeking absolute returns.'
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by Gavin Lumsden on Sep 30, 2016 at 13:00