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Investment Trust Insider: RIT Capital - not cheap, but still high value

by James Carthew on Apr 10, 2012 at 00:01

Investment Trust Insider: RIT Capital - not cheap, but still high value

RIT Capital Partners , the investment vehicle associated with Jacob Rothschild, has been in the news recently as it announced a tie-up with another branch of the family – launching an investment management joint venture with private bank Edmond de Rothschild Group.

The company was founded in 1961 and listed in June 1988. The central aim is to grow investors’ capital over the long term, while preserving it in downturns. The long-term returns suggest it has been remarkably successful in achieving this; RIT’s 10-year performance numbers now rank as the best in the global growth sector. The short-term numbers appear less spectacular, though, and this might be thanks to its cautious stance on markets.

It uses the MSCI World as its benchmark, but the fund’s portfolio bears little resemblance to that index. It is wide-ranging, encompassing direct-listed equity stakes, investments in equity, hedge, money market and commodity funds, direct and indirect private equity holdings, property and government debt.

The portfolio is well diversified, with the top 10 holdings accounting for just over 20% of the fund. As a consequence of the investment style, its shares have a much lower correlation to movements in markets than most other generalists.

It can achieve such a high level of diversification in part thanks to its size. The market cap is just under £1.9 billion, but it also benefits from its long-term outlook and from being a closed-end fund – this portfolio would not sit happily in an open-ended fund.

More than half the fund is invested with external investment managers. It sees its ability to access the best available talent as a big positive for the fund (contrast this with Alliance Trust ).

Given the focus is on capital growth, it is perhaps unsurprising the dividend is tiny – the shares yield just 0.3%. The income is also dented by the fund’s running costs.

The company employs about 80 people in various capacities – ranging from those employed in the banqueting business at Spencer House (a palatial house overlooking Green Park and one of its investment properties) up to Lord Rothschild (directors’ base salaries and fees were £1.25 million in the year to 31 March 2011 and he earned about a third of that). On top of this, it pays annual fees and some performance fees to the managers of the funds it is invested in. The total expense ratio in 2010/11 was about 1.7%.

Stable reputation 

The low yield, though, does not seem to put off investors. Share purchases by private shareholders, attracted to the fund by the emphasis on capital preservation and the chance to align their interests with those of Jacob Rothschild, have helped keep the discount narrow and it currently trades close to asset value.

The tie-up with Edmond de Rothschild creates a new investment management company. Edmond de Rothschild is injecting its successful $2.7 billion AUM hedge fund business, Capital Holdings, into the venture and the two parent companies will cement their relationship, with Edmond de Rothschild getting a stake in RIT Capital via an issue of £14 million worth of new shares at asset value.

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