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Trust Insider: RIT - cautious at both the wrong and right times

by James Carthew on Mar 18, 2014 at 00:01

In the event, although markets did pull back a little in the summer of 2012, there was no major fall out and generally the trend has been upward.

Cheap money provided by quantitative easing made investors more optimistic and, to date, the inflation that RCP feared would inevitably accompany the availability of this cheap money, has failed to materialise.

In 2013, RCP benefited from exposure to equities, particularly those in the US and Japan. It is a pretty good picker of stocks and managers (a large chunk of its equity portfolio is managed externally) as is evidenced by the 34.5% return on long-only equity positions over 2013 versus a 23.0% return on the MSCI AC World Index.

It also invested in some special situations such as Pepsi and Mondelez (companies targeted by Trian Partners, a multi-billion dollar activist firm that, among other things, turned around the Snapple brand and sold it for five times what they paid for it).

RCP has a sizeable allocation to US dollars but managed, overall, to make a profit on currency, not being caught out by the strength of sterling as many funds seem to have been. It kept its equity exposure about level over 2013. However, for quite a bit of the year they used derivatives to hedge their equity exposure.

Backing oil & gas and financials

RCP spent £47 million on two new private equity investments in 2013: Metron, a Norwegian oil & gas services business, and Williams & Glyn, the UK bank consisting of 314 branches spun out of Royal Bank of Scotland. The latter deal was a co-investment alongside Corsair Capital, managers of part of RCP’s private equity portfolio.

There are plenty of interesting businesses elsewhere in their private equity portfolio. The largest private equity investment is Infinity (UK data centres), RCP say this is trading well and attracting new funding. It also has stakes in Dropbox (which could be written up by £20 million when they revalue their private equity positions in June) and in peer-to-peer lender Zopa.

Generally, RCP remains cautious on the basis that equities are more fully priced than they have been for some time and there are a number of unresolved macroeconomic problems that could cause an upset. Also, they are still worried about the possible long-term effects of quantitative easing.

I really like RCP. It is hard to pigeonhole; it is a hybrid of hedge fund, private equity fund, absolute return fund, global direct equity and global fund of funds. But its long-term unconstrained approach sits well in a closed-end structure.

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