Funds Hub

Money managers under the microscope

RAB fund still paying the price

January 4, 2010

RAB Capital’s struggling Special Situations fund looks to have recorded a positive return in 2009, but after a bumper year for the industry it is still paying the price for the investments it made in illiquid assets before the credit crisis.

RAB's Philip Richards. REUTERS/Nigel Roddis.

Having seen their investment lose around half its value in 2008 while much of the fund’s money was in hard-to-sell assets, the fund’s investors agreed in autumn ’08 to lock up their money for 3 years in return for a cut in fees.

Today’s update from the listed feeder fund shows a gain of 6.5 pct for the first 11 months of 2009, helped by a strong November.

However, the update also shows an interesting divergence in performance, which seems to reflect the demand by investors across the board for liquid assets, whilst many still shun illiquid holdings.

Whereas the fund’s listed investments (just over half of net assets) are up 122.6 pct in a boom year for most assets, the private portion (more than a third of assets) has dropped 38.7 pct.

As investors have found to their cost during the credit crisis, a 50 pct loss on an investment requires a 100 pct return subsequently just to get back to where you were before.

However, one small but encouraging sign is that the feeder’s board has cut its fixed costs by up to £75,000 a year after appointing a new broker and nominated adviser, renegotiating administration fees and waiving a portion of the directors’ fees.

It’s small beer in the context of the size of the fund but shows that funds are able to cut costs — perhaps a trend we will see more of this year.

(See also Improving situation at RAB Special Sits)

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