Philip Richards: saviour of the Rock?

published 15 January 2008

Can God and Mammon ever be reconciled? Philip Richards believes so. The co-founder of RAB Capital the hedge fund that shot to prominence in November for its attacks on the Northern Rock sales process is one of the most successful stockpickers of the last few years.

He's also the most high-profile Evangelical Christian in the City and his pronouncements come with a whiff of Calvinist preordination. "Everybody who's ever been involved with me has always made money," he once remarked. "I work hard at it and I think, in a way, I'm meant to do it."

Humility is not one of Richards' virtues, notes The Spectator, and he's not averse to preaching from his own book: last year, he described the Special Situations fund he runs at RAB as "the best-performing fund in the world".

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Making losses, then, is not in the natural order of things for this army officer turned financier; which might explain why he's gearing up for the mother of all fights over Northern Rock. Having piled into the stock in September, convinced the bank's value remained intact, he is now reckoned to be nursing a £35m loss. Undeterred, he went in for more just before Christmas, increasing his stake to 7.6%.

Next week is showdown time. Richards has convened a meeting in Newcastle to galvanise shareholders to fight "political pressure" to sell out "on the cheap". The prospect of going head-to-head with such a crusader is not a welcome one for the Government.

In many ways, Richards (the R' in RAB Capital) and his partner, Michael Alen-Buckley (the AB'), are an "odd couple", says the Evening Standard, but until recently (see below) their record has been formidable. Formed on April Fool's Day in 1999, RAB Capital grew into one of the best operators in town, floating in 2004 and attracting backers such as Britain's richest man, Lakshmi Mittal.

Hitherto, it was Alen-Buckley an urbane Amplefordian married to Sir Rocco Forte's sister, Giancarla who was the fund's public face. But it was Richards' bets that delivered a 49-fold return for investors. He called the bottom of the both the stockmarket and the commodities cycle in 2003, attributing his timing to an ability to think "objectively rather than experientially'" a skill he picked up during his time with the Royal Green Jackets. The stockmarket, he told The Spectator, is like a battlefield. "You never know exactly what is going on but you have to put together what you do know coherently and act upon it early."

Now 47, Richards grew up in Devon, the son of a shirt manufacturer. He won a scholarship to King's College Taunton and went on to read PPE at Oxford. After the army, he took his first City job with James Capel, and immediately put his Christian beliefs into practice. He claims to have "earned less than the secretaries", but still tithed at least 10% of his income a practice he has always maintained.

Admittedly, "there is plenty of latitude for generosity" when you are pulling in a reported £19m a year, says The Sunday Telegraph. But, as The Spectator notes, Richards sees no conflict between "serious boodle" and faith and, although he claims to be pro-Christian rather than pro-capitalist, he has few qualms about the latter. "Christianity is my world view. I believe in an old-fashioned, self-reliant Christianity, which dovetails quite well with capitalism, but not rapacious capitalism...There is a dynamic where God blesses people who give. A lot of men of God in the Bible were pretty prosperous."

The "reputation risk" of mounting the soapbox

When The Independent asked Philip Richards for his share tips at the start of last year, he recommended RAB Capital. Anyone taking him up on the tip would have been badly out of pocket. The hedge fund's stock price slumped 16% in 2007, the coup de grace being a surprise profit warning in December. Some saw it coming, says The Sunday Telegraph. RAB has had many detractors, "not least among its own kind": several hedge funds have built up sizeable short positions on the hunch that "the group's performance has been too good to last".

It would be easy to blame RAB's "act of hubris" in piling into Northern Rock. But, as Michael Alen-Buckley notes, the investment is "pretty insignificant", amounting to just 2%-3% of his fund. The real hit has come from sliding small-cap stocks. RAB's involvement in the Rock may be small on paper, but the "reputational risk" of mounting the soapbox is significant, says the FT. Richards might be on a crusade to protect the interests of shareholders against Government and short-sellers ("People are getting rich at the expense of real companies with real jobs," he told The Times), but he's an occasional short-seller himself, and as Alex Brummer says in the Daily Mail, "it would be wrong to see the hedge funds as representing anyone but their own interests." Without the £25bn-plus from the Government, shareholders would have been wiped out long ago. Richards may yet have the last laugh, but it's tempting to refer him to the Gospel of Warren Buffett: "The markets, like the Lord, help those who help themselves. But, unlike the Lord, they do not forgive those who know not what they do."