The performance of the shares of RIT Capital Partners (LSE: RCP) must be an acute embarrassment to the Rothschild family, whose reputation for financial acumen stretches back centuries.
With more than 20% of the £3.8 billion trust, the family is the largest shareholder, but its performance has been lamentable since the late Jacob Rothschild finally stepped down five years ago. In that time, the shares are down 4% while the MSCI ACWI index has risen 70%. Over three years, the figures are -25% versus 25%.
Admittedly, the trust’s underlying investment performance is much better (44% over five years and flat over three), since the shares have fallen from a premium to net asset value (NAV) to a 29% discount. However, some of that differential is due to the 7% of the shares bought back at wide discounts. The team Rothschild left behind has “moved on” but there is no evidence that things are getting better.
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Has RIT Capital fallen out of favour?
“The trust has drifted into the wilderness,” says Nick Greenwood, the co-manager of MIGO Opportunities. “Part of the problem has been that the team at the time talked a lot about protecting the downside, even after a period when, clearly, they hadn’t. This led to the perception in the market that it was a capital preservation vehicle akin to Ruffer, Capital Gearing and Personal Assets.”
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In particular, RIT has been held back by the poor performance of its quoted equity portfolio. The 10-year annualised return was just 6.5% against 9.6% for the MSCI ACWI, as Alan Brierley of Investec pointed out six months ago. The exposure to private equity, historically about 25%, rose above 40% in 2022 as a result of a big rise in allocation to funds. That figure has since come down to 32%, while quoted equities have risen to 45%.
Direct exposure to private equity has hovered around 10% for 15 years. Investors are now sceptical about private equity in general and RIT’s mix in particular. RIT targets “double-digit compound returns” but, as Brierley says, “only time will tell whether these funds will deliver world-beating returns”.
That leaves 24% invested in “uncorrelated strategies”, of which 18% is in absolute return and credit. Wags often refer to “absolute return” funds as “absolutely no returns”. Some 52% of RIT’s assets are in North America, with just 15% in the UK, yet currency hedging increases sterling exposure to 50%. Why RIT does this is not clear – a bullish view of sterling flies in the face of history.
RIT Capital has still got much still to prove
In January, J. Rothschild, RIT’s manager, appointed Maggie Fanari as its chief executive. She had 20 years’ experience at Ontario Teachers Pension Plan and had been a non-executive director of RIT for five years. “We are starting to see improvement in the performance of private equity,” she says, “while the opportunity set in public markets is now more exciting.”
“It is easy to develop an entrenched view and assume that a trust that underperforms will continue to do so,” says Greenwood. “A new management team has been appointed and Rothschild’s standing has given the trust access to strategies that are not generally open to investors. The aggressive buyback should also be seen as a positive.” RIT is also a beneficiary of changes to rules that previously forced trusts to overstate their costs.
Still, Caledonia Investments (LSE: CLDN), with £3 billion of assets, also family controlled and with 34% in quoted equities, 29% in direct private equity and 31% in private equity funds, has a much better record (29% over three years and 64% over five) yet trades on a discount to net asset value of 37%. Its 10-year annualised return in quoted equities is 8.6%, in direct private equity 13.9% and in funds 17.3%. Caledonia is in the MoneyWeek portfolio and continues to offer much better value than RIT.
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