Thirty-eight years after banker Walter Salomon died, his son William has at last finished untangling his inheritance. Initially, many assumed that the complex web of corporate cross-holdings between various investment trusts and trading companies held a hidden pot of value. But it soon became apparent that the only value was what could be created from the parts.
The thorniest problem was a business operating tug boats in Brazilian ports. This was turned into a port services and logistics group and floated on the São Paulo market as Wilson Sons, in 2007, with UK-listed Ocean Wilsons (LSE: OCN) retaining a majority holding.
Ocean Wilsons is in turn controlled by Hansa Investment Company (LSE: HAN) and private trusts associated with the Salomon family. Hansa is itself controlled by the same family trusts through majority ownership of the voting shares, which comprise a third of the total share capital.
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Last October, Ocean Wilsons sold its stake in Wilson Sons, leaving it with a large pile of cash and a portfolio of investments. Then at the end of July, Hansa and Ocean Wilsons agreed to merge, creating a single trust with assets of £900 million. The merger, which was approved by shareholders last week, is being implemented by the issue of both voting and non-voting shares. So Hansa will continue to have a two-tier structure and be controlled by the Salomons.
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Hansa’s voting shares trade at a 31% discount to net asset value (NAV) and its non-voting shares at 33%, with the stake in Ocean Wilsons accounted for at market value. However, these discounts will rise above 40% when the merger is completed since Ocean Wilsons is trading at a near 40% discount. Any narrowing in that discount will depend on buybacks and performance. Buybacks will be limited to 2%-3% per annum as they are intended to top-up Hansa’s modest 0.9% yield rather than add value or reduce the discount, so performance will have to do the heavy work.
Hansa Investment Company: an attractive opportunity?
Hansa has returned 8.5% over one year, 35% over three and 63% over five. These lag the MSCI All-Country World index (12%, 41% and 81% respectively), but Hansa doesn’t seek to keep pace with equity markets. Instead, like RIT Capital Partners, it aims to protect against bear markets via a multi-asset approach.
Hansa has significantly outperformed RIT in recent years, especially over three years, largely due to its much lower exposure to private equity.
Only 10% of the portfolio is in direct equities and less than 1% in private equity, while 10% is in “diversifying funds” – eg, hedge funds – 53% in “core and thematic funds” including its 23% stake in Ocean Wilsons and 10% in a S&P 500 tracker. Ocean Wilsons’s portfolio is similar, with greater private equity. Investing via managed funds implies higher costs, but reduces portfolio turnover and thereby dealing costs.
Both portfolios are managed day-to-day by Alec Letchfield, who joined from HSBC in 2013. “We have been unashamedly bullish of equity markets, and in particular the US stockmarket, for many years now, ensuring that we remain fully invested,” says Letchfield in Ocean Wilsons’s annual report. This implies that he is ready to reduce equity exposure if his view changes, but he has done well not to have done so prematurely.
Hansa’s complicated history means that it doesn’t have the profile of RIT, Ruffer, Capital Gearing, or Personal Assets, but its performance record is a match for all of them. The discount of 40% is a bargain and will surely decline with time. The annual charge is being reduced to around 0.75% as a result of the merger. The voting structure protects the trust from corporate raiders and the buy-back policy is not set in stone. For the investor who is cautious, but not terrified by uncertainty, it’s an attractive long-term investment.
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