RIT Capital Partners 30 March 2021

RIT Capital (RCP) aims to generate long-term capital growth and to protect shareholders’ capital. The managers invest the portfolio in a broad range of asset classes – both directly and through third-party managers – which are expected to deliver differentiated returns.

RCP now has net assets north of £3.6bn (having listed in 1988 with £280m) and a senior management team that have been working together for over nine years. The team have a wide network of contacts and relationships, which provide many investment opportunities. They believe that their propriety network of contacts and their permanent capital give them a distinct edge in finding the best opportunities in any asset class on a global basis.

RCP’s team have a consistent investment philosophy, aiming to identify differentiated sources of returns that, when combined, will deliver strong returns with lower volatility. Fundamentally, the managers are thematically driven, and use their world view to set risk levels as well as look for profitable investments. They balance natural caution with strong structural themes, as well as retaining the ability to be opportunistic.

2020 proved to be a good example of how this approach can work well, as shown by the strong NAV total returns RCP delivered over 2020 and, so far, this year. That said, it also illustrated the risks of investing in trusts on a large premium. Whilst the NAV per share increased by 14.4%, the share price fell by 2.4% (both excluding dividends), reflecting the premium to NAV of 5.5% at the start of the year giving way to a discount of c. 10% as at 31/12/2020.

Look-through management fees are c. 1.48% before performance fees. The most recent KID Reduction in Yield is 4.1%.

RCP is a differentiated trust, and it has a strong track record of achieving its twin objectives of growing and protecting wealth. 2020’s NAV performance has shown how strong the model is, with the team having started the year with net listed equity exposure in the low 40%’s, mitigating downside in Q1 2020 before delivering strong absolute returns subsequently. Over the past three years, RCP’s NAV volatility was around half the volatility of its equity benchmark but delivered cumulative outperformance of c. 1.9%.

We characterize RCP as aiming for a lower beta than the equity market but harnessing alpha to generate strong risk-adjusted returns over the long term. The different drivers to returns for each of RCP’s six ‘cylinders’ is key to how they achieve this. RCP’s proprietary network is an advantage, as is the nature of their ‘permanent capital’, not to mention the c. £4bn of assets. Investing in private companies has always been a key part of the strategy, and the last 12 months has seen a particularly strong contribution from this part of the portfolio.

RCP publishes its NAV monthly. Notwithstanding the difficulty of accurately assessing the actual discount or premium on a specific day, RCP’s shares have traded on a premium for most of the last five years. Over 2020 however, the shares derated to a discount, which seemingly persists at the time of writing (next NAV due mid-April). For long term investors, this could be an opportunity.