RAB faces 'hard sell' on flagship fund restructuring
London hedge fund manager RAB Capital will face an uphill task in convincing investors in its flagship special situations strategy to leave their investments with the firm for three years, an analyst has said, after it lost 22% of its value last month.
Katrina Preston, analyst at Landsbanki Securities in London, said in a note yesterday that the $4.7bn asset manager faced a "hard sell" to convince the investors in two feeder funds – which between them hold more than 90% of the $923m (€657.5m) in RAB Capital's main hedge fund investment strategy – to lock their money in for three years in return for a reduction in fees.
RAB Capital's flagship special situations fund represents about one-fifth of its total assets.
In return for agreeing to stick with their funds for three years, RAB Capital offered to halve the 2% management fee and reduce the performance charge from 20% to 15%. If investors do not agree to this in a vote on September 29, they will be asked to decide whether or not to liquidate the feeder funds.
In an attempt to reverse the performance of the special situations strategy, which has lost about 48% of its value so far this year, Philip Richards relinquished his role as RAB Capital's chief executive officer last week to concentrate on his other task of managing the strategy.
Preston added that a number of investors in the feeder funds were also large shareholders in RAB Capital Plc, which manages them, "which may complicate their decision".
She also said that the proposed reduction in performance fee was "academic, given the gains required [for the strategy] to reach the high water mark," which is a new net high that must be reached before its managers can start taking 20% of their profits from investors as a fee.
Preston said: "Whatever the outcome of [yesterday's] proposals, it will result in further significant earnings downgrades."
Landsbanki on Tuesday downgraded its recommendation to investors for shares in RAB Capital from "hold" to "reduce". In the downgrade report Preston said Landsbanki's earnings downgrades for RAB had been "the most drastic among the peer group".
-- Write to David Walker at dwalker@efinancialnews.com
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