Would someone please rescue RAB Capital’s Special Situations investors? Fund manager Philip Richards is holding them captive and plans to do so for the next three years. Here’s the restructuring proposal published today:
The share classes affected by the proposal currently have quarterly redemption cycles, 180 calendar day notice periods, and fees of 2% p.a and 20% p.a. for management and performance respectively. Under the proposal the next redemption date will be postponed by three years, from 1 October 2008 to 3 October 2011. In consideration of the longer-term commitment of capital, RAB will receive reduced management and performance fees of 1% p.a. and 15% p.a. respectively.
The proposal does not affect any other single strategy managed by RAB other than the Special Situations strategy. As at 1 September 2008 the assets under management in the Special Situations strategy were estimated to be $923 million and the total assets under management of RAB stood at $4.7 billion.
Communications to investors in the Feeders are being sent today, and a final decision by investors will be voted on by close of business (Cayman time) on 29 September 2008. At the time of this announcement a number of major investors in the strategy have indicated their support for the proposal.
This is on the back of a 22 per cent decline in the fund last month, taking the year to date performance to about negative 48 per cent.
To be fair, up to July this year a 2003 investment in Special Situations would have been repaid about 30 times over.
Will investors bear that in mind though, when RAB’s “communications” slip through their doors?
A three-year lock-up with Richards and all that that entails (we’re thinking group prayers and Christmas cards) seems a harsh punishment for failed bets on Northern Rock and possibly the A1 Grand Prix. It could get worse though.
There’s a hint in Special Situations’ last set of interim results, published Aug. 21, of an even longer wait - 20 years to be exact:
The RAB Special Situations Strategy tends to focus on investing in natural resources companies at an early stage of development, but with significant sized deposits of various metals or energy. The persisting credit crunch has penalised these companies for their lower liquidity and ongoing need for capital to build their development projects. Nevertheless, the underlying value of metals or oil in the ground in any of these companies does not really vary with short term swings in the equity markets. We generally invest in development projects only if they can still make money if commodity prices halve from their all time highs. Consequently we still believe most of these projects will remain viable even with lower commodity prices.
However, we actually believe in a twenty year super-cycle for commodities, driven by the twin factors of urbanisation and industrialisation in China, India and the Gulf amongst others, and which is compounded by supply shortages stemming from decades of under-investment in both the mining and energy industries. Our view therefore has to be that the deep value we see today in the battered share prices of the companies we own will be the basis of strong performance in the future.
Further reading:
Proposed restructuring of the RAB Special Situations strategy - RNS statement
