RAB Capital: an emblem of the credit crunch

RAB Capital has been emblematic of the many trials of hedge funds during the financial crisis.

Philip Richards, chief executive, invested its flagship Special Situations fund in Northern Rock, whose depositors queued up in September 2007 to withdraw their money, triggering the onset of the crunch in the UK.

The lender was ultimately nationalized, angering shareholders.

A year later RAB was hit by the collapse of Lehman Brothers, one of its counterparties.

Special Sits was then hamstrung as liquidity quickly evaporated from its investments, ranging from car racing ventures to unlisted miners.

Richards stepped back from corporate management duties to focus wholly on running the flagship – as did peers at Marshall Wace, CQS and Soros Fund Management, among many others.

As Special Sits staggered to a 70% loss in 2008 – hedge funds overall declined only 19% – it offered to cut fees if shareholders committed for three years.

Most consented, but RAB revealed recently investors will pull 79% of their money back when gates reopen this October.

The company also said recently it was considering its own options in future, which includes possibly withdrawing its listing on London’s Alternative Investment Market (Aim). RAB’s shares fell sharply on the revelation.

This cogitation was also believed to have been spurred by the departure, for personal reasons, of Gavin Wilson, co-manager of RAB Energy and RAB Octane.

Co-manager Mark Redway will continue to run the two funds, but Wilson’s departure is a further blow to RAB.

Its once mighty $2bn Special Sits portfolio, which made investors 2,500% in 28 months to April 2005, and which welcomed retail investors from mid-2005 via a listed feeder fund, and which sealed Richards’ reputation, will lose $376m, to have just $100m later this year.

RAB is committed to continuing both with the portfolio and as an asset manager more generally.

Richards has divested Special Situations from illiquid assets.

It has said it is chastened by the whole episode. But the 80% draining of Special Sits spells good news of sorts, for more than one reason.

It flushes out unwilling investors and leaves RAB with only those who truly want to stay. This has happened at many rivals – and those who bolted in the crunch were not always welcomed back for the rebound.

It also means in the eyes of prospective investors, Special Sits sheds outstanding liabilities in the form of investors who cannot escape.

One major Swiss allocator to hedge funds said during the crunch he would not consider investing in a fund until all curbs were lifted and redeemers fully cashed out. Only then is the lie of the land clear, he said.

It soon will be for Special Situations.

David Walker

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