rab spec. situations

Hopefully the threat to liquidate RAB Special Situations is just that to get the 75% majority required to pass the resolution to lock everybody in.

A date to watch - courtesy of Zaphod on the Oxus thread where RAB special situations own 27% of Oxus:

"I believe investors in the RAB's Special Situations Fund have until 29th Sept to vote on the plan to introduce a 3 year freeze on redemptions."

Courtesy of Goklboy on the Oxus thread

http://www.ft.com/cms/s/0/8605b114-7f8c-11dd-a3da-000077b07658.html?nclick_check=1

Two years ago Philip Richards, the “R” in RAB Capital, was on a roll. Booming commodity markets and easy access to finance had bolstered his hedge fund strategy of buying into small private mining and energy companies and helping them float, and he was ready to look further afield.

Over the following 12 months he made two disastrous investment decisions: he bought a controlling stake in A1 Grand Prix, the motor racing series, and became the second largest shareholder in Northern Rock, the failed bank.

However, the problems at RAB’s $923m Special Situations fund, the flagship fund managed by Mr Richards, go deeper than just two bad stock picks. The fund invested heavily in private companies – providing financial backing and helping them to go public – and in small and Aim-listed companies.

Many of the private companies are now unlikely to be able to access public markets, and are suffering from the unwillingness of banks to advance cash, while the listed companies have been hard-hit by the fall-out from the credit crunch. The fund is down 48 per cent this year, including a drop of 22 per cent in August, 9 points of which were due to a third write-down in the value of A1.

End for an odd – but effective – couple as outspoken chief bows out
The combination of dapper, well-connected Michael Alen-Buckley and ex-soldier Philip Richards made for an odd but effective pairing when they founded RAB Capital in 1999.

The replacement of Mr Richards, who is outspoken about his investments and evangelical about his Christianity, with a new chief executive, former finance director Stephen Couttie, makes the group look rather less maverick.

Mr Couttie, 50, is a former finance director of Fox-Pitt Kelton, the financial services boutique, and of Swiss Re’s capital markets business. He represents the growing trend in the industry to have companies run by a safe pair of hands who will go down well with institutional investors, rather than having the company run by a flamboyant hedge fund manager. Like Mr Alen-Buckley, he is politically linked to the Conservative party. His wife, an investment banker, is a Tory councillor for the City of Westminster.

Mr Alen-Buckley’s connections are somewhat more important for the Tories nationally. He has donated £50,000 to the party in each of the past two years.

Mr Alen-Buckley, the “AB” in RAB, has used his wealthy connections to successfully pull in cash to RAB, which now manages $4.7bn (£2.7bn). He had previously worked with Mr Richards, the “R”, as an equity salesman at Merrill Lynch, where Mr Richards was an analyst and investment banker, before becoming head of international equity sales at Hoare Govett, the broker owned by ABN Amro.
“We are very disappointed with the performance of Special Situations in 2008 and greatly regret the impact that the performance will have on investors,” Mr Richards said in a statement. “However, we believe the underlying thesis of investment in early-stage natural resources is one that will repay patient investors over time.”

Special Sits now has a problem that has become widespread in the hedge fund industry this year: it invested in hard-to-sell positions, but offered investors the opportunity to withdraw their money with six months’ notice.

This mismatch of liquidity was no problem while new money was flowing into the fund on the back of profits. But once investors started withdrawing, RAB – like other funds with hard-to-trade holdings – would have to sell its best positions to raise cash, leaving the remaining investors with the least liquid stocks.

Some hedge funds, such as London’s Polygon and Dallas-based HBK, have reacted by restricting withdrawals, imposing a so-called gate that allows only a proportion to be taken out each month or each quarter. Others, including crisis-hit Absolute Capital Management, split off hard-to-trade assets into separate funds, while some, such as Tisbury Capital, restructured to prevent the withdrawal of the portion of the fund invested in illiquid assets.

Finally, a handful of funds have shut down in the face of threatened investor redemptions, most recently Ospraie’s largest fund, which it announced last week would close after losses of 38.6 per cent this year.

For RAB, listed on Aim, shutting its flagship will be a last-ditch option. Mr Richards has already stepped down as chief executive to focus on improving the performance of the fund and the company is now asking investors – including billionaire Lakshmi Mittal – to vote to block withdrawals until 2011.

If they do not, the fund will close, a move analysts say could prompt further losses as it becomes a forced seller in a market with few buyers.

The survival of RAB itself is not at stake, analysts say, at least as long as the problems do not lead to an exodus of staff or a loss of investor confidence in the rest of the 21 funds.

RAB’s history may provide some reassurance to its battered shareholders, who have seen the share price tumble from a peak of 125p last summer to 29½p on Wednesday.

In 2002, Mr Richards, then running the RAB Europe fund, the company’s biggest, called the end of the bear market too early and lost out badly, prompting big investor withdrawals.

His subsequent decision to launch the Special Situations fund, which became one of a handful to make 1,000 per cent in a year, paved the way for its recovery.