RAB Tries to Halt Redemptions as Hedge Fund Drops 48% (Update2)
By Tom Cahill and Elisa Martinuzzi
Sept. 10 (Bloomberg) -- RAB Capital Plc is trying to freeze client redemptions for three years to avoid liquidation of its flagship hedge fund, which lost almost half its value this year.
RAB fell as much as 14 percent in London trading after it said investors have until Sept. 29 to vote on the plan, which would cut fees and postpone redemptions until Oct. 3, 2011.
Special Situations, RAB's largest fund, has lost more than $1 billion this year from investments in Northern Rock Plc, a mortgage lender nationalized by the U.K. government, and small natural-resources companies such as Oxus Gold Plc, a miner down 68 percent this year. RAB Chief Executive Officer Philip Richards stepped down this month to focus on the fund, once one of London's best performers, returning 1,475 percent in 2003.
``If the investors reject the proposal, the group would then have to liquidate the portfolio,'' said Irfan Younus, an analyst at NCB Stockbrokers in London who has a ``reduce'' rating on the stock. ``In a worst-case scenario, unwinding of this could pose a significant threat to the franchise.''
RAB plans to liquidate the investments if it's unable to get investor support for the new structure, the company said. It didn't disclose how many investors had to approve the changes.
We ``regret the impact that the performance will have on investors,'' Richards said in a statement. ``We believe that the underlying thesis of investment in early-stage natural resources is one that will repay patient investors over time.''
Collapse in Commodities
Natural resource funds such as RAB's have been hammered by a collapse in commodity prices. Ospraie Management LLC, the New York investment firm run by Dwight Anderson, said last week it was closing its biggest fund after it slumped 39 percent on bad bets on commodities stocks.
RAB said Special Situations fell 22 percent in August, following a drop of 13 percent in July, bringing the year's decline to 48 percent.
The fund's assets under management fell to $923 million as of Sept. 1 from $1.4 billion on June 30 and $2 billion in December 2007 and as much as $2.3 billion on June 30 2007. RAB's total assets under management fell by 13 percent to $4.7 billion as of Sept. 1 from $5.4 billion on July 24, RAB said. The company managed $7.2 billion at the end of 2007. Younus said he may cut his earnings estimate at RAB after reviewing the asset declines and the amount of fees RAB collects.
Under the existing arrangement, withdrawals are paid out quarterly and investors can ask for their money back by giving 180 days' notice. The fund manager is proposing cutting management fees to 1 percent from 2 percent, and annual performance fees would fall to 15 percent from 20 percent, RAB said.
RAB's Challenge
Shares of RAB fell as much as 4 pence and traded down 1.7 percent at 28.75 pence as of 10:50 a.m. in London, valuing the company at 129 million pounds. The shares are down 71 percent this year.
RAB's challenge will be to persuade managers of its two down other funds not to leave.
``Clearly Richards is not leaving,'' said Jason Streets, head of research at Evolution Group Plc in London. ``Some of the other key managers might just decide they should leave an unstable platform.''
MCR Price at posting:
$1.40 Sentiment: Buy Disclosure: Not Held
