RIT Capital says that its NAV total return for the year ended 31 December 2023 was 3.2%. There was quite a big dispersion of returns by asset class within the portfolio. The trust’s quoted equities delivered strong performance, returning +18.1% for the year. Uncorrelated strategies produced solid returns, led by credit positions returning double digits. However, private investments declined by 6.0%, partly due to lagged valuations for funds in respect of Q4 2022 [in other words the fall in valuations in the final quarter of 2022 was not captured in the NAV until Q1 2023. However, this works both ways – the rise in valuations in Q4 2023 and so far in Q1 2024 will likely not yet be reflected in the NAV.] Currencies detracted modestly as sterling strengthened.
The dividend was increased by 1p to 38.0p. The target for 2024 is 39.0p.
A widening discount meant that shareholders were left with a return of -9.6%. The board says that it is intently focused on narrowing this discount over time. £163m worth of shares were bought back over the period.
Gearing was reduced from 6.2% to 3.5% and the ongoing charges ratio driven down significantly from 0.89% to 0.77%.
Looking at the portfolio in more detail:
Quoted equities: 38.4% of NAV
- Strong performance, returning +18.1% but the dominance of the ‘maginificent seven’ meant that this lagged the MSCI AC World Index, which returned 23.5%.
- Significant outperformance versus the MSCI ACWI Equal Weighted Index, which rose +9.4%, and the MSCI World excluding the ‘magnificent seven’, which gained +12%.
- Returns driven by strong stock selection, including Builders FirstSource and Talen Energy.
- Solid performance from specialist managers focused on Japan and healthcare.
Private investments: 35.9% of NAV
- Private investments declined -6.0%, partly due to lagged Q4 2022 valuations received for private funds. This follows exceptional gains for the book in recent years.
- Continued focus on liquidity. Sales from three direct holdings – Infinity (final cash received in early 2024), Paxos and Animoca – all at prices at or above carrying value.
- Allocation to this book should reduce further over time through realisations. Several large holdings are actively exploring IPOs and/or secondary sales. [our emphasis]
- Majority of the largest direct holdings are profitable with growing revenues and earnings. Majority also benefit from structural protection for RIT’s capital.
- Private investments remain an exceptional contributor. In last 10 years, new direct investments have generated a +29% compound return. Over the same period, new direct investments and fund commitments have delivered a compound return of +20% per annum.
Uncorrelated strategies: 25.6% of NAV
- Uncorrelated strategies delivered healthy performance of +6.8%, led by credit funds returning double digits against a backdrop of significant volatility.
- Absolute return and credit (more than 80% of this book at year end) returned a healthy +9.2%.
- Strong performance of gold, held through derivatives, added +0.4% to NAV, serving as an asymmetric hedge against the increasing probability of broad-based market dislocation.
- New investment in California carbon credits also delivered healthy returns during the year.
The chairman notes that “Private investments are currently out of favour with investors, and discounts for trusts exposed to these assets have widened significantly in 2023. RIT has always had private investments as a core part of its approach, and despite mark-to-market volatility in the short term, over the long term the success of these investments has been a strong contributor to our returns. Our earlier successes have, in part, placed us in a challenging position; healthy capital growth is one of the main reasons why, over the past five years, our private investments had come to represent a higher proportion of the portfolio than in the past. We are committed to this asset class and continue to believe that our long-standing relationships are a source of competitive advantage and attractive returns to shareholders. This is reflected in our portfolio, which in aggregate is sitting on sizeable profits, over and above the capital we invested… Most of our largest direct investments are profitable companies with growing revenues and earnings. Our close manager relationships and brand strength, often enable us to access a preferred position in the capital structure of a company, with the majority of our direct investments having some element of downside protection.
Nevertheless, over the next two years we will look to reduce the proportion of the portfolio represented by private investments to a level of between around a quarter and a third of NAV. This will be achieved by organic exits and the continuation of a very high return bar for any new investments. Where we see realisations from this portfolio, we expect to deploy the capital to buy back our shares or to make new investments in the liquid portfolio, depending on the level of discount, the opportunity set and general portfolio management needs. What we will not do is accelerate exits or engage in sales at discounts to fair value to the detriment of long-term shareholder value.”
RCP : RIT Capital looks to reduce private investments exposure as prospect of realisations improves