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- RIT Capital looks to reduce private investments exposure as prospect of realisations improves
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
Private investments: 35.9% of NAV
Uncorrelated strategies: 25.6% of NAV
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
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