Star Performing 2200% Gainer RAB Special Situations Fund Lists on AIM
By David J. DesLauriers
27 May 2005 at 03:43 PM EDT
TORONTO (ResourceInvestor.com) -- If Canadian investors have been wondering about the recent large block trade executed by TSX House 72, Credit Suisse on their favourite natural resource stock or warrant, they need look no further than London based RAB Capital, presently reorganising its Special Situations Fund in preparation for an AIM listing. Some 20-30 companies were affected, mostly developers, and the majority of the trades took place after hours.
The $641 million (latest figure April 1) Special Situations Fund is managed by RAB CE Philip Richards, and has registered unbelievable performance showing a 2200% increase since January 1 2003. The company initially sought to raise £100 million with a minimum £25 thousand investment level through a placing of shares and warrants at a price of 100p, but the cloud hanging over the resource sector and hedge fund community has resulted in only £40 million or $73 million being raised at the selfsame price, with all subscription receipts now in.
RAB SSC will be a close-end investment company, and the hope is to provide better liquidity to investors through the secondary market listing. A spot on AIM and the concomitant fundraising will also create additional liquidity for the fund itself, allowing for participation in more opportunities, and “the acquisition of significant stakes in projects.” Though the fund has no specific asset or geographic exposure guideline, natural resources is where the money has been made, where the lion’s share of funds are invested and where RAB continues to place its bets.
Despite the abysmal state of the resource sector, commodity prices remain buoyant, and this may actually be an opportune time for RAB SSC to list. When investors inevitably rediscover the sector, valuations should return to more normal and appropriate levels, giving the fund a renewed lift in NAV. Especially in light of the considerable share of developers in the portfolio with projects coming on stream in the next couple of years, there should be a significant re-rating, assuming commodity prices hold fast, as companies shed discounts and begin to acquire the premium multiples of their producing peers.
The majority of the 2200% gain since the fund’s debut in 2003 is attributable to the 1274% return in the first year. A compounded 49% in 2004 and 11.6% year to date (latest figure April 30) have helped to boost the total performance number. The gains last year and this, must be a reflection of quality and nimble money management strategies. A glance across the spectrum of other well known high commodity content funds yields nothing but red arrows, minus signs, redemptions and plunging NAVs, with the majority of such funds holding illiquid paper that has gone down in a vacuum.
If you are on the right side of the trade, it is relatively easy to make money in the sector when things are hopping, but it is refreshing to see a fund still in the black when the majority are losing their shirts, and maybe their pants.
Clearly though, RAB’s inability to raise the desired £100 million is illustrative of the suffering of resource sector investors, over the last year and a half and considering how well the fund has done, this is especially true. Perhaps this represents a sign of a bottom, and a contrarian indicator?
RAB SSC will commence trading on AIM Tuesday May 31, under the symbol RSS. RAB Capital is currently listed on LSE as RAB.
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