The rise and fall of a hedge fund star
7 April 2011 1:19am
THE story of RAB Capital’s fall from grace serves as a metaphor for the entire credit crunch. When Philip Richards floated the fund on the stock market in 2004, he made millions for himself, not to mention his colleagues. Until the crisis, the fund performed superbly; it appeared RAB could do no wrong. But Richards made a disastrous bet on Northern Rock through the RAB Special Situations (RSS) fund and lost virtually the entire investment after it was nationalised.
As if that wasn’t enough, RSS made lots of investments in illiquid natural resources assets; investors asked for their money back, but the cash wasn’t there. When hubris strikes, it strikes hard.
RAB gave RSS clients an ultimatum in 2008. Either it liquidated the assets – meaning a massive loss – or they agreed to be locked in for three years while it proceeded with an orderly sell-down. Now the firm has six months before the gate is opened, and it expects 79 per cent of investors – who hold around $370m – to pull out.
That is a quite simply staggering state of affairs: a company that managed £7.2bn at its zenith in 2007 will soon have around $100m in its “master” fund. Yesterday the chief executive admitted the firm had “made mistakes”. Quite.
Of course, for the 20 per cent or so who stick around, the real question is how RSS will perform in the future.
There are signs that RAB?has learnt lessons: its investments are more liquid, and restricted to long-only bets on the natural resources sector and emerging markets.
That said, its recent play on Falkland Oil & Gas was a shocker: the firm’s shares have plummeted from 243.5p in July to 81.75p yesterday, after its three-year quest for oil in the Falklands proved fruitless. Richards still has much proving to do.
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