Investors in RAB Capital’s troubled Special Situations fund will pull out most of their money when it finally reopens its doors after three years, the hedge fund manager has admitted.
RAB said yesterday that investors had served notice to withdraw $370 million (£227 million), run by the fund’s co-founder and former chief executive, Philip Richards.
Special Situations had slumped to $470 million before withdrawals were suspended, making the redemptions equivalent to almost 80 per cent of its assets under management.
The fund, a former flagship for RAB that at its height reached $2 billion, will have assets of less than $100 million when it reopens in October.
Mr Richards, a natural resources expert, has invested mainly in unlisted mining start-up companies. Although these are potentially lucrative if the investment takes off, they are notoriously difficult to sell quickly.
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Mr Richards, who came to the fore after the fund’s disastrous investment in the now nationalised lender Northern Rock, was caught out by the credit crunch when cash-strapped investors rushed to redeem their holdings.
The fund faced problems meeting the demand but managed to secure agreement from its investors to impose a three-year lock-up in September 2008. Investors agreed to remain while Mr Richards wound down its private investments and reinvested in more liquid listed securities. He stepped down from the chief executive’s job to concentrate on repairing the fund.
Special Situations had been charging a 2 per cent management fee plus an additional 20 per cent based on performance, but agreed to halve its fees for the period. Its performance, however, has disappointed — it lost 7.6 per cent last year — meaning RAB has missed out on performance fees. The fund remains below the “high water mark”, or the point when it can bank additional fees again.
RAB said revenues this year would fall 5 per cent compared with last year — when it made £11.9 million — as a result of the redemptions. The shares slid almost 10 per cent to 9½p.
Mr Richards admitted that RAB had “made mistakes” in the run-up to the crisis, adding that the past three years had been a “chastening experience”.
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He said Special Situations was in a position to repay all customers who wanted to withdraw funds. Charles Kirwan-Taylor, RAB’s second chief executive since Mr Richards stood back, said that the hedge fund was in a position to move on and return to growth again.