As the City’s most famous evangelical Christian, Philip Richards knows more about humility than most. So when the co-founder of hedge fund manager RAB Capital admits suffering a chastening experience, as he did yesterday, you can be sure he means it.
Investors in RAB’s flagship Special Situations will feel equally subdued. Just four years ago, RAB was one of the City’s most fêted fund managers, with a dazzling track record and $7 billion in assets under management.
Then came the credit crisis and a poorly timed decision to buy 8 per cent of Northern Rock. When this blew up, investors wanted their money back. Now, following the expiry of a three-year lock-up, during which RAB sold many of its illiquid holdings in unlisted companies, they are getting it.
Unsurprisingly, RAB is looking to the future. The new chief executive, Charlie Kirwan-Taylor, has taken an axe to the cost base which, in its shrunken state, is in keeping with the drop in assets under management. Fees can be raised now the lock-up has expired, while the fact investors have been fully repaid means RAB can look them — and new ones — in the eye, knowing it has broken no promises.
Shareholders, meanwhile, can comfort themselves in the knowledge that Mr Richards and Michael Alen-Buckley, his co-founder, shared their pain and remain major investors.
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All that is to the good. But it must not be forgotten that many argued that funds like RAB Special Situations should be allowed to market themselves directly to retail investors. It is as well that argument was lost.
Portugal needs home truths
As former employees of the defunct energy-trading giant Enron and the fraudster Robert Maxwell will attest, it is never a particularly good idea for a company pension scheme to be invested in shares of the employer, no matter how well they appear to be doing.
The lessons learnt in the scandals that engulfed both Enron and the late Cap’n Bob have sadly been lost on the people who run Portugal’s Social Security Financial Stabilisation Fund which, it emerged yesterday, has been selling overseas financial assets in order, it is claimed, to buy Portuguese sovereign debt.
Given the buying strike staged by some Portuguese banks, reported here yesterday, this would at least, prior to the decision to seek a rescue from the EU have provided the Government with some breathing space before the election on June 5. It would, though, have done little for future generations of Portuguese pensioners. However, in the alternate scenario of the country defaulting on its debts, the situation would have been even worse.
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That some kind of rescue was imminent was not in doubt; the interest rate on the one-year money Portugal raised at yesterday’s €1 billion bond auction is greater than the rate Ireland is paying on its emergency seven-and- a-half year credit line from the EU.
Inheriting the gift of the gab
Sir Stuart Rose may be gone, but to judge from yesterday’s trading update, Marks & Spencer has forgotten none of his techniques. The old charmer was skilled at depressing expectations and then surprising on the upside, something M&S achieved in spades yesterday, an unexpectedly strong 2.2 per cent rise in underlying like-for-like sales being rewarded with a 6 per cent rise in the share price.
Marc Bolland, Sir Stuart’s successor, also seems to have finessed some of his predecessor’s sales patter. His claim that shoppers are trading up in the current climate, summarised in the expression “buy once and buy well”, is not dissimilar from Sir Stuart’s device of brandishing an M&S school uniform and claiming that, unlike those of cheaper rivals, it would not fall apart after half a dozen washes.
The question is whether Mr Bolland can sustain this performance in an environment which, as he admits, is challenging. M&S is clearly winning market share from Next, which has vowed to protect its margins, but he may find it harder to continue raising his own margins when other rivals, like H&M, have said winning market share is their priority. As it is, his claim to have raised average selling prices by 6 per cent, or 4 per cent stripping out VAT, almost looks too good to be true.
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Shutdown might buy time
A possible US federal government shutdown is looming and, if no deal is reached before the current spending resolution expires this weekend, all non-essential parts of the government will close at midnight tomorrow.
Such a shutdown, depending on its length, could knock 1 per cent from GDP growth, say Capital Economics.
The Federal Reserve, which does not rely on congressional funds, will stay open with normal staffing. But the statistics agencies, that compile the data on which the Fed relies, will not. Other key government agencies, including the US Treasury and the SEC, may also be affected.
The only possible upside of a shutdown is that it might just buy the Obama Administration more time to deal with another pressing problem: the debt ceiling. The Treasury’s latest estimate is that the debt ceiling of $14,294 billion will be reached before mid-May. Treasury yields do not currently suggest investors seriously fear a technical debt default. However, in Washington’s present deeply partisan political environment, nothing can be completely ruled out.
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An Isa in need of a rain check
Since National Savings & Investments withdrew its index-linked bonds last year, to howls, there have been few ways for savers to escape inflation. Now deposit-takers are slowly responding. KRBS, the old Kent Reliance Building Society, yesterday launched an Isa that will pay the increase in RPI after five years plus 2 percentage points. Inflation-phobes will like it despite having to commit for the full term.
But the fact KRBS can hedge its bets in the swaps market suggests professionals regard the current burst of inflation as only temporary. If that proves true, these products may not be that generous, after all. Trust the banking industry to only start selling umbrellas after the downpour.