Rothchild – RIT Capital Partners PLC annual letter to shareholders for the year ended December 31, 2014.
RIT Capital Partners: Corporate Objective
To deliver long-term capital growth, while preserving shareholders’ capital; to invest without the constraints of a formal benchmark, but to deliver for shareholders increases in capital value in excess of the relevant indices over time.
Rothschild: Investment Policy
To invest in a widely diversified, international portfolio across a range of asset classes, both quoted and unquoted; to allocate part of the portfolio to exceptional managers in order to ensure access to the best external talent available.
Lord Rothschild – RIT Capital Partners: Chairman’s Statement
Against a background of volatility and risks in world markets, I am able to report that the net asset value per share (NAV) of your Company during 2014 increased from 1,384 pence to 1,483 pence, representing a total return of 9.5%. The discount at which your Company’s shares trade narrowed during the course of the year with the result that the total shareholder return amounted to 13.3%. Net assets increased by approximately £200 million (before dividends of £46 million) to a total of £2.3 billion, a new all-time high. There has been a further 3.3% growth in our NAV in January 2015 to 1,531 pence. Your Company’s share price is now trading at its highest levels since RIT, in its present form, was listed more than 25 years ago.
Our policy has been clearly expressed over the years. Simply put, it is to deliver long-term capital growth while preserving shareholders’ capital; the realisation of this policy comes at a time of heightened risk, complexity and uncertainty. The economic and geopolitical environment therefore becomes increasingly difficult to predict.
The world economy grew at a disappointing and uneven rate in 2014 after six years of monetary stimulus and extraordinarily low interest rates. Stock market valuations however, are near an all-time high with equities benefiting from quantitative easing. Not surprisingly, the value of paper money has been debased as countries have sought to compete and generate growth by lowering the value of their currencies – the Euro and the Yen depreciated by over 12% against the US Dollar during the course of the year and Sterling by 5.9%. The unintended consequences of monetary experiments on such a scale are impossible to predict.
In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union.
However, in a world of zero or even negative bond yields, equities may well remain the destination of choice for investors. Furthermore, the majority of companies are reporting profits exceeding forecasts together with steady earnings growth. In Europe, the combination of a more competitive Euro, an aggressive programme of quantitative easing and the yields available on equities, may well lead to even higher valuations.
In this complex situation we have kept our quoted equity exposure at moderate levels and have sought to add to returns through a widely diversified range of activities. Returns in the year under review were achieved through stock selection, by sub-contracting capital to talented and specialized investment managers and active currency positioning. In addition, we took advantage of your Company’s ability to borrow at low rates of interest and invested, via credit managers, into higher yielding debt instruments with acceptable credit risk.
For private investments, it has been a year of exercising selectivity on new commitments with our focus being on realizations and rationalisation of the existing portfolio. Cash realisations came about from the sale of Martin Currie – the investment manager, Chart Show – the media company, and Metron – the oil services company, which specialises in the Norwegian North Sea. Results for the year were satisfactory with the balance of the portfolio showing some valuation gains. Our most significant direct investments have all made progress during the course of the year.
During January 2015 we completed the acquisition of 100% of GVO, the investment management company. GVO is a specialist manager focusing on UK stocks with an excellent record and approximately £370 million of assets under management. These consist of Strategic Equity Capital, an investment trust company where we acquired a 17% stake, and the GVO UK Focus Fund. Several awards have been given to this group over the last few years including Best UK Investment Trust 2014 (What Investment) and Fund Manager of the Year (Grant Thornton). We are confident that assets under management can be grown in the years ahead.
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In addition to this difficult economic background, we are confronted by a geopolitical situation perhaps as dangerous as any we have faced since World War II: chaos and extremism in the Middle East, Russian aggression and expansion, and a weakened Europe threatened by horrendous unemployment, in no small measure caused by a failure to tackle structural reforms in many of the countries which form part of the European Union.
Rothschild
26 February 2015
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