Shares digital

A planned restructuring should win investor approval and boost the struggling hedge fund manager

by Simon Keane

The shares of already-ravaged RAB Capital (RAB:AIM) crashed another 35% on news the hedge fund manager might have to liquidate its key RAB Special Situations portfolio, but investors who still hold stock should sit tight.

Special Situations, run by Philip Richards – who last week stepped down as chief executive to concentrate on running the troubled flagship portfolio – wants to lock clients in for three years until October 2011 in exchange for slashing fees.

The lock-in, proposed after a disastrous 22% fall in the fund over August, will need to be voted on at a meeting scheduled for 29 September – if 75% of investors do not back the move Special Situations will be liquidated.

But it seems unlikely the proposal, which follows a similar lock-in by BlueBay Asset Management (BBAY) for its key Value Recovery Fund earlier this year, will be blocked – in which case the shares, at 29p, are well underpinned by cash reserves equivalent to 24.4p a share.

RAB Special Situations invests in small illiquid mining companies and a forced sale would recoup little. Jason Streets, analyst at Evolution Securities, says: ‘I assume people are being told if forced to liquidate they’ll get nothing back so there’s no point not backing it [the lock-in].’

The company has said ‘a number of major investors’ have indicated their support and its likely supporters will include steel tycoon Lakshmi Mittal who, it was announced in December 2006, has invested $200 million into Special Situations.

Streets estimates about half the fund is held by Mittal, RAB co-founders Richards and chairman Michael Alen-Buckley, other staff, and RAB Special Situations Company (RSS:AIM), a separate listed entity, which invests in the fund. This means about 50% of the vote is likely to be secured.

Sarah Ing, analyst at Kaupthing Friedlander, thinks investors will back the lock-in: ‘If you don’t vote for it and put the fund into liquidation there’s little doubt in my mind you won’t get back the net asset value.’

Shares says: Like BlueBay’s lock-in, this restructuring is likely to get passed, meaning those still owning RAB should sit tight. Hold