The managers of the Ruffer investment company have made back two-thirds of their 2009 investment into distressed assets amid more favourable market conditions for some illiquid strategies.
Hamish Baillie and Steve Russell (pictured) received a further return of capital from their in-house Illiquid Strategies fund last month, and said it is continuing to perform well.
The Ruffer Illiquid Strategies fund of funds (FoF) 2009 is a non-mainstream pooled investment vehicle that makes up 2% of the Ruffer investment trust. It is also a holding in the £2.8bn Total Return and £228m Equity & General OEICs.
The FoF holdings include the intermediary finance Beechbrook Mezzanine I fund; Cavendish Opportunity Series 4, which buys secondary asset-backed securities; and Bond Street Holdings, which buys deposit operations in struggling US banks.
The managers said: “[We] have now received back two-thirds of our original investment with another two years to run in the fund.”
However, one illiquid investment which may be performing less positively at present is a position in Better Capital, venture capitalist Jon Moulton’s private equity firm.
Better Capital warned in March that “significant writedowns” at two of its key companies will likely lead to a fall in value of its flagship fund.
Ruffer was an original investor in Better Capital in 2009. In its latest report to clients, the firm continued to extol the virtues of long-term investing.
“In these days of exuberant markets, when risk taking is rewarded more than caution, we should not forget about the great benefits of preserving capital in troubled times,” Baillie and Russell said.
“Not only does it keep your asset base afloat, but it also allows you to buy when others do not have the stomach (or the capital) to do so.”
Investors have been lulled by the “calm before the storm” in terms of low volatility, the managers continued.
Noting the S&P 500 index has not posted a daily move of more than 1% in either direction since 16 April, Baillie and Russell said history shows “calm does often precede a storm.”
They said: “Investors are lulled into a false sense of security and by extension excessive risk taking. The result today can be seen in narrowing credit spreads and a buoyant corporate bond market, the grubbier end of which is nearing pre-crisis highs.
“It is tempting to think that the world is returning to normal, but we should not forget the amount of debt which almost toppled the Western world’s financial system has not been reduced either on an absolute or relative basis and the support being provided by central banks remains sky-high.”
The duo also defended their “stubborn" decision to retain a 24% exposure to the US dollar. Acknowledging the currency’s weakness against sterling, the managers argued the UK’s “looming political uncertainties” and current account deficit will not “stay out of the limelight” forever.
Japanese equities and gold returned 0.8% and 0.4% for the fund over the month, the managers reported, but equity performance elsewhere was flat and protection assets acted as a drag on performance.
In total, the trust's NAV fell by 0.4% during the month compared with a fall of 1.3% in the FTSE All Share Total Return index.
For more on non-bank lending funds including mezzanine finance, click here.
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Comes in on 9 December 2019
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