RAB says clients returning to some hedge funds

Date: Wednesday, July 29, 2009
Author: Laurence Fletcher, Reuters

* Positive flows into single-strategy funds in Q2 and July

* Assets fall to $1.3 bln from $1.9 bln at end-December

* Swings to pretax loss for 6 months to June, shares fall

* Interim dividend 0.6 pence

* Plans capital release, sees acquisition opportunities

Hedge fund firm RAB Capital (RAB.L) said on Wednesday that clients had started putting money back into some of its funds helped by a recent upturn in performance, adding to signs the industry may be recovering.

The firm, some of whose funds have been hit by poor performance and illiquid markets during the credit crisis, posted a 32 percent drop in overall assets. However, it said it saw positive net flows into its single strategy funds in the second quarter and into July, excluding the effects of recent disposals.

"I think we feel cautiously optimistic. We're beginning to see some flows and they are continuing seemingly into the third quarter," chief executive Stephen Couttie told Reuters.

The inflows were in "tens of millions of dollars", he said. Allowing for small net redemptions from its fund of funds, flows across the group were broadly flat.

Clients have been putting money into portfolios such as its Gold fund, which is up 20 percent in the first half, and its Europe fund, Couttie said.

RAB, which has cut staff numbers by 40 percent as funds under management have fallen, said assets fell to $1.3 billion at end-June from $1.9 billion at end-December, in line with forecasts.

The fall was in part due to the sale of its Northwest business. A year ago it ran $5.9 billion.

The firm, which hit the headlines during the credit crisis when its bet on shares in troubled bank Northern Rock turned sour, made a pretax loss of 2.75 million pounds ($4.51 million) compared with a profit of 12.5 million pounds a year before, as sharply lower management and performance fees hit revenues.

Fund management firms earn fees on the level of assets they run and can also make money based on performance of products.

Shares in the AIM-traded fund manager were down 3.16 percent at 22.5 pence by 0826 GMT. Analysts at Singer Capital Markets needed convincing that operating performance had stabilised.

"We suggest that there is little justification for any significant premium over the value of cash plus investments (22 pence) until this steady state is more apparent," they said.

IMPROVEMENT

Recent data has pointed to an improvement in the hedge fund industry, which suffered its worst ever year of performance last year. [ID:nN21202665]

Industry assets climbed 7.5 percent to $1.43 trillion in the second quarter, according to Hedge Fund Research, helped by strong returns and lower investor withdrawls.

RAB's Energy fund has risen 55 percent year-to-date and Global Mining has returned 42 percent, while Special Situations, whose investors last year agreed to lock up their money for three years in return for lower fees after the fund invested in some hard-to-sell assets, is down 5.5 percent.

RAB also said it plans "to release an element of excess capital to shareholders over time as conditions in global markets stabilise and the operating performance of the group returns to a steady state" but declined to say what form this may take.

However, it also said it is seeing more acquisition opportunities than it had for a while.

"We are seeing a number of good opportunities now, which could be capital-demanding in the first instance," said Couttie. ($1=.6092 pounds)