Marleybone has made strides in rejigging the Majedie Investments (MAJE ) portfolio, but failed in its ambition to make the ‘exciting’ return-generating special investments portfolio 20% of assets by the end of its financial year in October. 

Speaking to Citywire, manager Dan Higgins said these special investments, which are activist co-investments brought forward by its network of contacts and currently have a 10% weighting, would take time to increase, given they are opportunity specific and have to meet a high bar.

Since Marylebone was appointed as manager of the Barlow family-backed trust in January, special investments - which total eight - have been the main driver of returns, delivering 35 basis points, whereas external fund managers and direct equity positions have respectively detracted 175 and 76, according to the global £116m trust’s factsheets.   

Shareholder returns since then total 18%, ahead of the MSCI All Country World index’s 12%, ranking it first in the Association of Investment Companies’ 22-strong global flexible sector.

A recent third-quarter update said specials provided a key diversification in the era of higher interest rates that have hammered the performance of alternatives, with each position targeting returns of at least 20% within three years.

‘Special investments are the single most differentiated aspect of what we do. No one else can access these ideas. Very often, we don’t have to pay a management fee, as whoever’s brought the idea to us is happy to do it on a kind of eat what you kill basis,’ Higgins (pictured) said.

In the third quarter, they co-coinvested in US global apparel company VF Corporation, whose shares have fallen 39% over the last year, alongside Engaged Capital, which intends to remove $300m of duplicative costs from the business to restore margins, enabling growth and cash to invest in its largest brands.

Another new position is Nasdaq-listed customer services company Concentrix Corporation, whose shares have slumped 29% year to date amid consumer weakness, a recent acquisition and the potential threat of artificial intelligence. Co-investor Impactive Capital believes the issues are overstated and that the cash flow and earnings potential are much better than implied.

Thirdly, an enterprise software company, which cannot be named for NDA reasons, that has been run for growth, not profitability. The idea sponsor believes that will change, making it an attractive candidate for sale to a strategic or private-equity buyer. 

Ongoing positions include a co-investment in Shake Shack Inc, which makes up 1.5% of assets. Shares in the New York-listed fast food restaurant have climbed 48% year to date.

Currently, external managers make up the bulk of the portfolio at 60% of assets, with significant exposure to stressed credit and distressed debt. The largest position at 6.4% of assets, Silver Point Capital, is ready to pounce on a spike in corporate defaults, bankruptcies and distressed exchanges as higher interest rates take their toll. 

Direct investments, which constitute 21% of assets, are listed high cash-generating equity businesses, such as Westinghouse Air Brake Technologies Corp, the main provider of infrastructure services to the US rail industry, which is well positioned to benefit from the transition to electric trains. 

Referring to the trust’s new model, Higgins said it must be among the most active forms of fund management, with literally hundreds of some of the world’s best investors making the capital work very hard for Majedie investors. 

He added that Marylebone is paid on a market capitilisation basis, rather than net asset value, meaning it is compensated for growing the vehicle rather than increasing the underlying value of its assets. 

‘Majedie could become the benchmark generational savings vehicle. We’re ambitious and we want to grow it over time. There’s a longstanding family interest and they want it to grow,’ he concluded. 

Recently, family member William Barlow stood down as executive director, a position he has held since 2011, earlier this month to take up a non-independent non-executive director position.

Currently, the shares sit at a 9% discount to the latest NAV of 239.52p per share, driven by an 18% rise in the shares year to date. 

This puts it ahead of its multi assets peers, including the Rothschild-backed RIT Capital Partners (RCP ), which has dropped 15%, and the Cayzer family-backed Caledonia (CLDN ), which is down 1%, according to Numis data.  

The board chaired by Christopher Getley is yet to buy back any shares. The latest factsheet shows cash levels of 9%, 3% of which sits in UK government bonds also known as gilts. 

Battle of the families

Source: Morningstar