RIT Capital Partners (RCP ) plans to cut private investments to between a quarter and a third of its £3.6bn portfolio in the next two years as it endeavours to win back investors and narrow its 26% share price discount.

Concern over the 35.9% RIT holds in private unlisted assets has driven the derating of the global multi-asset portfolio, whose shares last stood at a premium over net asset value (NAV) four years ago.

The investment trust’s 2023 annual report just released shows that private investments fell 6% last year as the lagged reporting of valuations from the end of 2022 depressed returns.

The company said the decline followed exceptional gains in recent years with the bucket of private equity funds and stakes in companies generating a 20% annual compound return in the past decade.

After ‘candid’ talks with a range of shareholders, the chair, Sir James Leigh-Pemberton, said the proportion in illiquid, hard-to-value private investments would reduce to between 25% and 33% of NAV in the next two years.

He said the fund managers would exit investments and set a ‘very high return bar’ for any new investments in the area.

But he emphasised this would be an orderly retreat not a fire sale. ‘What we will not do is accelerate exits or engage in sales at discounts to fair value to the detriment of long-term shareholder value,’ he said.

The chairman said the proceeds from private equity sales would either be deployed in share buybacks or re-invested in its liquid, listed portfolio.

RIT held 38.4% in quoted equities at 31 December having reaped a ‘strong’ 18.1% return in 2023. With the remaining 25.6% in ‘uncorrelated’ assets such as credit funds returning 6.8%, the multi-asset fund generated a modest 3.2% underlying investment return with NAV per share of £24.26 at 31 December.

However, shareholders lost 9.6% as the gap, or discount, between the share price and the portfolio’s asset value doubled to 22.4%.

The company spent £163m on buying back its shares as they grew cheaper, adding 1.2% to NAV per share. Leigh-Pemberton said the board was ‘acutely focused on closing the discount’ and ensuring shareholders got the underlying return achieved by J Rothschild Capital Management which had more than doubled asset value in the past 10 years. 

More to follow.