185: RIT Capital Partners: Global, Unconstrained, Undervalued? A Conversation with Maggie Fanari (RIT CEO)

0:00It's really around the Rothschild family. Jacob set up this firm to last for generations to come, as you noted, to compound wealth. SpaceX is one of the most highly coveted private investments in the world. SpaceX is now also in our portfolio. We were very early in fintech. We also were exposed to the AI theme, so we had a couple of exits there as well. And over the last 18 months, we've been able to realize about 25 % of our private's portfolio. When everyone was looking to divest or sell out of China last year, in the first quarter of last year, we increased our allocation to China, and that's done very well.

0:44The U.S. will always be a core market to us, but we are seeing interesting opportunities in places like Europe and elsewhere. where my principal piece of advice is don't assume that the job that you start with is going to be the job that you continue on with. And it's actually very important, I think, very early in your career to be able to invest or look at very different sectors and opportunities to really find out where your passion lies.

1:12Maggie Fanari:Welcome to the Money Maze podcast. If this is your first time joining, I'm your host, Simon Brewer. Quick word before we start. 95 % of viewers aren't subscribed, so miss out on future interviews with top business, finance and industry leaders. To support the show and ensure we can keep sharing high quality content, click subscribe and please drop a like. Plus, if you have any future guest ideas, do share your suggestions in the comment section below. Otherwise, thank you for watching and listening and enjoy the show. Originally serving as a vehicle for the Rothschild family wealth, when the late and revered Jacob Rothschild took control in 1988, he transformed RIT into a publicly listed investment trust.

1:56Maggie Fanari:It was rebranded as RIT Capital Partners PLC with a mandate to preserve and grow capital across generations through a multi-asset, global and unconstrained strategy. Over time, RIT evolved into a family office-style investment trust, blending public equities, private investments, hedge funds and uncorrelated strategies. But time is not always your friend in the investment business, and when the principal and luminary with immense reach and investment acumen retires, the sceptical voices can grow. When this is compounded by a 30 % discount to its net asset value, it seemed a good time to examine RIT, one of the UK's largest investment trusts, with assets of over£4 billion.

2:38Maggie Fanari:To discuss this, we welcome today Maggie Fanari, CEO of Jay Rothschild Capital Management, the investment manager of RIT Capital Partners. Maggie, welcome to the Money Maze podcast. Great. Thank you, Simon. Delighted to be here. Well, unmistakable Canadian accent I hear, and we have had a conversation ahead of this, but I think you have quite a cosmopolitan background before that. Tell us a little bit about from where you herald. Yes. So I grew up in Ontario and went to university there. I studied finance and accounting at the time. I made my way into accounting first because I actually couldn't decide if I wanted to go into finance or accounting.

3:22So I started at KPMG. I had a brilliant time there. I went into accounting. I did some corporate restructuring while I was there, but I really wanted to be an investor. I found and ultimately found my way to Ontario Teachers, which is, for those that don't know, it's a$260 billion Canadian pension plan, very much focused on the direct investing model for Canadian pensions. And it was a fabulous place for nearly 20 years where I was able to invest across public markets, venture and growth, private equity, and really also be very much an international investor, investing in places like emerging markets such as LATEM, Europe, North America and Asia.

4:18and then ultimately about more than 10 years ago, I had the opportunity to move to London, which has been great. So not only Canadian, but today a British citizen as well. I've made it home for myself and really to help them build out the European business for Ontario teachers as well.

4:38Maggie Fanari:Let's just pause on Ontario teachers. We've had Joe Taylor, the CEO on the show a couple of years ago, which was a very interesting conversation and you appear to have had a lot of exposure through the asset classes. But what I particularly focused on when I was doing my research was that you led the high conviction equity group. High conviction means different things to different managers. So that was just north of a$12 billion public markets portfolio for Ontario teachers. And high conviction is exactly what it means. That was a highly concentrated portfolio of less than 30 names in public stocks around the world.

5:17And that portfolio over time, there were actually a number of strategies within it. And it was really concentrated into one portfolio, high conviction, very long term, with the USP around that portfolio really being sector expertise.

5:32Maggie Fanari:And did you find reflecting on that, and given the immense difficulty in global equities of active outperforming passive, that it was a strategy that you felt succeeded? Yes. At the time I was there, it succeeded. It made a lot of money for Ontario teachers at the time. Got it. So in 2019, I think you get onto the, or you were asked to join the board of RIT. So you start to see the business in operation before you took over in March 2024. Why were you tempted? Well, actually, my association with RIT goes back well before joining the board. As I had noted earlier, Ontario Teachers is a pension plan.

6:20And at the time, I was running a special situations team with a very global mandate to go out and find opportunities in businesses where you were very much focused on capital preservation or downside protected transactions with asymmetric upside. And that's really what RIT is very much known for as well. And I kept bumping into them in my deal flow, whether it was interesting investment opportunities in North America or in Europe or in Asia. So I got to know the team quite well. And in 2019, they ultimately asked me to join the board, which I did. Its ethos is very similar to the investment philosophy I was used to at Ontario Teachers.

7:10And there was an opportunity in 2024 to come in and support the team and company at a time of management transition. And I was happy to do it.

7:22Maggie Fanari:So before we continue this conversation, we're going to take a short break to have a note from our sponsors. I'm thrilled to share that the Money Maze podcast is sponsored by the World Gold Council. They champion the role gold plays as a strategic asset through expert research, commentary and insights. And it's not just your portfolio that may benefit from gold. Learn how gold mining is supporting female economic empowerment and small businesses via their new documentary series called Gold, The Journey Continues. Tap the link in the show notes to start watching. IFM Investors is a global asset manager, founded and owned by pension funds with capabilities in infrastructure, equity and debt, private equity, private credit and listed equities.

8:06Maggie Fanari:They believe healthy returns depend on healthy economic, environmental and social systems. And these are evolving on a scale never experienced before. To find opportunity, build value and meet the needs of future generations, you need scale, skill and expertise. That's what IFM Investors has built up over 30 years. Just give us a sense of RIT's identity today. So its identity today is very much in the DNA of the firm that's nearly existed for more than 40 years, as you've noted. The DNA is really around being very entrepreneurial and finding the most interesting opportunities for shareholders that aren't easily accessible.

8:53So whether that's finding the best hedge fund managers, and oftentimes that's interesting and very successful individuals who are coming out of firms and were there very early to help support their businesses as one of their first investors. And oftentimes, we're one of the first calls. It could mean investing in great businesses that are very hard to access, such as our recent investments in SpaceX or in Epic Systems, which is a wonderful company. It's the leading enterprise software provider for healthcare slash hospitals in the United States. It could also mean finding the best hedge fund managers around the world.

9:42And that ethos and that DNA is very much still within our firm. And that's because of the flexibility we have in our investment mandate. But it's also because of the vehicle we have, which is permanent capital.

9:55Maggie Fanari:Yeah. So we're going to talk about all of those and more. I'd like to start with the investment objective. Many years ago, I remember sitting in a meeting with the founder of Allborn who said, if you don't have a benchmark, prepare to be hit by the arrow whose name is hindsight. Now, your benchmark is CPI plus 3%, which most people in the business thinking about preserving real wealth would accept as being legitimate. Your asset allocation is multi-asset. Do you think that's the right benchmark still? So actually, we have two benchmarks. One is more of a capital preservation benchmark, such that we earn an appropriate risk-adjusted return for our shareholders.

10:43And the other is an equity benchmark, such that we're also capturing sufficient growth for our investors. But what that ultimately ensures is that we earn an appropriate risk-adjusted return for our investors. So we've been able to grow our NAV over the last decade by more than 100%. And we've done that with lower risk than equity markets.

11:04Maggie Fanari:So I sit on a couple of investment committees. I was on one this week where Mercer's made a very credible presentation on optimizing the mix for the objective of the mandate. How do you think about that mix, given those benchmarks? And how flexible do you want to be? So we want to be flexible and that flexibility affords us, along with the permanence of our capital, affords us to be able to stay invested long term in our highest conviction opportunities. So that means that we don't have to sell them should something change in the market. But it also gives us the flexibility to be able to be a bit more tactical around our portfolio and to think about the different types of risks in the portfolio that might develop when the market changes.

11:54And then we can decide whether we want to mitigate those risks. So that could mean that we look to increase our allocation to uncorrelated strategies, such as our hedge fund program. it may mean that we choose to be more bullish in equities and add to our equities exposure, or at times we might choose a more neutral positioning like we have today. And it's really as we look over this year, where we've seen a lot of volatility, in the first quarter of the year are uncorrelated strategies, which is really designed to provide a steady return for investors. So what does that include? It includes things like credit, market neutral funds, macro funds actually looked out to outperform our equity benchmark at the time.

12:41It's just designed to provide a steady level of returns for investors.

12:48Maggie Fanari:So in talking to some people ahead of this interview who know you in the vehicle, one was Mark Wallace, who's the senior managing director over at Rothschild. the other Rothschild, Rothschild & Co, where I'm a senior advisor. And he said there's a lot to like about having privates and publics in one evergreen vehicle. How do you think about capital allocation between the publics and the privates? So it does wax and wane. I would say a couple of years ago, we probably had more privates exposure than we've had historically. So we've been actively looking to reduce our private's exposure, really anywhere between 25 % to 30 % of our portfolio.

13:30Fundamentally, I believe that that gives us the right flexibility, but also captures the appropriate amount of growth for our investors. And when we think about private assets, that part of our portfolio is really designed to capture growth.

13:47Maggie Fanari:So in reading your materials, you refer to the unrivaled network that you have. Now, a cynic would say, well, Jacob Rothschild's had an unrivaled network. Why do you think you still have an unrivaled network? So it's a great point. It's really around the Rothschild family. Jacob set up this firm to last for generations to come, as you noted, to compound wealth for generations. and as a result of that, the DNA of the team is very much that same ethos of being really good partners to our partners. And people really want to work for us. The brand opens any door for us. You know, SpaceX is one of the most highly coveted private investments in the world that was a company I knew very well from my time at Ontario Teachers and when I came to RIT, SpaceX is now also in our portfolio.

14:52We have the opportunity with our existing fund partners who are massively oversubscribed. Every time they want to raise a new fund, they are significantly oversubscribed, yet we always get our allocations with our partners and we've been investing with new partners as well. But it's really that ethos around the brand and the heritage and the way that we engage with our partners, which is really a two-way street.

15:21Maggie Fanari:So it's pausing on the privates because you obviously make these direct investments in private companies. We know there's a lot of congestion, to be euphemistic about the world of PE. Is your preference to go direct or do you blend it with a number of private equity managers who you think have the edge? We have very much a partnership driven approach. So we really look to invest alongside our partners. So we want to invest with the partners who see the best deals, are able to pick the best deals and invest in the best companies through a cycle. And then they show us some of their best opportunities.

16:01And we invest and we invest alongside them. And this year, as you noted, I mean, there's been a lot of discussion around DPI and also that private equity exits have been muted. We've actually had the opposite view. We've had one of the best years in terms of realizations this year. we've realized close to 5 % of our balance sheet in privates, nearly 175 million in realizations. And it's really been across three themes. So we were very early in fintech. So we've had a couple of exits there. We also were exposed to the AI theme. So we had a couple of exits there as well. So we've been quite fortunate from that perspective.

16:52And over the last 18 months, we've been able to realize about 25 % of our private's portfolio.

16:58Maggie Fanari:Got it. At or above valuations to our carrying values. Okay. Well, again, one of the other folks we talked to, and you know him, Nick Lawson, who's the founder of OceanWall, very impressive boutique investment bank, said you have some great China assets, you have some great space assets. And let's just talk about the Chinese or the China assets in a world that has bifurcated views about whether you can or can't or should or shouldn't or will or won't. Tell me a little bit about your China exposure. So we've been invested in China for a very long time. I mean, we were very early to think about globalization.

17:35So for us, we've been invested in China for more than 15 years. We tend to do that through specialist managers in the region such that we don't need to open offices and put boots on the ground. So we identify and we do it in a very concentrated way. In our view, we identify two of the best managers where we can also have a strong two-way dialogue with those managers. And we look to invest and benefit from their insights. And then we also look to make some direct investments on our balance sheet. And with respect to China, yes, when everyone was looking to divest or sell out of China last year, in the first quarter of last year, we increased our allocation to China.

18:25And that's done very well. That's done very well for us this year.

18:29Maggie Fanari:So let's pause on that emerging market allocation, which I see from your most recent report is circa 9%. I think at Christmas, we had the EM as an asset category trading at a 50-year low to the S &P 500. And those of us with a certain persuasion were saying, hang on a second, you know, this creates opportunity. Of the nine, how is the nine made up? The 9 %? How much is China and how much is other parts of the emerging market universe? So the majority of it is in China. Okay. And what, when we think about, because you have this fantastic playing field, potentially, which is also, you know, creates dilemmas because there is opportunity everywhere.

19:11Maggie Fanari:Talk me through what would get exposure to Vietnam, Indonesia, Singapore, you know, into the committee and then the steps that would lead to making an allocation that makes sense. So it's interesting you say Vietnam. I mean, these are the conversations that we're having in our investment committees. And if we think about markets like Vietnam, the way that we would think about our exposure more broadly in EM, maybe that we don't look at Vietnam standalone, but we think about that more broadly as part of our EM exposure. And in that case, we would really look to think about who are the top EM managers around the world, who's very specialized in that area.

20:04And then we would look to have conversations with them. The good news is over our more than, you know, close to 40 year history, we have been in places like Brazil, like EM. So we do have longstanding partners within our network that we're easily able to call up and say, look, you know, can we invest alongside you?

20:26Maggie Fanari:So as I went through your research and papers, I was nodding quite a lot. And then I came to this comment about credit. And you, maybe not you, but it was written credit is less correlated to equity. And you've obviously already mentioned that you have exposure to credit. We just did an episode with Hugh Van Steenis and Olivia Wyman on the credit boom, the private credit boom. And I'm there going, you know what, when really difficult times occur, credit behaves like equity with less liquidity. And so I just want to tease you out why you think it's sort of is helping in the diversifying camp of the portfolio.

21:03So I will clarify, our exposure is to public credit, and we have not actually gone into private credit. In part, going back to your question, we can get wonderful returns from our credit opportunities without the illiquidity that we've seen through private credit markets. And actually, as I noted earlier in the earlier part of this year and continuation of this year, our credit managers have been able to deliver uncorrelated returns to the markets.

21:39Maggie Fanari:So before we continue this conversation, we're going to take a short break to have a note from our sponsors. I'm excited to announce that the Money Maze podcast is sponsored by the London Stock Exchange Group known as LSEG. At the heart of the global economy, LSEG provides data, analytics, and infrastructure that connects investors, businesses, and economies. LSEG is where ideas meet capital, enabling sustainable growth and opportunity. Tap the link in the show notes to learn more. Schroeder's Capital is the private markets division of Schroeder's, combining the experience of specialized local teams with the scale, rigor, and resources of a global institutional platform.

22:21Maggie Fanari:Schroder's Capital provides its clients with global access to differentiated and specialized strategies encompassing all private markets' asset classes, from private equity to real estate, infrastructure, and the broad universe of private debt and credit alternatives. This approach enables Schroder's Capital to access opportunities and investments that are often difficult to find elsewhere, while also having the broad capabilities and perspectives needed to build holistic solutions and deliver tailored outcomes across private markets for both institutional and wealth clients. Discover more at schroderscapital.com.

22:58Maggie Fanari:Remember, capital is at risk with investing. The other area that, again, I paused on, this is a sterling-denominated vehicle. 53 % of your post-hedged currency exposure is in sterling. You pointed out to me the other day that you do hedge back. 32 % circa is still US dollars. Now, we know that ultimately no currency, with the exception perhaps the Swiss franc, has held its value. And right now, the collective finances of Western governments are more parlous than ever. So we should expect continued currency erosion. And the US dollar seems to have an administration as well that would quite favour that.

23:37Maggie Fanari:Is that carrying actually quite a lot of risk in a world where the Norwegian grona offers fantastic value versus purchasing power and the dollar looks pretty precarious? So we're not looking to take an active bet with our currency exposure. So we do hedge half our exposure. And that's roughly been consistent for several years now, Simon. So in some years, like this year, we will have a negative translation effect to our portfolio. And then in other years, it'll be neutral to positive. So actually, over the last few years, our currency impact to our portfolio has more or less been neutral. So it's important to take a longer term perspective around how we think about hedging our portfolio.