John D Rockefeller Sr and John D Rockefeller Jr, renowned for their investment family offices - Bettmann
Questor is The Telegraph’s stockpicking column, helping you decode the markets and offering insights on where to invest for the past six decades.
The concept of a family office can be traced back to Roman times, but the more modern versions originated in the 19th century with the likes of the Rockefellers, the Morgans and the DuPonts.
Managing wealth over multiple generations requires an experienced team, a disciplined investment process, a long-term perspective and a capital preservation mindset. Luckily, this is readily available in the UK’s investment trust industry – and you don’t have to be a Rockefeller to benefit.
Caledonia Investments (CLDN) and RIT Capital Partners (RCP) share similar DNA, employing investment approaches designed to both preserve capital as well as generate real returns over medium to long term. The ideal outcome for any investor is to participate in the positive returns of up markets but avoid the worst losses of down markets.
Each of these trusts has demonstrated an ability to deliver attractive total returns – the five-year annualised net asset value (Nav) total returns of 13.6pc and 9.3pc for CLDN and RCP, respectively, have comfortably outperformed inflation and compare favourably with the 11pc annualised total return from the FTSE All Share index over the same period. Importantly, these returns have also been achieved with significantly lower volatility than broader equity benchmark indices.
Examining the long-term performance of these trusts reveals their “secret sauce”. Over the past decade, this column’s analysis of monthly returns compared to the FTSE All Share index shows that these multi-asset, risk-aware strategies have captured between 50pc to 60pc of the index’s positive returns while only experiencing 10pc to 30pc of the negative returns during down markets.
This ability to navigate up and down markets is crucial, as it not only helps to protect capital, but also allows for market participation.
CLDN has achieved this through a focus on exposure to high-quality companies in its global portfolio, and the blend of public and private equity. RCP also benefits from allocations to both public and private equity, but also employs “uncorrelated strategies”, including credit, government bonds and real assets as important diversified.
Both investment strategies are naturally risk-averse, with management teams carefully monitoring the interaction between the different components in their portfolios and actively allocating capital to optimise risk and return.
CLDN is a self-managed investment company overseen by Mat Masters (chief executive) and Rob Memmott (chief financial officer), and benefits from specialist teams focused on each of the portfolio’s key asset classes of public companies, private capital and private equity funds, which each enjoy roughly equal allocation.
The trust has a successful track record of delivering value from its private capital portfolio, generating a 12pc annualised total return over the past decade and realising £1.1bn in proceeds since 2012, with notable investments in 7IM, Park Holidays and BioAgilytix – and there is plenty left in the portfolio to excite: Stonehage Fleming, the largest independent multi-family office in EMEA; AIR-serv, a leader in air, vacuum and jet wash machines; Cobepa, a Belgium-based independent investment company; Butcombe Group, an inns and drinks business; and DTM the leading provider of outsourced tyre management services.
RCP is also a self-managed investment company, overseen by Maggie Fanari (chief executive) and Nick Khuu (chief information officer), both of whom are experienced multi-asset investors. RCP has a larger exposure to public companies, comprising 44pc of its portfolio, and a similar weighting in private investments (33pc), but also has a quarter of its capital in uncorrelated strategies. The public equity portfolio includes exposure to opportunities in China and Japan, biotech firms, and a range of small and mid-cap companies.
RCP has also been successful in generating value from its private investments. Notable recent portfolio events include the disposal of Xapo Bank, the listing of Webull and the takeover of Wiz by Alphabet. We see potential for this part of the portfolio to be an important growth driver, particularly in holdings Motive (leading software for the logistics industry), Kraken (cryptocurrency exchange) and Epic (category-leading US electronic health records business).
Both trusts not only boast strong risk-adjusted returns, deep expertise and well-balanced portfolios, but also offer dividends. CLDN has increased its dividend for 57 consecutive years and currently yields 1.9pc, while RCP yields 2.1pc and plans to raise its 2025 dividend by 10.3pc.
Wider than average discounts offer an attractive entry point for these strategies, in this column’s view. Ten years ago, CLDN and RCP were trading on 16pc discount and 1pc premium, respectively, but since 2022, these discounts have widened dramatically – CLDN currently trades on a 32pc discount, while RCP is at a 27pc discount. In keeping with the wider trend across investment trusts, both CLDN and RCP have been actively buying back their own shares.
In our view, these discounts are out of touch with the reality of the performance generated by these two portfolios, the future value drivers and the quality and experience of the teams.
We believe this is a great opportunity to appoint your own family offices and benefit from a truly long-term perspective at a very reasonable price point.
