An agile approach to growth and preservation

However, the trust is taking action to change this and appointed a new investment director, Ron Tabouche, in September 2012. Although he has embraced some of the tried and tested approaches alongside making changes, he hadn't always been persuaded of the merits of maintaining the old.

RIT Capital Partners aims: "to deliver long-term capital growth, while preserving shareholders' capital; to invest without the constraints of a formal benchmark, but to deliver for shareholder increases in capital value in excess of the relevant indices over time."

"When I joined RIT Capital in 2012 I was very sceptical about its corporate objective," says Mr Tabouche. "To grow capital you have to take risk. But now, far from being sceptical, I am a strong advocate of it because capital preservation does not equal underperformance."

This of course, depends how you go about it. Investors tend to take two main approaches, according to Mr Tabouche. A popular method is a balanced portfolio, for example, half in bonds and half in equities.

"But this can provide sub optimal performance and this is especially the case at this point in the cycle, where it could offset some of an equity re-rating," he says.

The other approach investors take is market timing, but if you could base one strategy entirely on this then we would not need to be at this investment conference today! Rather, our approach is alpha generation: return achieved independent of passive allocation to bonds or equities."

While the trust aims to deliver significant returns across asset classes Mr Tabouche says they have an equity bias: quoted equity exposure increased from 51 per cent in September 2012 when Mr Tabouche joined to 61 per cent by the end of that year.

"A healthy participation in rising markets can't be undervalued, but with downside protection in falling ones," he says. "We do this via our agility: being unconstrained with regard to any area or style."

Mr Tabouche describes agility as being able to access a number of strategies including stock picking, private equity, macro themes, foreign exchange and hedge funds.

"Our long-term record shows what the spread of contribution brings," he adds. "Since inception, we have participated in 73 per cent of market upside but only 38 per cent of downside, over which time RIT Capital has delivered 11.6 per cent a year or about 4 per cent above MSCI World Index.

Reach is also important. To have the confidence to go everywhere you need the expertise, and we have a 16 strong internal team. We pursue both our own ideas and ones we get via our network of contacts."

Partner teams the trust has formed relationships with include Rockefeller & Co, Corsair Capital and the Edmond de Rothschild Group, which the trust reported last year is leading to interesting public and private equity opportunities.

A key change since Mr Tabouche joined has been making the portfolio much more concentrated. He and the investment team felt that over time it had become too diversified so sold down small positions in stocks increasing the focus on specific situations, which led to a decrease in exposure to emerging markets.

Read more on these changes

"We target our best ideas, whether single stocks or funds, and have increased our collaboration with underlying mangers - we speak to them a lot more," he explains. "But we are allocating to core external managers who are independent of our macro view and are consistent alpha deliverers."

These include Viking, Egerton, Lansdowne, Blackrock European Hedge and Brant Point.

Performance is still trailing the trust's reference indices. "Performance should improve and last year we made good progress," he says. "Give us a chance to deliver these returns. But we don't want the market to be the overriding factor that determines our performance."

So Mr Tabouche favours some key investment themes. "Tech is important and permeates across our portfolio," he says. "This is at a very disruptive stage and altering the landscape across industries. We have seeded a hedge fund manager who we closely collaborate with in terms of his portfolio, and tech is also reflected in our private equity allocation."

RIT Capital was a seed investor in Tekne, a high-tech fund which gives the trust increased exposure to the technology sector in the US.

Meanwhile the trust's exposure to the Japanese stock market initially increased in the last quarter of 2012, when some of its allocation was moved out of large-cap quality shares into cheap under owned areas. At the time RIT Capital said the impact of reflationary policies against an undervalued stock market provided an exceptional investment opportunity.

"Companies are full of cash," says Mr Tabouche. "There is also good support from government policy and structurally Japan seems to be on the road."

And he is now selectively investing in emerging markets. "There is a huge amount of potential alpha where structural reforms are in place," says Mr Tabouche. "We are looking at areas including frontier markets, domestic China, Mexico and increasingly Russia. We invest in Russia because it is increasingly hard to find something cheap and under owned. Russia is now extremely cheap and at these levels the potential downside is not dramatic, though there needs to be a soft catalyst for change. There is also some change in terms of its corporate governance standards."

He is also looking to include more strategies uncorrelated to equities, for example distressed debt and hedge funds.

He adds: "Markets should not provide the tailwind that they did in 2013 but areas such as Japan and technology should give opportunities."

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