The model has been used before: The Lindsell Train investment trust owns a stake in Lindsell Train Ltd, the asset management company, and the Majedie Investment trust owns a stake in Majedie Asset Management. Simon Elliott, analyst at Winterfloods, also points out that the Artemis Alpha trust also had a stake in the management group, as did the F&C investment trust.
In the case of Lindsell Train and Majedie, both of these holdings have proved profitable for the investment trusts involved. The Lindsell Train investment trust has benefited from a 37% rise in the value of Lindsell Train Ltd in the six months to 30 September, for example.
However, it is not a universally successful model. The Majedie Investment trust also owns a stake in Javelin Capital, which has seen its value slide as the company has not raised assets as expected. Elliot says: "These stakes can provide attractive returns over time if the fund management company grows although it can be difficult to ascribe realistic valuations to them."
The new trust from Rice and Russell is likely to have a 20% stake in new venture Sanditon Asset Management. The remainder of the trust will be predominantly invested in large caps. The company also plan to launch a range of open-ended funds.
Russell's UK Absolute Target fund underperformed the wider IMA absolute return sector when Russell was running it. It has subsequently performed better under Steve Cordell. In 2009, it returned 0.6% while the sector rose 8.6%, in 2010, the fund dropped 8.1%, while the wider sector rose 4.3%. Russell left the group in 2011 to take a career break. Rice did not directly run a long/short fund while at Cazenove.
Other long/short European equity funds have not generated significant traction even from strong management groups. The Liontrust European Absolute Return fund, for example, is just £8.1m in size, the BlackRock European Absolute Alpha fund holds just £62m, while the IM Argonaut European Absolute Return fund – top decline over one and three years – remains at just £5m.
