I might have muttered some really choice things about tycoon Johann Rupert last week. I suspect I was not the only one cursing bitterly when Reinet, the Rupert family’s offshore investment arm, decided not to declare a special distribution from the heap of cash accumulated after the recent sales of its large investments in British American Tobacco (BAT) and unlisted financial services business Pension Insurance Corp (PensCorp).
I glanced with some envy at the latest interim financial statements from the much smaller investment company Trematon, which recently sold its stake in Club Mykonos Langebaan and looks set to sell off its holding in private schools business Generation. There it was, plain and simple: “Following the conclusion of these material disposals, it is the board’s intention to return capital to shareholders as quickly and efficiently as possible.”
At Reinet — which has a cash pile of €5.5bn (R104bn) — it’s less clear-cut. The group proposed an ordinary dividend of €0.435 a share (up a nifty 18% from last year). As for a special dividend which, frankly, is not an unreasonable expectation when more than 80% of the portfolio is sitting in cash, there was nary a mention. In his chair’s commentary, Rupert explained that “this liquidity position provides flexibility and resilience in uncertain market conditions”.
I don’t think this is out of sync with the times. Money market funds in the US reached a record $8.3-trillion this month. Clearly, plenty of punters are watching and waiting. But the market took a dim view of Reinet’s strategic pause on the sidelines. Reinet’s shares had, at the time of writing, lost more than 15% since the release of the year to end-March financial results. The discount to NAV — which had in recent weeks narrowed to the mid-teens — has stretched towards 25%. I am trying, as bitterness and disappointment inevitably well, to remain philosophical. The cash is still there. I seriously doubt that Reinet will chase any significant transaction in these precarious Trumpian times.
There’s an opportunity too. I can buy the cash holding at a slight discount and get the rest of Reinet’s portfolio — which has some interesting investments in the tech-heavy Coatue, TruArc Partners, various exposures to Chinese investments and a tidy holding in SPDR Gold Shares — for free. I started repurchasing Reinet under R500 this week, even though this required selling off certain of my other shareholdings that might not have reached what I regarded as target value.
There are Reinet’s other liabilities of €150m, mainly the rather hefty performance fee (€117m) to Rupert as de facto asset manager
I think the value proposition in Reinet can’t be ignored. There are, however, a couple of issues to consider. Reinet, at the end of March, still had outstanding commitments of €565m, the bulk (€373m) of this earmarked for TruArc and a chunky €76m for Coatue. Then there are the other liabilities of €150m, mainly the performance fee (€117m) due to Rupert as de facto asset manager through Reinet Investment Managers. With TruArc and Coatue representing a large slab of the €1.27bn investment portfolio, much more attention might be paid to what actually is inside these specialist funds. TruArc, at a glance, has invested in specialist mid-market businesses, across food manufacturing and security to private education to apparel. I can’t say I am familiar with the bulk of the business listed under TruArc’s portfolio. Coatue is far more interesting, though it’s not easy to dig into the specific funds. But the website lists a sprawling investment portfolio which includes OpenAI, Anthropic and SpaceX.
Whether these form a significant or any part of the funds Reinet is invested in is not apparent, and Reinet’s investor relations team is taking its time responding to a query I sent in this regard. Are these funds interesting enough to maintain market interest in Reinet? Possibly not, especially with cash so dominant in the portfolio. Overall, I have to believe that Reinet will keep its options open around returning a goodly portion of its cash pile to shareholders in the medium term, especially if dealmaking remains tricky and even risky.
I suppose one scenario, if world geopolitics settles into a more familiar groove, is that Reinet reduces cash steadily by making several small to medium-sized investments that could move the needle, now that the mega-holdings in BAT and PensCorp have been sold. So perhaps a handful of new strategic positions (and hopefully not more fund investments) to bolster the portfolio and then look at returning excess cash to shareholders in regular dollops? There is also the sensible option of buying back more shares, especially if the share price starts discounting the cash holdings (remembering that windfalls will still come as Reinet exits some of its older fund investments).
The overriding question, though, is just how much cash Reinet regards as effective insulation against market ructions — and to capitalise on the opportunities any such ructions might throw up. For context, the current cash holding is worth more than corporate cousin Remgro’s market value. Reinet could, technically speaking, buy Datatec, Optasia and Altron, and still have more than R50bn in change. It’s not difficult to argue the case for having too much cash, even if Rupert-family controlled companies have also espoused the virtues of solid cash buffers over the decades. PAFD please, Mr Rupert!
