Why this investment trust owns SpaceX and Anthropic

In this Insider Interview, Kyle Caldwell sits down with Maggie Fanari, CEO of J. Rothschild Capital Management, the investment manager of RIT Capital Partners Ord (LSE:RCP). 

Fanari explains how RIT Capital seeks to deliver long-term growth while preserving capital, and its approach of investing across quoted equities, private investments and uncorrelated strategies. She also explains how the investment trust’s approach to AI is to back the “leaders”, including Space Exploration Technologies Corp Class A (NASDAQ:SPCX) and Anthropic.

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Kyle Caldwell, funds and investment education editor at interactive investor: Hello and welcome to our latest Insider Interview. Today in the studio, I have with me Maggie Fanari, CEO of J. Rothschild Capital Management, which is the investment manager of RIT Capital Partners. Maggie, thanks for joining me today. 

Maggie Fanari, CEO of J. Rothschild Capital Management: Great. Thank you, Kyle. It’s a pleasure to be here. 

Kyle Caldwell: So, Maggie, to begin with, could you explain how RIT Capital Partners seeks to both grow and protect capital? 

Maggie Fanari: Yes. We have a globally diversified portfolio for our shareholders, where we invest in both private and public companies, and we’re really looking to deliver equity-like returns with less risk. So, what does that mean?

I’ll use this year as an example. We really look to manage downsides. So, when markets were down in the first quarter of the year, our portfolio was up. Then as markets have rallied, we’ve ended August up 11%, so capturing a significant amount of the upside. And that’s really what we look to do, and that’s the best way in our view to compound capital for shareholders over the long term. 

Kyle Caldwell: How does RIT Capital Partners differ from the competition? There are, of course, other wealth preservation investment trusts. Would you describe RIT as a wealth preservation trust? And if not, how would you describe it and what role does it play in an investor’s portfolio? 

Maggie Fanari: We definitely want to compound growth over the long term and capital for our shareholders, but we’re looking to do that in a defensive way, but really orient that towards growth. 

So, that’s why if you look at our annualised returns since inception - and we’ve been public since 1988, so a very long track record - we’ve had a return of 10.7%, so nearly 11% (annualised returns). Over that period of time, when markets have been down, we’ve participated in about 40% of the drawdown, and we’ve managed to capture just over 70% of the global equity market growth. 

Kyle Caldwell: So, let’s take a look under the bonnet of the portfolio. There are three parts. There’s quoted equities, private investments and uncorrelated strategies. What is the current split between the three? 

Maggie Fanari: We have close to 50% in public markets. We have about 20% to 21% in uncorrelated strategies and the remainder, so about a third, sitting in private investments.

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Kyle Caldwell: Let’s first focus on the quoted equities. Could you explain the sorts of qualities you’re looking for in this part of the portfolio? 

Maggie Fanari: Yes, so with our quoted equities portfolio we tend to invest via thematics. We do invest in managers, but in a very specialised way. As an example, we have believed for a long time that biotech is a good way to play the healthcare sector. So, we’ve invested in managers in biotech. 

We have managers who are invested for us in China, which really means that we’ve strong insights, and through a manager we don’t need to be in China every day, [because they are] really giving us that specialised insight. 

A lot of what we do on the quoted equity side of our business is really focused on investing in managers with very specialised expertise who we believe are going to generate alpha in those markets. Then we’ll also look to express our views. 

We’ve written quite a bit about the multipolar world, and what that really means is the world has changed, as we’ve seen, and a lot of countries today are saying, we need to invest in our own resilience. We need to think about how we’re going to defend ourselves, how we are going to think about energy security. 

As a result, we really look to invest in Europe, we’ve also looked to invest in emerging markets, and we also see a role for commodities as part of a more multipolar world. 

Kyle Caldwell: Could you run through some stock examples, perhaps some of your top holdings? 

Maggie Fanari: It has changed more recently because our top holdings in the quoted equities portfolio is SpaceX. That’s really because it just recently went public and we had a good position in our privates portfolio. So, that’s one of our larger positions in our direct equity portfolio. 

And then within our managers, some of our top managers will include our manager in China as an example. 

Kyle Caldwell: You touched on SpaceX. It’s a position that RIT Capital Partners had prior to the IPO. Could you run through when you first invested in the company and what your current outlook is? 

Maggie Fanari: I have a long history with SpaceX, actually. I got to know the team in 2019 with my former employer. When I joined RIT in 2024, we didn’t have any SpaceX exposure, and just knowing the company and watching the incredible growth over time, we managed to make an investment in our private portfolio. 

Today, it’s sitting today in our public portfolio. And to your question, we’re always underwriting our investments. We always want to stay disciplined. SpaceX is under a lock-up. Some of those shares have become freely tradeable. But when we look at SpaceX today, it’s really a unique company and one that has really transformed the way we think about compute, AI and also the Starlink business that they have. So, the story has evolved over time. 

When we first invested in it, a lot of that story was around Starlink, so satellites. Today, you have other drivers of growth, so we continue to re-underwrite SpaceX from that perspective. Fundamentally , we believe there’s a strong runway for growth in the company. 

Kyle Caldwell: In the private investments part of the portfolio, a company that stands out is Anthropic, which is expected to list on the main market this year. Could you talk through your outlook for the company ahead of that expected IPO? 

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Maggie Fanari: Yes. I might just take a step back and ask: why do we have these great companies in our portfolio in the first place? 

When we think about investing in private markets, we’ll typically invest along who we believe are some of the best fund partners in the world. And then we’re also able to invest directly in our portfolio. 

As we’ve been thinking about AI, we really wanted to be concentrated in terms of how many investments we made. We really wanted to invest in the leaders, or category leaders, and then we wanted to be diversified along the AI stack. 

As a result, we picked Anthropic because it’s a frontier lab. Then we wanted to think about the model infrastructure, so we invested in a company like Databricks, which many people would know. 

Then, we thought, OK, which are the applications that are really winning from the build-out of these models? And we have investments in companies like Stripe as an example. So, we wanted to be diversified along the AI value chain and quite concentrated in the winners we selected. 

We invested initially in Anthropic very early last year. We did participate in some of the future rounds, and what we’ve seen is just incredible and explosive growth. We’ve all seen the recent headlines where [they] believe that they’ll end the year at $100 billion (£76 billion) in ARR (annual recurring revenue). When you think about the company in 2022, this was a company that was doing $10 million in revenues. 

When you’re out and you speak to your friends or family members, or you are at work, it’s just incredible. Everybody knows who Anthropic is. And at my end, many people are also using the product. 

We’re quite excited about the upcoming potential IPO of Anthropic, but as we’re a permanent capital vehicle, we’re also happy owning great companies that are just compounding strong growth for our shareholders over time. 

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Kyle Caldwell: The third part of the portfolio is the uncorrelated strategies. Is this part of the portfolio the one doing the heavy lifting in terms of giving it defensive ballast in order to try and protect capital? 

Maggie Fanari: Yes, so that’s exactly it. When we think managing risk in more challenging markets, that’s really where our uncorrelated strategies come in. So, these are liquid credit managers as well as hedge funds or macro managers, if you will, where their returns are uncorrelated to equity markets. So, that’s why we like to have them. That’s why they’re defensive, we think of them as ballast. This year would be a good example. Our uncorrelated strategies were up when markets were down, which also helped to support our returns. 

Kyle Caldwell: How have the uncorrelated strategies fared in recent months, albeit it’s a short time period, but there has been a lot of turmoil in the bond market?

Maggie Fanari: Yes, so we had some short-dated gilts and treasuries in our portfolio, but we didn’t have anything that was long duration or quite long dated, and we don’t have a lot of fixed income specifically in our portfolios. 

We really tend to focus on, as I said, very liquid credit managers as well as hedge funds, and then we also have a component of gold that sits in our portfolio, just as a true diversifier. 

Kyle Caldwell: Could you explain how often the private companies are revalued, whether you use a third party, and how you try and ensure that the valuations are not racing ahead of reality? 

Maggie Fanari: Yes, so I’ll break that down in terms of our private funds. These are revalued quarterly, so call it four times a year. 

Then, with our direct investments, they’re revaluated twice a year, so semi-annually, and we do rely on third-party marks, but also we have an independent committee of our board members, so a valuation committee, which approves all our valuations. 

Then you have auditors who come in and audit our statements. They’ll also audit our valuations of some of our larger holdings and so on. There are a lot of checks and balances that come through our process. 

Over the last 10 years in our direct portfolio, what you’ve seen is an average uplift to carrying values of about 28%. What that really means is we’re probably quite conservative, going back to your question. 

Then when we think more recently, over the last two years, about valuation marks racing ahead to your comment, we’ve been really fortunate just because we’ve [been] in the right sectors with the right partners and the right opportunities [so] that in the last two years, we’ve able to realise 43% of our private portfolio. Which is a pretty big number, and that’s been at or above carrying values to net asset value (NAV). So, our direct portfolio as of 30 June this year was up about 17%. 

If we think about our direct portfolio over the last 10 years, because it’s really important to look through a cycle, we’ve generated an annualised return of about 28%. So, again, very strong returns. If you compare that to the S&P 500 or the Nasdaq over a 10-year period, call it 15% and 22% for the Nasdaq. So, again, very healthy returns. 

Kyle Caldwell: Maggie, thank you for your time today. 

Maggie Fanari: Great, thank you so much. 

Kyle Caldwell: That’s it for our latest Insider Interview. As ever, we love to hear from you and you can comment on this video too. For more Insider Interviews in future, do hit the subscribe button and hopefully I’ll see you again next time.