5 October 2022
RUFFER INVESTMENT COMPANY LIMITED
(a closed-ended investment company incorporated in Guernsey with registration number 41996)
(the "Company")
Annual Report
The Company has today, in accordance with DTR 6.3.5, released its Annual Report for the year ended 30 June 2022 and a copy is attached.
http://www.rns-pdf.londonstockexchange.com/rns/7872B_1-2022-10-4.pdf
The Annual Report is also available via the Investment Manager's website at www. ruffer.co.uk/2022-ric-annual-repor t
A copy of the Annual Report has been submitted to the National Storage Mechanism and will shortly be available at https://data.fca.org.uk/#/nsm/nationalstoragemechanism .
Enquiries:
Sanne Fund Services (Guernsey) Limited
Company Secretary
Katrina Rowe
DDI: +44(0)1481 737673
Email: ric@sannegroup.com
Investec Bank plc
Broker
David Yovichic
DDI: +44(0)20 7597 4952
Email: David.yovichic@investec.co.uk
LEI 21380068AHZKY7MKNO47
Key performance indicators |
30 June 22 % |
30 June 21 % |
Share price total return over 12 months 1 |
5.6 |
19.5 |
NAV total return per share over 12 months 1 |
6.0 |
15.3 |
Premium of share price to NAV |
1.7 |
2.0 |
Dividends per share over 12 months 2 |
3.05p |
1.90p |
Annualised dividend yield 3 |
1.0 |
0.7 |
Annualised total return per share since launch 1 |
7.7 |
7.9 |
Ongoing charges ratio 4 |
1.07 |
1.08 |
Financial highlights |
30 June 22 |
30 June 21 |
Share price |
300.00p |
287.00p |
NAV at year end as calculated on an IFRS basis 5 |
£952,784,773 |
£575,851,333 |
NAV at year end as reported to the LSE |
£947,554,437 |
£575,913,008 |
Market capitalisation 6 |
£969,008,292 |
£587,541,854 |
Number of shares in issue |
323,002,764 |
204,718,416 |
NAV per share at year end as calculated on an IFRS basis 5 |
294.98p |
281.29p |
NAV per share at year end as reported to the LSE |
293.36p |
281.32p |
1 Assumes reinvestment of dividends. See appendix for Alternative Performance Measures (APMs)
2 Dividends declared during the year
3 Annual dividend yield is calculated using share price at the year end and dividends declared during the year
4 See note 9
5 This is the NAV/NAV per share as per the Financial Statements. Refer to note 14 for a reconciliation between this figure and the NAV/NAV per share as reported to the LSE. See appendix for Alternative Performance Measures (APMs)
6 See appendix for Alternative Performance Measures (APMs)
The year to end-June 2022 has been another excellent year for Ruffer Investment Company Limited (RICL or 'the Company') in a challenging environment but one which has demonstrated the value of the Company's investment approach. The net asset value (NAV) total return over this period was 6.0%, the NAV per share rising from 281p to 295p. The share price total return was 5.6%, reflecting a modest fall in the premium of share price to NAV.
This performance was achieved despite substantial falls in financial markets in the second half of the Company's financial year, including a halving in the value of long-dated Index-Linked stocks between November 2021 and 30 June 2022. Index-Linked stocks have long been a significant percentage of the assets of RICL, so RICL's positive performance demonstrates the continuing effectiveness of the Investment Manager's active management of duration risk through offsetting derivative strategies.
Performance and share issuance increased the market capitalisation of the Company to nearly £1 billion, leading to entry in March 2022 to the FTSE 250 Index. This development reflects a broadening of the shareholder base and an improvement in the liquidity of RICL shares which, together with issuance at a premium being accretive to NAV, has been to the advantage of shareholders.
The compound annualised NAV total return to 30 June 2022 since the Company's launch in July 2004 was 7.7%.
RICL has continued to provide one of the highest returns per unit of risk of all the comparators. Relative to a risk-free investment (the Sharpe ratio), the return has been over twice that of the FTSE All-Share Index since the launch of RICL. In terms of the Sortino Ratio, which only measures the downside element of volatility, the Company has generated over three times more excess return per unit of risk than an investment in the UK stock market.
To 30 June 22 |
Sharpe ratio |
Sortino ratio |
Ruffer Investment Company since inception (July 2004) |
1.06 |
2.39 |
FTSE All-Share Total Return Index since July 2004 |
0.46 |
0.74 |
Earnings and Dividends
During the year the Company generated 3.67p per share of revenue and 8.16p per share of capital gain. The Company has always invested for total return which gives flexibility to the Investment Manager to pursue the optimal investment strategy for the long-term generation of return and the preservation of capital.
The Board is committed to retaining no more than 15% of the Company's income in any given year to allow the Company to remain able to be marketed to a UK retail client base. Having paid out an interim dividend in March 2022, amounting to 1.50p per share, the Company has declared a second interim dividend for this financial year of 1.25 p per share. The remaining balance of revenue earned has been retained to add to the revenue reserve which may be used to help protect dividends against future fluctuations in revenue.
Diversification
RICL is one of a small number of London-listed closed-ended funds which aim for positive nominal or real returns rather than returns relative to a benchmark. Some of these 'absolute return' funds, including RICL, are classified as 'Protective' or 'Portfolio' Diversifiers. In the interim Chairman's statement in February 2022, I wrote that the Board remained confident that RICL would provide shareholders with a core diversifying component of their portfolios as well as protection of wealth.
Portfolio diversification is more than avoiding all eggs in one basket, which simply averages the risk that any one specific investment might go wrong. Such a policy can in fact lead to 'diworsification' - a term coined by the legendary fund manager Peter Lynch to describe assets moving together (positively correlated) which adds unnecessary risk to a portfolio without the benefit of higher returns.
It was Nobel Laureate Harry Markowitz who in the 1950s demonstrated that in markets where prices zig-zag over time, if one asset zigs while the other zags, yet each has exactly the same prospective total long term return, then combining the two assets in one portfolio can reduce portfolio risk without sacrificing expected return. Furthermore, of two portfolios which have exactly the same annual arithmetic return as each other, that which zig-zags less than the other (has lower volatility) will compound more wealth over time than the other.
The 'all-weather' RICL portfolio reflects the reality that more things can happen than will happen and, when the unexpected does happen, the Manager plans to have protected the portfolio by true diversification. Furthermore, what is true within the Company's portfolio is equally the case when shareholders combine their holding in RICL with other assets which comprise their overall wealth.
The Investment Manager demonstrated last year that the correlations of asset classes in the future may not reflect those of the past. How right they were. The classic 60/40 equity/bond portfolio has proved to be diworsification. The return on a 60/40 model portfolio was 17% negative in the second half of the Company's financial year to 30 June 2022, which compares to RICL's positive return of 2.9% over that same period.
After forty years of declining bond yields, it is easily forgotten that in the previous sixteen year period, from 1966 to 1981, a systematic rise in inflation, interest rates and bond yields meant that the best performing asset class over this period out of US bonds, equities and cash was not equities or bonds - it was cash.
Share issuance
During the year, the Company gradually issued a total of 118,284,348 shares, including an offering to both retail and institutional shareholders.
The reasons for seeking shareholder authority to issue shares were stated in the Circulars asking for shareholder authority as follows -
1 maintenance of the Company's ability to issue shares to meet ongoing demand in the market, in order to provide effective management of the premium to Net Asset Value per Share at which the shares may trade, so as to help to ensure that long-term investors who regularly acquire shares are not disadvantaged
2 an increase in the size of the Company, thereby spreading operating costs, other than management, administration and depositary fees, which are charged by reference to the Net Asset Value, over a larger capital base which should reduce the ongoing charges ratio
3 enhancement of the Net Asset Value per share of existing shares through share issuance at a premium to the last published Net Asset Value per share plus the costs of the issue and
4 improvement of liquidity in the market for the shares enabling easy purchase and sale providing shareholders with flexibility in the management of their own wealth without impacting the investment decisions of the Company.
Shareholders voted overwhelmingly in favour of Board authority to issue shares on a non-pre-emptive basis on five separate occasions during the financial year. This required five circulars and two prospectuses, and the authority given enabled the Board to contain the premium of share price to NAV to within 5% over the period.
The process by which the Company's Broker issues shares into the market to satisfy demand is known as 'tapping'. The tap issuance by the Company's Broker is controlled by the Board.
However, the rate of issuance necessary to contain the premium has averaged c. two million shares a week in financial year 2022 compared to an average weekly issuance of less than 500,000 shares over the 2021 financial year.
Apart from managing the premium, one benefit of the closed-ended structure of the Company and the gradualist approach to issuing shares is that it enables the Investment Manager to control the cash raised and to absorb it easily in to the RICL portfolio. Another is that this helps to avoid 'cash drag' - the impact of holding a quantity of uninvested nil-returning cash before it can be invested.
Responsible investing
Ruffer LLP (Ruffer) is a signatory to the six UN Principles for Responsible Investment (PRI), to Climate Action 100+, to the Transition Pathway Initiative and the Institutional Investors Group on Climate Change (IIGCC).
At the macro level, ESG considerations enable Ruffer to assess systemic risk across markets and asset classes, such as sovereign bonds and listed equities. This level of analysis includes
sector-specific trends or themes.
At the micro level, fundamental analysis of the securities RICL buys, sells and holds is embedded into the Ruffer ESG framework. The Responsible investment report in this Annual Report elaborates on RICL's approach to ESG policy and its implementation.
The portfolio has had no exposure to any sanctioned assets, in particular in relation to Russia.
Board matters
After the year-end, and following 20 years with the Ruffer Partnership, Hamish Baillie announced that he had decided to step down from the Partnership and as co-manager of RICL. Hamish has been a manager of RICL since 2011, when he took over responsibility for RICL from Jonathan Ruffer. Hamish has overseen the Company's excellent performance and growth over these years and, together with Duncan MacInnes as co-manager, developed a strong relationship between the Company and its shareholders, helped by other Ruffer communications such as webinars, Ruffer Radio and The Green Line. Hamish has left with the Board's admiration and gratitude for all that he has contributed.
Duncan MacInnes continues as manager and is supported by the same underlying investment team. We welcome Jasmine Yeo, who has been appointed co-investment manager with Duncan. Bertie Dannatt has taken on the operational aspects of Hamish's role which, as the Company and regulation have both grown, has become more time-demanding.
As I flagged in the interim report, Jill May and David Staples have decided to step down from the Board at the AGM in December 2022. We shall miss them. Both have made a significantly
pro-active and positive contribution to the Company as Directors and in their respective roles as Senior Independent Director and Chair of the Audit and Risk Committee. This has been particularly evident during a pandemic period which has seen a high level of Company activity that has demanded much of their time. We thank them for their contribution.
As I also mentioned in the interim report, Nicholas Pink and Shelagh Mason have agreed to take up the roles of Senior Independent Director and chair of the Management Engagement Committee respectively with effect from the AGM in December 2022.
In January 2022 the Board engaged OSA recruitment consultants to identify a Guernsey director to succeed David Staples as Chair of the Audit and Risk Committee. We are delighted that Susie Farnon became free to join RICL in this role after she retired in July 2022 as audit chair of
FTSE 250 HICL Infrastructure Ltd.
Following her retirement as Head of Audit for KPMG Channel Islands, Susie became a non- executive director and audit chair of a number of investment companies. She has been Vice- Chairman of the Guernsey Financial Services Commission and is a non-executive director of the Association of Investment Companies, the UK trade body. By joining the RICL board on
1 September 2022, Susie has been able to parallel run with David through the 2022 annual report preparation and audit process.
Having decided that five remains the appropriate number of non-executive directors, the Board engaged Longwater Partners in London in February to help identify a second new Director to succeed Jill May. Longwater provided a strong slate of candidates and we look forward to welcoming Solomon Soquar to the board in December when he will succeed Jill May on her retirement at the AGM.
Solomon holds a BA/MA in Politics, Philosophy and Economics and M.Phil in Economics from Balliol College, Oxford, where he studied and taught. He has had a long and deep practical experience of over 30 years across Investment Banking and Capital Markets with leading US and UK financial institutions. His particular focus has been in structuring risk management solutions for Wealth Management and his most recent executive role was as CEO of Barclays Investments Solutions Limited.
Solomon brings skills, experience and a perspective which are particularly relevant to the protection strategies that are a critical part of RICL's investment strategy. His knowledge and experience in this area is complementary to the other skills and experience on the Board.
In the interim report, I also mentioned that we had engaged a third party, Trust Associates, to evaluate Board remuneration, following last year's external Board evaluation. This was especially necessary given the prospect of finding two new directors and our recent experience that at least one potential candidate declined to continue discussion in the light of the level of directors' remuneration at the time. The outcome of this review is explained in detail in the Directors' Remuneration Report in this annual report.
Outlook
In the 'Economic Consequences of the Peace', Keynes commented: 'By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.' He went on to comment that the confiscation is arbitrary and strikes at the security and confidence in the equity of the existing distribution of wealth.
The current level of inflation is clearly no longer unobserved and was unanticipated, as the Bank of England forecast chart in the Investment Manager's report demonstrates all too clearly. Confidence in the equity of wealth distribution is fraying the edges of political concern. Like Hans Christian Andersen's Emperor, Central Banks are seen to have been short on clothes for the current economic and financial environment and have at last begun to tighten policy.
The Company's principal objective is to provide shareholders with a positive total net annual return of at least twice the Bank of England Base Rate. This objective has become more challenging. If it is true that markets are barometers rather than thermometers, reflecting how investors feel about the future rather than the present, then the financial weather outlook seems to be set fairer than might yet prove to be the case. The Board therefore endorses the Investment Manager's observation: 'There are times for a get rich quick portfolio and times for a stay rich portfolio. This is definitely the latter sort of time'.
Christopher Russell 4 October 2022
The Company carries on business as a closed-ended investment company. Its shares are traded on the Main Market of the London Stock Exchange (LSE) and it was admitted to the premium segment of the Official List of the UK Listing Authority on 20 December 2005. The Company is externally managed by Ruffer AIFM Limited, a UK investment manager authorised and regulated in the conduct of investment business in the United Kingdom by the Financial Conduct Authority (FCA). Ruffer AIFM Limited is also the Alternative Investment Fund Manager (AIFM) of the Company.
Board
The Board of Directors is responsible for the overall stewardship of the Company, including general management, structure, finance, corporate governance, marketing, risk management, compliance, gearing, contracts and performance. Biographical details of the Directors, all of whom are non-executive, are listed in the Management and Administration summary. The Company has no executive directors or employees.
The Board has contractually delegated to external parties various functions as disclosed in the Corporate Governance Statement .
Investment objective
The principal objective of the Company is to achieve a positive total annual return, after all expenses, of at least twice the Bank of England Bank Rate.
The weighted average Bank of England rate throughout the year ended 30 June 2022 was 0.40% (2021: 0.10%).
The Company predominantly invests in internationally listed or quoted equities or equity related securities (including convertibles) or bonds which are issued by corporate issuers, supra-nationals or government organisations.
Investment strategy
The Company's strategy is to create a balanced portfolio of offsetting assets which in aggregate are intended to enable the Company to meet its investment objective. The aspiration remains to produce consistent positive returns, regardless of the performance of financial markets. Over shorter periods this is likely to result in the Company lagging sharply-rising equity markets, but outperforming falling equity markets. This strategy will be implemented predominantly through investments in listed securities, collective investment schemes and currencies but the Investment Manager has the flexibility to use other asset classes should it be necessary to do so.
The investment strategy has been tested in the last 12 months as conditions in markets have changed quickly, but the portfolio has stood up to this test. In order to achieve the Company's investment objective we need to be able to perform in both rising and falling asset markets. This means that we maintain a balance of investments with a small but potent book of cyclical equities to perform should economic and financial conditions improve, index-linked bonds and gold to benefit from sustained higher inflation and financial repression, and credit protection and options to protect the Company should there be a shock to financial markets.
Investment policy
In selecting investments, the Company adopts a stock picking approach and does not adopt any investment weightings by reference to any benchmark. Both the Board and the Investment Manager believe that the adoption of any index related investment style would inhibit the ability of the Company to deliver its objective.
The Company invests across a broad range of assets, geographies and sectors to achieve its objective. This allocation will change over time to reflect the risks and opportunities identified by the Investment Manager across global financial markets, with an underlying focus on capital preservation. The allocation of the portfolio between different asset classes will vary from time to time so as to enable the Company to achieve its objective. There are no restrictions on the geographical or sectoral exposure of the portfolio (except those restrictions noted below).
The universe of equity, equity related securities or bonds in which the Company may invest is wide and may include companies domiciled in, and bonds issued by entities based in, non-European countries, including countries that are classed as emerging or developing. This may result in a significant exposure to currencies other than pound sterling. Where appropriate, the Investment Manager will also use in-house funds to gain exposure to certain asset classes.
The Company may use derivatives, including (but not limited to) futures, options, swap agreements, structured products, warrants and forward currency contracts, for efficient portfolio management purposes only.
Investment restrictions and guidelines
It is not intended for the Company to have any structural gearing. The Company has the ability to borrow up to 30% of the NAV at any time for short term or temporary purposes, as may be necessary for settlement of transactions, to facilitate share redemption or to meet ongoing expenses.
The proportion of the portfolio invested into companies based in emerging or developing countries will be limited, at the time of any investment, to below 15% of the Company's gross assets.
The Directors have determined that the Company will not engage in currency hedging except where the Investment Manager considers such hedging to be in the interests of efficient portfolio management.
The Directors have determined that no more than 15% in aggregate of the Company's gross assets at the time of acquisition will be invested in listed investment companies (including investment trusts), with a maximum of 10% of gross assets invested in investment companies not having stated investment policies allowing them to invest no more than 15% of their own gross assets in other UK listed investment companies (including investment trusts).
General
In accordance with the requirements of the FCA, any material changes in the Investment Policies and Objectives of the Company may only be made with the approval of shareholders.
Investment of assets
At each quarterly Board meeting, the Board receives a detailed presentation from the Company's Investment Manager which includes a review of investment performance, recent portfolio activity and a market outlook. It also considers compliance with the investment policy and other investment restrictions during the reporting year. The Company's Top Ten holdings and Portfolio Statement are listed below.
Environmental policy
Whilst the Company has a limited carbon footprint in respect of its day to day activities, the Board notes that the Investment Manager recognises that environmental responsibility is core to its longer term business success, and actively integrates environmental, social and corporate governance (ESG) issues into its investment process. The Investment Manager's ESG policy is available upon request. For more detail, please see the Responsible investment report.
A number of environmental initiatives have been introduced by the Board and the Administrator, as follows -
- minimising printing of Board materials
- deemed consent from shareholders to accept electronic copies of documents
- use of recycled paper for Annual and Interim Reports for shareholders requiring hard copies
- use of recycled Woodland Trust printer paper by the Administrator, which funds new UK woodland and
- Fairtrade tea and coffee and tap water, rather than bottled water, served at all Board meetings.
In addition, the Board intends to carbon balance Directors' and Investment Manager's flights and is currently considering the merits of various carbon offsetting schemes.
Shareholder value
The Board reviews on an ongoing basis the performance of the Investment Manager and considers whether the investment strategy utilised is likely to achieve the Company's investment objective of realising a positive total annual return, after all expenses, of at least twice the return of the Bank of England Bank Rate. Having considered the portfolio performance and investment strategy, the Board has unanimously agreed that the interests of the shareholders as a whole are best served by the continuing appointment of the Investment Manager on the terms agreed.
Dividend policy
The Board's policy is to pay dividends semi-annually, which are typically declared in September and March, with an objective of retaining no more than 15% of the Company's income each year.
Dividends will only be paid from the Company's revenue account and not from capital. Dividend payments by the Company will depend on the net income stream generated by the underlying investments in the Company's investment portfolio and therefore no assurance can be given that dividends will continue to be paid.
The payment of any dividend by the Company is subject to the satisfaction of a solvency test as required by the Companies (Guernsey) Law, 2008, whereby the Board must be satisfied on reasonable grounds that the Company will, immediately after payment of any dividend, be able to pay its debts as they become due and that the value of the Company's assets would be greater than the value of its liabilities.
The Board has the discretion to increase or reduce the dividend, or not to declare a dividend, as appropriate in consideration of the financial position of the Company.
Details of the dividends paid during the year are set out in note 5 to the Financial Statements.
Principal risks and uncertainties and their management
The Board has undertaken a robust assessment of the principal risks facing the Company and has undertaken a detailed review of the effectiveness of the risk management and internal control systems. As stated within the Report of the Audit and Risk Committee, the Board, with the assistance of the Administrator and the Investment Manager, has drawn up a risk assessment matrix, which identifies the key risks to the Company, and which is reviewed and updated by the Audit and Risk Committee on a quarterly basis. The principal risks and uncertainties faced by the Company, and the mitigating factors adopted by the Company, are summarised below. The Board, together with the Investment Manager, regularly monitors relevant risks in relation to the ones mentioned below. During the year, these have included potential geopolitical and economic impacts, including those arising from the war in Ukraine, and current and potential interest rate rises and increases in inflation.
Investment risks - the Company is exposed to the risk that its portfolio fails to perform in line with the Company's objectives. The Board reviews reports from the Investment Manager at each quarterly Board meeting and at other times when expedient, paying particular attention to the diversification of the portfolio and to the performance and volatility of underlying investments.
Operational risks - the Company is exposed to the risks arising from any failure of systems and controls in the operations of its service providers, principally the Investment Manager or the Administrator. The Board receives reports annually from the Investment Manager and Administrator on their internal controls and reviews pricing reports covering the valuations of underlying investments at each quarterly Board meeting. The Board can and does receive explanations and assurances from its key suppliers as to their own operational resilience and plans and ability to respond during times of crisis.
Accounting, legal and regulatory risks - the Company is exposed to the risk of action or sanction by shareholders, counterparties or regulators if it fails to comply with the regulations of the UK Listing Authority or the Guernsey Financial Services Commission or if it fails to maintain accurate accounting records. The Administrator provides the Board with regular reports on changes in regulations and accounting requirements, including increased regulation relating to ESG and climate change.
Financial risks - the financial risks faced by the Company include market risk (comprising interest rate, foreign currency and price risk), credit risk and liquidity risk. These risks and the controls in place to mitigate them are reviewed at each quarterly Board meeting. Further details on financial risks are discussed in note 19 of the Financial Statements.
Emerging risks - the Board is constantly alert to the identification of any new or emerging risks through the monitoring of the Company's investment portfolio and by conducting regular reviews of the Company's risk assessment matrix. When an emerging risk is identified, the risk assessment matrix is updated and appropriate mitigating measures are agreed.
The Board seeks to mitigate and manage these risks through continual review, policy-setting, enforcement of contractual obligations and monitoring of the Company's investment portfolio. The Board, Investment Manager and the Company's Broker also regularly monitor the investment environment in order to identify any new or emerging risks.
Going concern
The Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Financial Statements since the assets of the Company consist mainly of cash and cash equivalents and securities which are readily realisable. The Directors also note that overall, due to the nature of the Company's portfolio, which - as discussed in more detail in the Performance section of the Chairman's Review and in the Investment Manager's report - comprises both equities and other more defensive assets, it has not been affected significantly in terms of value or cashflows by the effects of the covid-19 pandemic or the Russian invasion of Ukraine. Accordingly, in the Directors' opinion, the Company has adequate financial resources to continue in operational existence for the foreseeable future. Matters relating to the going concern basis are also discussed in the Long Term Viability Statement below and note 2(c).
Long term viability statement
The Directors have assessed the prospects of the Company over a longer period than the 12 months minimum required by the 'going concern' provision. For the purposes of this statement, having regard to the economic planning cycle and the Company's strategy review period, the Board has adopted a three year viability period.
In its assessment of the Company's viability over the three year period the Board has considered each of the Company's principal risks as detailed above and any emerging risks, and in particular the impact of a significant fall in the value of the Company's investment portfolio.
The Directors consider that a 30% fall in the value of the Company's portfolio would be significant but would have little impact on the Company's ability to continue in operation over the next three years. In reaching this conclusion, the Directors considered the Company's expenditure projections, the fact that the Company currently has no borrowing, but has the ability to borrow up to 30% of its NAV and that the Company's investments comprise predominantly readily realisable
securities which can be expected to be sold to meet funding requirements if necessary, assuming market liquidity continues.
Also, the Board has assumed that the regulatory and fiscal regimes under which the Company operates will continue in broadly the same form during the viability period. The Board speaks with its Broker and legal advisers on a regular basis to understand issues impacting on the Company's regulatory and fiscal structure. The Administrator also monitors changes to regulations and advises the Board as necessary. The Board also has access to the Administrator's compliance resources as well as the compliance department of the AIFM.
Based on the Company's processes for monitoring operating costs, share discount, internal controls, the Investment Manager's performance in relation to the investment objective, the portfolio risk profile, liquidity risk and the robust assessment of the principal risks and uncertainties facing the Company, the Board has concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the three year period.
Key performance indicators
The Board uses a number of performance measures to assess the Company's success in meeting its objectives. The key performance indicators are disclosed in detail below.
For the year to 30 June 2022 the Company had a share price total return of 5.6% and the NAV total return of 6.0%. The Company has achieved its objective of preserving and growing shareholder capital.
The annualised NAV total return since inception of the Company in 2004 is 7.7%, which is ahead of UK equities with a much lower level of volatility and drawdowns.
The period has been unusually challenging for investors. The remarkable thing about Q1 2022 is that the best-case non-cash scenario was a loss of 4.5% offered by US high yield bonds. History shows how rare it is that there was nowhere to hide. However, this wasn't an anomaly - the second quarter was worse. The 60/40 portfolio is down 17% so far in 2022, a clear indicator that balanced, multi-asset portfolios are struggling.
Given all that has happened year to date, we have presented contributions for the full year to 30 June 2022 and also for the six months to 30 June 2022.
Performance contributions for six months to 30 June 2022
With nowhere to hide in conventional assets, it is no surprise that it was the portfolio's unconventional protective assets that drove performance in the first six months of calendar year 2022. Option protection via the Ruffer Protection Strategies Fund added 4.4%, driven mostly by
interest rate options and equity puts. Credit protection continued to be an essential hedge contributing 3.6% via the Ruffer Illiquid Multi-Strategies Fund.
Within equities, energy stocks were the strongest contributors, adding 2.0% to performance. Individual stock performance of note came from value cyclicals - for instance Chesapeake Energy (+31%) and Mitsubishi UFJ Finance (+19%). The decision to rotate into defence and healthcare stocks was also rewarded as Northrop Grumman (+29%) and Bristol Myers Squibb (+27%) performed well.
Towards the end of the period, as fears of recession grew, exposure to the auto manufacturing sector was hit hard with Volkswagen (-25%) and General Motors (-45%) together costing the portfolio -0.5%. In the UK, exposure to domestic value stocks via Ruffer UK Mid & Smaller Companies Fund (-14%) was hurt by the political omnishambles, inflation and recession risk, detracting -0.4% from the portfolio. Both cases provided a stark reminder that cheap stocks can get cheaper in the short term.
The carnage in the long-dated inflation-linked bond market should not be understated. These assets cost the portfolio -6.0%. The 2073 index-linked bond was down as much as 54% from its November 2021 all-time high - further commentary below.
Performance contributions for 12 months to 30 June 2022
The drivers of performance over 12 months were similar to those that shaped the first half of 2022. The toolkit of unconventional protections performed exactly as desired. Options added 3.7% and Ruffer Illiquid Multi-Strategies Fund added 3.3%. These protections provided both negative correlation and duration at a time of market stress and high cross-asset correlation in conventional markets.
Energy equities added 2.8% to performance and we took significant profits during the period. In the summer of 2021, we had a 7% allocation to these stocks at the end of the period this was closer to 4%.
Gold exposure and gold equities cost the portfolio 0.9% during the period. The largest individual pain came from Kinross Gold (-0.4%), which was impacted by the Russian invasion of Ukraine. Gold is a prime example of the failure of conventional safe havens in recent times. Despite inflation and war being front page news, gold has misfired. We still think it has a valuable role to play, but this greater correlation with risk assets is a consequence of gold's increased financialisation.
In the period, inflation-linked bonds cost the portfolio 3.5%, with the longest dated 2073 issue down 51%. We have long called these assets the 'crown jewels' in our portfolio due to our conviction that they should provide the perfect protection in the world of financial repression we are entering. We are still of this view. But the sensitivity to rising rates we have warned about, has now been felt. This illustrates a distinction we have been labouring; investing for inflation and investing for inflation volatility are not the same thing and conflating the two will be costly.
Mr Market will make us crawl through fire for the gift of redemption, and derivative protection via the unconventional toolkit remains essential to safely navigating choppy and dangerous markets. Inflation-linked bonds are now back to pre-Brexit prices - and yet in our assessment the likelihood and proximity of the inflationary denouement is much greater.
Portfolio changes
In the last few months of the period, we reduced the risk in the portfolio, moving into what we call 'crouch mode' for what we believe will be a particularly dangerous period in the second half of this year. This de-risking included
1 Reducing equities to a 25% weighting with relevant hedges on top for good measure - this is the lowest weighting for Ruffer portfolios since 2003.
2 Increasing portfolio duration as the rise in bond yields has increased its potential effectiveness as a hedge
3 Rotating gold exposure from equities to bullion.
Investment outlook
Summary
1 The long term - an era of inflation volatility
2 The short term - the impossible tightrope walk
3 The bear is mid-grizzle
4 Hard hats on
There's an old Charlie Munger quote: 'If you're not a little confused about what's going on, you don't understand it'.
That sums up the fog of war, literal and metaphorical, we find the global economy immersed in. We have never had higher conviction on the long term - that we have moved into a new regime of inflation volatility and those conventional portfolios are not going to fare well. In the short term - the outlook is far murkier and path-dependent as policymakers try to navigate a narrow path without either tipping the economy into a wage-price spiral or over the other side into recession. In the meantime, liquidity continues to drain from the system.
The long term - an era of inflation volatility
So what does the new regime look like? We think we return to spasmodic bouts of inflation volatility like we saw after the World War 2 period or indeed again in the 1970s. The long-term chart of UK and US inflation makes it clear that the last 30-40 years has been something of an aberration.
We expect an extended period of accelerating financial repression - where interest rates are below the rate of inflation, forcing negative real returns upon savers. 'Stealing money from old people, slowly' as Russell Napier has memorably described it. We believe we are evolving into a staccato, stop-start world of higher inflation and faster economic growth. This will be driven by targeted government stimulus to tackle the big societal issues of the day; inequality, climate change and now the containment of the geopolitical aspirations of China and Russia.
'Ketchup inflation'
With these trends will come much greater economic and market volatility - the great moderation of inflation, growth and geopolitics enjoyed over the last 40 years is over. Having spent a decade trying in vain to create inflation, like an impatient child slapping on a ketchup bottle, central bankers have now got too much, all at once, in an uncontrolled splat. Inflation was desired as a palliative treatment for the system, the least painful method of debt default and wealth redistribution from old to young and rich to poor - but this ketchup inflation is too hot to handle. The political imperative is that something must be done.
The short term - the impossible tightrope walk
Given that some inflation is desirable but too much is political suicide, perhaps the critical question is: how hard will central bankers fight inflation?
Monetary tightening is a little like going on a diet; easy to talk about and make detailed plans for, but difficult when it comes to the reality of the hard choices and abstinence.
From the current starting point of inflation at 40-year highs in both Europe and the US and a surging, fizzing jobs market - there are no good choices. Central bankers resemble quivering funambulists facing an impossible tightrope walk as they try to meet their objectives - full employment alongside low and stable inflation. Complicating matters further they have politicians breathing down their necks as inflation has spurred a cost of living crisis which now dominates the headlines. On one side, tighten conditions too much and unemployment will surge, probably tipping the economy into recession and crushing asset markets. On the other side, do not tighten enough and risk inflation getting embedded into wages, beginning the dreaded wage-price spiral of previous inflationary episodes.
To make an impossible situation worse the tightrope walker appears a little short-sighted. In May 2021 the Bank of England thought inflation in summer 2022 would be around 2.5%. The actual result? 9.2%.
So, we must conclude that nobody has a clue - particularly not academic economists. Despite their recent mistakes they remain highly confident that inflation will drop back to around 2% by 2024 and stay there.
By June 2022, central bankers began the gradual process of rate rises in the UK and US. Indeed the Federal Reserve (Fed) is engaging in the multi-variate experiment of simultaneous rate hikes and quantitative tightening.
We are now starting to see what happens when more than a decade of easy money is removed from the system. As ex-Federal Reserve Governor Jeremy Stein said, 'the thing about monetary policy is that it gets in all the cracks'. There is no hiding from the reality of higher interest rates. Every tightening cycle throughout history has ended with a recession, a market crisis or both. 'The Fed hikes until something breaks' as the old adage goes.
The punchbowl is being taken away. Quantitative easing is melting away and quantitative tightening is beginning. Combined with rapid-fire rate hikes, it's a recipe for financial market sobriety.
It IS different this time
The policy reaction function has changed. For the last decade or so, downside risk was limited because investors knew that once equity markets declined 20% the Fed put would kick in and there would be policy easing. Today, given the need to dampen demand to tame inflation, the market upside is capped; rise too much and it will be met with more hikes and tighter financial conditions. The Fed wants higher risk premiums, and that means a lower market.
If it were to come, another Fed U-turn, similar to 2018's Powell Pivot or last November's abandoning the word "transitory", would be confirmation central bankers have lost control and America has entered an era of structurally high inflation.
The Bezzle
The economist John Kenneth Galbraith coined the idea of 'The Bezzle', a form of psychic wealth that can be created by mistake or self-delusion. The theory goes that if a collector has a Picasso painting (or should it be an NFT these days?) worth US$10 million and someone steals it, there is a period of time, potentially years, where both the collector and the thief believe they have a US$10 million asset and act accordingly. The effective wealth in their micro economy is US$20 million. Half of the wealth that exists in this moment is illusory and will be destroyed only when the collector identifies the crime. Today's bezzle is the trillions of dollars of assets held in crypto, profitless technology and venture capital funds globally. Although these sectors have felt significant pain already, we believe there is potentially much more to come as opacity, illiquidity and discretion around asset pricing allows the bezzle to be revealed slowly rather than with a bang.
The bear is only mid grizzle
How does an asset fall 95% in value? First it falls by 90% and then it halves!
Investors under the age of 60 have been conditioned to buy the dip. Central bank easing has always been just around the corner and the market recoveries are swift and steep. A look further back in history shows that the pattern many bear markets take is a steep drop, followed by a more prolonged, grind lower over a number of years. In these scenarios, buying the first downward lurch leaves your capital almost as impaired as buying at the top. Let me explain why we have high conviction that the bear market is not over, and stocks are not (yet) a buying opportunity.
The Fed is tightening into an economic slowdown.
Valuations have come down to something more reasonable but are based on earnings estimates that remain too optimistic, still forecasting growth when flat would be a good result.
Valuations have fallen because bond yields have risen, not because the equity risk premium has widened.
Earnings reflect record high margins at a time of rising debt service, labour and energy costs and supply chain disruptions.
Consumer and CEO confidence is at multi year lows, suggesting demand reduction and recession.
So far we have seen limited signs of capitulation. In fact, flows have remained strongly positive into equity and credit throughout the sell-off. ARK Innovation ETF has suffered no net redemptions despite declining 71% in price since the peak. The 'buy the dip' mentality is alive and well.
But the old rules no longer apply. Now that the cost of living crisis is front page news, the political imperative is to bring down inflation, not to support asset prices as in previous market sell-offs. Rather, we are in a negative feedback-loop, where any bear market rally sows the seeds of its own demise by loosening financial conditions, which in turn forces Central Banks to counteract.
Lastly, liquidity is the driver of market prices at the margin and this is likely to evaporate in coming months -as quantitative tightening takes hold, while rising short term rates creates a legitimate alternative to risky assets. The plumbing of the financial system exacerbates this liquidity squeeze by steering cash from banks to money market funds, which have less of a money multiplier effect in the economy. Banks, though not in danger, want to shed deposits and are not keen to expand their balance sheets, while money market funds reflect rate rises quickly and will attract flows.
Hard hats on!
In an episode of surprisingly and persistently high inflation, no allocation to risk escapes repricing. Investors in the Company delegate to Ruffer the task of assessing the economic and market landscape, evaluating the opportunity set and then deciding about how much risk to take.
We do not think this is a good environment to be risking our shareholders' capital.
Rather, we see the coming months as a period to survive, given the extent of the uncertainty around the Ukraine war, central bank policy, inflation, corporate earnings and the consequences of rising interest rates.
This is all happening as the tide of easy money recedes, and we strongly suspect that some people will be found to have been swimming naked.
In this environment, an allocation to cash is an underrated decision - it provides the certainty of a slow erosion by inflation, but it also gives you the option value of being able to move quickly. This is clearly reflected in our portfolio construction.
As our CIO Henry Maxey wrote in the Ruffer Review at the turn of the year: 'Winter is coming for liquidity, it's coming for narcissism, it's coming for crypto, it's coming for retail punting, and it is definitely coming for businesses which depend on any of these things'.
There are times for a get rich portfolio and times for a stay rich portfolio. We believe this is the latter. There will be better moments and better prices in the future.
In The Science of Hitting by legendary baseball slugger Ted Williams, the key observation was that you don't have to swing your bat at every pitch, only at the ones which look sufficiently attractive. That insight applies in spades to investing in risky assets at this juncture. We would rather lose half of our clients, than half of our client's money.
Ruffer AIFM Limited 4 October 2022
Ruffer LLP ("Ruffer") is committed to the effective stewardship of our investors' assets. We incorporate environmental, social and governance (ESG) considerations into our investment approach - both at an asset allocation level and in the selection of individual securities.
Responsible investment requires thoughtful consideration of the economy, environment, and society. It also means taking action. Primarily, we do this by systematically engaging with the companies in which we invest and exercising our voting rights to improve ESG outcomes.
This report outlines the principles and processes which define our approach to responsible investment and provides detail on the practical application thereof.
How we do it
Integration
At the macro level, ESG considerations enable us to assess systemic risk across markets and asset
classes, such as sovereign bonds and listed equities. This level of analysis includes sector-specific trends or themes.
At the micro level, fundamental analysis of the securities we buy, sell and hold is embedded into our ESG framework. This allows us to identify opportunities for engaging with management, proxy voting and to collaborate with other shareholders or industry-level initiatives. Our framework affords a degree of flexibility, reflective of the fact that our investment conviction or stewardship activities (including our journey to Net Zero) may change in response to new information.
Application and resources
ESG considerations represent sources of both value and risk in the relatively concentrated portfolio of equity holdings in RICL. We first explore industry and sector-specific trends or themes, such as potential regulatory headwinds or industry best practices. The framework is then applied to individual securities to examine ESG related risks and opportunities.
Our ESG analysis incorporates a range of qualitative and quantitative considerations. These are drawn from internal and external research and from formal and informal data sources.
This includes:
- In-house ESG specialists working with Research Analysts to provide subject matter expertise both during the due diligence phase and throughout the holding period of the security
- Company statements including annual accounting and sustainability reports
- Data and research insights from MSCI ESG Research, Bloomberg and FactSet
- The Sustainability Accounting Standards Board (SASB) framework
- Insights from the Transition Pathway Initiative (TPI) and CDP (previously, the Carbon Disclosure Project) in the assessment of carbon risk management and the transition to Net Zero
- Institutional Shareholder Services (ISS) - providing proxy voting research and the voting platform to exercise our votes
Our ESG analysis extends to fixed income investments. For RICL, this applies primarily to sovereign debt. We have developed a proprietary tool to analyse sovereign ESG risks, consisting of country-level indicators to gauge each sovereign issuer's exposure. Specifically, we analyse environmental inputs ranging from renewable energy usage to waste recycling, and population studies assessing physical climate risk in low-lying areas. From a social and governance perspective, indicators are equally broad, touching on health and education, female labour force participation and measures of political stability and corruption.
Stewardship
Engagement
Engagement increases our understanding of the nature and significance of the various ESG risks
facing investee companies. We engage independently and through collaborative initiatives, such as the Institutional Investors Group on Climate Change (IIGCC), Climate Action 100+ and the Investor Mining and Tailings Safety Initiative.
Effective engagement is focused 0n improving outcomes - for the environment and society, as well as for investors and other stakeholders.
Voting policy
It is Ruffer's policy to vote on Annual General Meeting and Extraordinary General Meeting resolutions, including shareholder resolutions and corporate actions, and we vote on all shareholdings in the companies held within RICL.
We have access to proxy voting research, currently from Institutional Shareholder Services, to assist our decision making. However, whilst we take note of proxy advisers' voting recommendations, we do not delegate or outsource our stewardship activities when deciding how to vote on our shareholdings.
Voting can also be seen as an escalation method, especially if the outcome of engagement with management has been unsatisfactory. In 2021, we voted against management predominantly on issues relating to the independence and effectiveness of directors, audit related resolutions and executive pay. We consider the effective governance of RICL's investee companies of paramount importance. Specifically, we use our voting rights to ensure the independence and effectiveness of board members. Governance concerns ranged from tenure and non-independence to attendance and remuneration. This has involved voting against the management of several investee companies including a US financial services firm, a UK bank, a US energy firm, a US healthcare business and a Japanese media group.
Climate change
Our commitment to reducing carbon emissions applies to Ruffer, RICL, and to RICL's investee companies.
Businesses increasingly face two sorts of risk: physical risks from the increased incidence and severity of climatic events; and transition risks from the policy and technological changes necessary to move to a Net Zero economy. These risks, if poorly managed, could harm our shareholders' investments.
The recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) help us determine the nature, scale and management of climate-related risks and opportunities across sectors and regions.
We published our inaugural TCFD report in 2021. It introduced Ruffer's Climate Change Framework and directly responds to the recommendations of the TCFD. The report also exhibits our climate-related activities over the past few years and provides an insight into how our understanding of the risks facing our investee companies has evolved.
In March 2022, Ruffer committed to the Net Zero Asset Managers initiative, and we will disclose more information about how we will meet the requirements by March 2023.
We disclose details of our voting, engagement activity and progress towards Net Zero in our quarterly Responsible Investment Reports and annual Stewardship Report - published on Ruffer's website and distributed to clients and investors.
ESG disclosures
Ruffer has been a signatory to the Principles for Responsible Investment (PRI) since 2016, and we have had A+ scores for strategy and governance and A scores in listed equity incorporation and active ownership since 2018.
In 2021 we were confirmed as a signatory to the revised UK Stewardship Code.
We are members of Climate Action 100+ and the IIGCC as well as supporters of the TPI. In 2021, we also supported the launch of the Association of Investment Companies (AIC) initiative for disclosure of the ESG policies of all investment companies, full details of which are on the AIC website.
Case studies
Pfizer
Pfizer develops, manufactures and distributes biopharmaceutical products worldwide.
Our engagement with Pfizer has focused on four fronts:
- Climate strategy
- Lobbying transparency
- Access to medicine
- Management alignment to ESG initiatives
1. Climate Strategy: Pfizer is targeting Net Zero across scope 1 and 2 emissions by 2030. For scope 3 emissions, Pfizer has a team which engages with suppliers to encourage them to meet carbon neutrality pledges and adopt science-based targets. However, pressed on the level of current ambition and capability, the company admitted it is unlikely to match pledges made by peers in the pharmaceutical industry, including AstraZeneca.
2. Lobbying transparency: Following the ISS recommendation that shareholders vote against management on lobbying resolutions, we sought deeper and more detailed disclosure on the role of lobbying at a company and sector level. Management provided assurance that the level of disclosure was in line with peers.
3. Access to medicine: The experience of the coronavirus pandemic has sharpened investor focus on the role of pharmaceutical companies in equalising access to medicine. On our request for evidence of practical efforts, the company pointed to its work with the Global Alliance for Vaccines and Immunization (GAVI) in lower and middle income countries. Pfizer decided not to license out production of its covid-19 vaccine, because of supply chain constraints which the
company felt best placed to manage in these circumstances. It has licensed out production of its new covid-19 pill and will not be collecting royalties on this.
4. Management alignment to ESG initiatives: Our queries centred on how the governance structure supports ESG initiatives. We received reassurance that the introduction of ESG metrics into remuneration policies is being considered.
Shell
Shell is a global energy and petrochemicals company involved in exploration, refining and marketing in more than 70 countries.
Our engagement with Shell has focused on the company's climate transition strategy. This included:
- Target setting and approach
- The role of 'offsets'
- Operations in Nigeria
1. Target setting and approach: In addition to its existing carbon intensity reduction targets (covering scope 1, 2 and 3 emissions), Shell has announced absolute reduction targets of 50% compared with 2016 levels across its scope 1 and 2 emissions by 2030. We encouraged the company to also consider setting interim absolute reduction targets whilst acknowledging the constraints of current consumer behaviour.
2. The role of 'offsets': We sought to better understand the role of 'offsets' in the transition to Net Zero, primarily carbon capture utilisation and storage (CCUS) and nature-based solutions (NBS). The company confirmed that these initiatives command only a minimal part of its capital expenditure. Shell has set ambitious targets, notably the capture of 25 million tonnes of carbon per annum (mtpa) by 2035. We pushed the company on the credibility of this target, given the average CCUS plant captures around 1.5 mtpa and currently Shell only has two operating plants. In addition, Shell confirmed that current projects are dependent on both government and corporate partner support. Developments in the pricing of carbon will have a significant bearing on the company's progress on this front and we anticipate greater and continued involvement in the coming months and years.
3. Operations in Nigeria: We requested further details regarding Shell's plans to exit its onshore oil operations in Nigeria. Concurrently, we pushed the company to specify a timeline and publish findings on what this meant for the ongoing controversies with local communities. The company has attempted multiple unsuccessful initiatives (Nigeria represents Shell's largest
social investment spend) and confirmed that disinvestment was the last resort. We received reassurance Shell was not relinquishing its commitment to help communities affected by past controversies.
Climate risk data
In our 2021 Stewardship Report, we highlighted how we are engaging on climate risk with our third party data provider.
One of the key advantages of Ruffer's approach to integrating ESG factors into our investment process is the ability to pair top-down data from third party ESG providers with bottom-up analysis conducted by our dedicated team of research and responsible investment analysts.
Because we have one investment approach with a concentrated portfolio, our analysts aim to devote the necessary time and resources to developing a deep and holistic understanding of each security and the associated ESG risks and opportunities. This enables us to evaluate the output of the climate scenario analysis and integrate it into our investment approach.
As detailed in our Stewardship Report, we are comfortable with the climate modelling that informs much of the climate risk data generated by our third party provider. However, we have had difficulty reconciling how the provider's macro analysis matches with the more granular, company specific detail. Where the provider's outputs are not aligned with our Research Analysts' understanding of the businesses in question, we have entered into discourse with the provider.
This was especially evident with regards to the way the provider calculates technology opportunities and attributes physical risks. This remains the subject of ongoing engagement, more details of which can be found in Ruffer's Q2 2022 Responsible Investment report.
Investments |
Currency |
Holding at 30 June 22 |
Fair value £ |
% of total net assets |
Ruffer Illiquid Multi Strategies Fund 2015* |
GBP |
80,339,911 |
102,059,244 |
10.71 |
Ruffer Protection Strategies International* |
GBP |
13,264,859 |
69,339,398 |
7.28 |
US Treasury inflation indexed bond 0.625% 15/04/2023 |
USD |
50,000,000 |
48,578,000 |
5.10 |
Ishares Physical Gold |
USD |
1,620,000 |
46,878,634 |
4.92 |
US Treasury floating rate bond 31/01/2024 |
USD |
50,000,000 |
41,144,576 |
4.32 |
UK index-linked gilt 0.125% 22/03/2024 |
GBP |
24,000,000 |
35,000,109 |
3.67 |
UK index-linked gilt 1.875% 22/11/2022 |
GBP |
20,000,000 |
33,647,195 |
3.53 |
US Treasury floating rate bond 31/10/2023 |
USD |
35,000,000 |
28,786,336 |
3.02 |
UK index-linked gilt 0.125% 22/03/2068 |
GBP |
12,907,220 |
25,128,271 |
2.64 |
LF Ruffer Gold Fund* |
GBP |
9,579,120 |
23,966,709 |
2.52 |
* Ruffer Illiquid Multi Strategies Fund 2015 Ltd and Ruffer Protection Strategies International are classed as related parties as they share the same Investment Manager (Ruffer AIFM Limited) as the Company. LF Ruffer Gold Fund and Ruffer SICAV UK Mid & Smaller Companies Fund are also classed as related parties as their investment manager (Ruffer LLP) is the parent of the Company's Investment Manager.
At the date of this report, the Company has six non-executive Directors, all of whom are independent.
Christopher Russell , a resident of Guernsey, is a non-executive director of investment and financial companies. These include Hanseatic Asset Management Ltd, a family office in Guernsey, and JPMorgan Global Core Real Estate Assets Ltd, a vehicle which invests in unlisted global JPMorgan real estate and infrastructure funds. Prior to a non-executive career, Chris was a director of Gartmore Investment Management plc, where he was Head of Gartmore's businesses in the US and Japan. Before that he was a holding board director of the Jardine Fleming Group in Asia, resident in Japan then Hong Kong. Prior to joining Flemings in London, he was with Phillips & Drew Asset Management. He is a Fellow of the UK Society of Investment Professionals and a Fellow of the Institute of Chartered Accountants in England and Wales. He was commissioned by John Wiley to publish in 2006 'Trustee Investment Strategy for Endowments and Foundations'.
Mr. Russell was appointed to the Board on 1 December 2016 and became Chairman of the Board on 4 December 2020.
Shelagh Mason , a resident of Guernsey, is a solicitor specialising in English commercial property. She retired as a consultant with Collas Crill LLP in October 2020. She is also non-executive Chairman of the Channel Islands Property Fund Limited, sits on the Board of Riverside Capital PCC and Skipton International Limited, a Guernsey Licensed bank, and until 28 February 2022 was a non-executive director of The Renewables Infrastructure Group Limited, a FTSE 250 company, when she retired after 9 years on the board. Shelagh also sits on the board of Starwood European Real Estate Finance Limited, a London-listed company. Previously Shelagh was a member of the board of directors of Standard Life Investments Property Income Trust Limited, a property fund listed on the London Stock Exchange, for 10 years until December 2014. She retired from the board of MedicX Fund Limited, a main market listed investment company investing in primary healthcare facilities in 2017 after 10 years on the board. She is a past Chairman of the Guernsey Branch of the Institute of Directors, a member of the Chamber of Commerce and the Guernsey International Legal Association, and she also holds the IOD Company Direction Certificate and Diploma with distinction. Mrs Mason was appointed to the Board on 1 June 2020.
Jill May , a resident of the United Kingdom, has 25 years' experience in investment banking, 13 years in M&A with S.G. Warburg & Co. Ltd. and 12 years as a Managing Director at UBS, focused on group strategy and organisational change. She has broad knowledge of investment
banking, asset management and private banking in the UK and EMEA. She is an External Member of the Prudential Regulation Committee of the Bank of England and was a non-executive director of the CMA from its inception in 2013 until October 2016, and a Panel Member of the CMA until2018. She is a non-executive director of JPMorgan Claverhouse, a UK listed investment trust, abrdn Property Income Trust, a UK-listed REIT, and of AlphaFMC, a UK-listed financial consulting company. Ms. May was appointed to the Board on 17 March 2017, became Senior Independent Director on 4 December 2020 and will retire on 2 December 2022.
David Staples , a resident of Guernsey, is a fellow of the Institute of Chartered Accountants in England and Wales and an associate of the Chartered Institute of Taxation. He also holds the Institute of Directors' Diploma in Company Direction. For thirteen years until 2003, Mr Staples was a partner with PricewaterhouseCoopers (PwC) and led the tax practice in the South East of England advising several large family and owner-managed businesses. He was also a member of the management board of the firm's London and South East Middle Markets Tax Practice. Since leaving PwC, Mr Staples has joined the boards of several listed companies as a non-executive director. He has served as chairman of MedicX Fund Limited and chairman of the audit committees of Henderson Far East Income Limited and Aberdeen Private Equity Fund Limited. He is currently a director of NB Global Monthly Income Fund Limited and Baker Steel Resources Trust Limited, both of which are listed on the London Stock Exchange. He is also a director and chairman of the general partners of several private equity funds advised by Apax Partners.
Mr Staples was appointed to the Board on 2 March 2018 and will retire on 2 December 2022.
Nicholas Pink , a resident of the United Kingdom, has extensive senior management experience in financial services with previous roles at UBS Investment Bank, including Global Head of Research, Head of European Research, Head of Asia Research and Head of European Equities. Prior to this he was Head of European Utilities Research at UBS Investment Bank. He is a non-executive director of JP Morgan Russian Securities plc, a UK-listed investment trust, and of Redburn Europe Limited, an independent provider of research and execution services to institutional investors.
Mr Pink was appointed to the Board on 1 September 2020.
Susie Farnon , a resident of Guernsey, is a Fellow of the Institute of Chartered Accountants in England and Wales and a non- executive director of a number of property and investment companies (as further detailed below). Susie was a Banking and Finance Partner with KPMG Channel Islands from 1990 until 2001 and Head of Audit KPMG Channel Islands from 1999. She has served as President of the Guernsey Society of Chartered and Certified Accountants and as a member of the States of Guernsey Audit Commission and Vice-Chairman of the Guernsey Financial Services Commission. Susie was appointed as a non-executive director of the Association of Investment Companies, the UK Investment Companies' trade body, on 1 April 2018. Susie was appointed to the Board on 1 September 2022.
The Directors of the Company present the audited Financial Statements and their report for the year ended 30 June 2022 which have been prepared in accordance with the Companies (Guernsey) Law, 2008 ('company law').
Registration
The Company was incorporated with limited liability in Guernsey on 1 June 2004 as a company limited by shares and as an authorised closed-ended investment company. As an existing closed- ended fund the Company is deemed to be granted an authorised declaration in accordance with section 8 of the Protection of Investors (Bailiwick of Guernsey) Law, 2020, as amended and rule
6.02 of the Authorised Closed-ended Investment Schemes Rules and Guidance 2021.
Principal activity and investment objective
The Company is a Guernsey authorised closed-ended investment company with a premium listing on the London Stock Exchange (LSE). The principal objective of the Company is detailed in the strategic report of the Financial Statements.
Share issuance
During the year, 104,497,127 new redeemable participating preference shares were allotted or issued under the block listing facility (30 June 2021: 23,930,000 redeemable participating preference shares issued). Details of the block listing facility are set out in note 13.
In addition, in December 2021 the Company issued 13,787,221 new redeemable participating preference shares by way of an Open Offer, Offer for Subscription and Intermediaries Offer as set out in a prospectus published in November 2021.
Purchase of own shares by the Company
The Company may purchase, subject to various terms as set out in its Articles and in accordance with the Companies (Guernsey) Law, 2008, up to 14.99%. of the Company's shares in issue following the admission of shares trading on the LSE's market for listed securities. For additional information refer to note 20.
The Company did not buy back any shares during the year (30 June 2021: Nil).
The Board also has the discretion to operate the Redemption Facility, offering shareholders the possibility of redeeming all or part of their shareholding for cash at NAV, if it appears appropriate to do so.
Results and dividends
The results for the year are set out in the Statement of Comprehensive Income . Details of dividends paid and proposed are set out in note 5.
Subsequent events
Events occurring after the balance sheet date are disclosed in note 21 in the Financial Statements.
Shareholder information
The Company announces its unaudited NAV on a weekly basis and at the month end. A monthly report on investment performance is published by the Company's Investment Manager, on the Company's website, ruffer.co.uk/ric.
Investment management
The key terms of the Investment Management Agreement and specifically the fee charged by the Investment Manager are set out in notes 8 and 16 of the Financial Statements.
The Board reviews on an ongoing basis the performance of the Investment Manager and considers whether the investment strategy utilised is likely to achieve the Company's investment objective of realising a positive total annual return, after all expenses, of at least twice the return of the Bank of England Bank Rate.
In accordance with Listing Rule 15.6.2 (2) R and having formally appraised the performance, investment strategy and resources of the Investment Manager, the Board has unanimously agreed that the interests of the shareholders as a whole are best served by the continuing appointment of the Investment Manager on the terms agreed.
The Investment Management Agreement will continue in force until terminated by the Investment Manager or the Company giving to the other party thereto not less than 12 months' notice in writing.
Directors
The details of the Directors of the Company during the year and at the date of this report are set out in the Management and Administration summary.
Directors' interests
The details of the number of redeemable participating preference shares held beneficially by the Directors who held office at 30 June 2022 and up to the date of this report are set out on in note 16.
Substantial share interests
As at 31 August 2022*, the Company has received notifications in accordance with the FCA's Disclosure and Transparency Rule 5.1.2 R of the following interests in 3% or more of the voting rights attaching to the Company's issued shares.
% of issued
Investor |
Shares held |
share capital |
Brewin Dolphin, stockbrokers |
50,258,143 |
14.82 |
Hargreaves Lansdown, stockbrokers |
31,276,370 |
9.22 |
Rathbones |
30,464,974 |
8.98 |
Interactive Investor |
27,013,473 |
7.96 |
Evelyn Partners |
18,881,288 |
5.57 |
Charles Stanley |
17,577,863 |
5.18 |
AJ Bell, stockbrokers |
15,608,260 |
4.60 |
*Data is taken from the latest available Share Register Analysis produced by Richard Davies Investor Relations Limited |
|
|
International tax reporting
For the purposes of the US Foreign Accounts Tax Compliance Act (FATCA), the Company registered with the US Internal Revenue Service (IRS) as a Guernsey reporting Foreign Financial Institution (FFI) in June 2014, received a Global Intermediary Identification Number (99DLPF.99999.SL.831), and can be found on the IRS FFI list.
The Common Reporting Standard (CRS) is a standard developed by the Organisation for Economic Co-operation and Development (OECD) and is a global approach to the automatic exchange of tax information, to counter tax evasion and to build upon other information-sharing legislation, such as FATCA. Guernsey has adopted the CRS, which came into effect on 1 January 2016.
The Board confirms that the Company's FATCA and CRS submissions for 2021 were submitted by the deadline of 30 June 2022.
The Company is committed to zero tolerance towards the facilitation of tax evasion.
Alternative Investment Fund Managers Directive
The Company is categorised as a non-EU Alternative Investment Fund (AIF). The AIFMD seeks to regulate managers of AIFs, such as the Company. It imposes obligations on AIFMs who manage AIFs in a member state of the European Economic Area (EEA state), or who market shares in AIFs to investors who are domiciled, or with a registered office, in an EEA state. Under the AIFMD, an AIFM must be appointed and must comply with various organisational, operational and transparency requirements.
The Company has appointed the Investment Manager to act as AIFM on behalf of the Company. The Investment Manager is responsible for fulfilling the role of the AIFM and ensuring the Company complies with the AIFMD requirements. The AIFM has no direct employees as it delegates its duties to Ruffer LLP. Ruffer LLP's employee remuneration disclosure requirements under the AIFMD are included in its Pillar III remuneration disclosure statement.
Non-mainstream Pooled Investments
The Company intends to be operated in such a manner that its shares are not categorised as non- mainstream pooled investments. Among other things, this requires the Company to pay dividends such that it retains no more than 15% of the income that it receives or is deemed to receive for UK tax purposes on an annual basis so that it would qualify as an investment trust if it were UK tax- resident.
Disclosure of information to the Independent Auditor ("the Auditor")
Each of the persons who is a Director at the date of approval of the Financial Statements confirms that
1 so far as each Director is aware, there is no relevant audit information of which the Company's Auditor is unaware and
2 each Director has taken all steps he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's Auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of Section 249 of the Companies (Guernsey) Law, 2008.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and Financial Statements in accordance with applicable Guernsey law and regulations.
Guernsey company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and applicable law.
Under company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.
In preparing the Financial Statements, International Accounting Standard 1 requires that directors -
- select suitable accounting policies and apply them consistently
- make judgements and estimates that are reasonable, relevant and reliable
- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the Financial Statements
- assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and
- use the going concern basis of accounting, unless they either intend to liquidate the Company or cease operations, or have no realistic alternative but to do so.
The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the Financial Statements comply with company law. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the oversight of the maintenance and integrity of the corporate and financial information included on the Company's website, ruffer.co.uk/ric. Legislation in Guernsey governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
Responsibility statement
We confirm that to the best of our knowledge -
- the Financial Statements have been prepared in conformity with IFRS as issued by the IASB and adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company as required by DTR 4.1.12
- the Annual Financial Report, taken as a whole, is fair, balanced and understandable and provide the information necessary for the shareholders to assess the Company's performance, business model and strategy and
- the Annual Financial Report including information detailed in the Chairman's review, the Report of the Directors, the Investment Manager's report, the Report of the Depositary and the notes to the Financial Statements, includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that it faces, as required by
a DTR 4.1.8 and DTR 4.1.9 of the Disclosure and Transparency Rules, being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company and
b DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of important events that have occurred since the end of the financial year and the likely future development of the Company.
On behalf of the Board
David Staples
Director
4 October 2022
Corporate governance
On 1 January 2016, the Company became a member of the Association of Investment Companies (AIC) and complies with the 2019 AIC Code of Corporate Governance issued in February 2019 ('the AIC Code'), effective for accounting periods commencing on or after 1 January 2019. By complying with the AIC Code, the Company is deemed to comply with both the UK Corporate Governance Code 2018 ('the UK Code') and the Guernsey Financial Services Commission (GFSC) Finance Sector Code of Corporate Governance (as amended in June 2021) ('the GFSC Code').
To ensure ongoing compliance with these principles the Board receives a report from the Company Secretary on an annual basis identifying how the Company is in compliance and identifying any areas of non-compliance. The Company has complied with the principles and provisions of the UK Code throughout the year, with the following exceptions -
- the Company has no chief executive, as envisaged by principle G and provision 9 of the UK Code. See the Composition and independence of the Board section below
- the Company has no internal audit function, as envisaged by principle M and provision 25 of the UK Code. See the Internal control section below
- the Company does not have a remuneration committee, as required by principle Q and provision 32 of the UK Code. See the Remuneration Committee section below.
The AIC Code is available on the AIC's website, theaic.co.uk.
The Board, having reviewed the AIC Code, considers that it has maintained procedures during the year ended 30 June 2022 and up to the date of this report to ensure that it complies with the AIC Code except as detailed above.
Guernsey regulatory environment
The GFSC Code comprises Principles and Guidance, and provides a formal expression of good corporate practice against which shareholders, boards and the GFSC can better assess the governance exercised over companies in Guernsey's finance sector. The GFSC recognises that the different nature, scale and complexity of business will lead to differing approaches to meeting the GFSC Code.
Purpose of the Company
The purpose of the Company is to provide its shareholders with access to a portfolio of equity, equity-related and debt investments that will produce a positive return of at least twice the Bank of England bank rate. For further details, see the strategic report section.
Role of the Board
The Board is the Company's governing body and has overall responsibility for ensuring the Company's success by directing and supervising the affairs of the business and meeting the appropriate interests of shareholders and relevant stakeholders, while enhancing the value of the Company and also ensuring protection of investors. A summary of the Board's responsibilities is as follows -
- statutory obligations and public disclosure
- strategic matters and financial reporting
- capital management, including gearing and dividend policy
- review of investment performance and associated matters
- risk assessment and management including reporting compliance, governance, monitoring and control and
- other matters having a material effect on the Company.
The Board's responsibilities for the Annual Report are set out in the Statement of Directors' Responsibilities.
The Board has contractually delegated responsibility for the management of its investment portfolio, the arrangement of custodial and depositary services and the provision of accounting and company secretarial services. The Board has adopted a schedule of matters specifically reserved for its decision-making and distinguishing these from matters it has delegated to the Company's key service providers. This schedule is available on the Company's website, ruffer.co.uk/ric.
The Board needs to ensure that the Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's performance, business model and strategy.
In seeking to achieve this, the Directors have set out the Company's investment objective and strategy and have explained how the Board and its delegated Committees operate and how the Directors review the risk environment within which the Company operates and set appropriate risk controls. Furthermore, throughout the Financial Statements the Board has sought to provide further information to give shareholders a fair, balanced and understandable view.
Relations with shareholders
The Board welcomes shareholders' views and places great importance on communication with its shareholders. The Board receives regular reports on the views of its shareholders from the Company's Broker and Investment Manager which are taken into consideration as part of the Board's decision-making process.
The Chairman and other Directors are available to meet shareholders if required and the AGM of the Company provides a forum for shareholders to meet and discuss issues with the Directors of the Company.
The Chairman and Directors offer to meet with shareholders at regular investor presentations co- ordinated by the Investment Manager to discuss key strategic matters and any issues raised by shareholders.
In addition, the Investment Manager maintains a website which contains comprehensive information, including financial reports, prospectus and monthly reports on investment performance which contains share price information, investment objectives, investment reports and investor contacts.
Stakeholders and Section 172
Whilst directly applicable to companies incorporated in the UK, the Board recognises the intention of the AIC Code that matters set out in section 172 of the Companies Act, 2006 are reported. The Board strives to understand the views of the Company's key stakeholders and to take these into consideration as part of its discussions and decision-making process. As an investment company the Company does not have any employees and conducts its core activities through third-party service providers. Each service provider has an established track record and is required to have in place suitable policies and procedures to ensure it maintains high standards of business conduct, treats customers fairly, and employs corporate governance best practice.
The Board's commitment to maintaining high standards of corporate governance, combined with the Directors' duties incorporated in the Companies (Guernsey) Law, 2008, the Company's constitutive documents, the Disclosure Guidance and Transparency Rules and the Market Abuse Regulation, ensure that shareholders are provided with frequent and comprehensive information concerning the Company and its activities.
Whilst the primary duty of the Directors is owed to the Company as a whole, all Board discussions involve careful consideration of the longer-term consequences of any decision and their implications for stakeholders. Particular consideration is given to the continued alignment between the activities of the Company and those that contribute to delivering the Board's strategy, which include the Company's Investment Manager, the AIFM, the Administrator, the Broker and the Custodian.
Through the Board's ongoing programme of shareholder engagement (see 'Relations with shareholders' above) and the reports produced by each key service provider at quarterly Board meetings, the Directors are satisfied that sufficient information is provided so as to ensure the matters set out in section 172 of the Companies Act are taken into consideration as part of the Board's decision-making process.
The Board respects and welcomes the views of all stakeholders. Any queries or areas of concern regarding the Company's operations can be raised with the Company Secretary.
Section 172 statement
Although the Company is not domiciled in the UK, through adopting and reporting against the best practice principles set out in the AIC Code, the Company is voluntarily meeting any obligations under the UK Corporate Governance Code, including section 172 of the Companies Act 2006.
The Board of Directors recognise their individual and collective duty to act in good faith and in a way that is most likely to promote the success of the Company for the benefit of its members as a whole, whilst also having regard, amongst other matters, to the Company's key stakeholders and the likely consequences of any decisions taken during the year, as set out below.
- The interests of the Company's employees: the Company has no direct employees and maintains close working relationships with the employees of the Investment Manager and the Administrator, who undertake the Company's main functions. Refer to the report of the Management Engagement Committee.
- The impact of the Company's operations on the community and the environment: whilst the Company has a limited impact on the community and environment in respect of its day to day activities, the Board notes that the Investment Manager recognises that environmental responsibility is core to its longer term business success, and actively integrates environmental, social and corporate governance (ESG) issues into its investment process. The Investment Manager's ESG policy is available upon request. For more detail, please see the Responsible investment report.
- The need to foster the Company's business relationships with suppliers and others: the Board maintains close working relationships with all key suppliers and those responsible for delivering the Company's strategy. The contractual relationship with each supplier and their
performance is formally reviewed each year. Refer to the report of the Management Engagement Committee.
- The desirability of the Company maintaining a reputation for high standards of business conduct: the Chair is responsible for setting expectations concerning the Company's culture and the Board ensures that its core values of integrity and accountability are demonstrated in all areas of the Company's operation.
- The need to act fairly between Shareholders of the Company: the Board, in conjunction with the Investment Manager and Broker, engages actively with Shareholders to understand their views and to ensure their interests are taken into consideration when determining the Company's strategic direction. Refer to the section on 'Relations with shareholders' above.
The Company engaged with shareholders on a number of occasions throughout the financial year, with the issue of five shareholder circulars and two prospectuses. Shareholders voted overwhelmingly in favour on each occasion to provide the Board with authority to issue shares on a non-pre-emptive basis, and at an EGM held in April 2022, to increase the cap on the ordinary remuneration of the Directors from £200,000 to £300,000 per annum.
During the year, the Company issued a total of 118,284,348 shares, including an offering to both retail and institutional shareholders. The increase in market capitalisation of the Company to nearly £1 billion led to the Company's entry into the FTSE 250 Index in March 2022. This significant growth has been to the advantage of all shareholders leading to the broadening of the shareholder base, accretion to NAV and an improvement in the liquidity of the Company's shares. The reasons for seeking shareholder authority to issue shares were stated in the Circulars and are detailed by the Chairman in the Share issuance section of his statement.
Composition and independence of the Board
The Board currently comprises six non-executive Directors, all of whom are considered to be independent. The current size of the Board reflects parallel running of the current and prospective Audit chairs for three months, before reverting to five Directors, which the Board considers to be its optimal size for the time being, after the 2022 AGM. The Board considers that it has a good balance of skills and experience to ensure it operates effectively. The Directors of the Company are listed in the Management and Administration summary.
The Company has no employees and therefore there is no requirement for a chief executive. None of the Directors has a contract of service with the Company.
The current Chairman of the Board is Mr Christopher Russell. Mr Russell was appointed as Chairman of the Board on 4 December 2020.
The Chairman of the Board must be independent for the purposes of Chapter 15 of the Listing Rules. Mr Russell is considered independent because he -
- has no current or historical employment with the Investment Manager
- has not provided any professional advisory services to the Investment Manager and
- has no current directorships in any other investment funds managed by the Investment Manager.
As Chairman, Mr Russell is responsible for leading the Board of Directors and for ensuring its effectiveness in all aspects of its role. The key responsibilities of the Chairman are as follows -
- meeting with major shareholders to obtain a balanced understanding of any issues, concerns, and providing feedback to the Board
- demonstrating ethical leadership and promoting the highest standards of integrity, probity and corporate governance throughout the Company
- setting the Board's agenda and ensuring the Board has in place effective decision-making processes which are supported by accurate and high-quality information and
- leading the annual performance evaluation of the Board and taking all appropriate actions based on the results of the evaluation.
In accordance with the AIC Code and in recognition of the Board's desire to maintain high standards of corporate governance, the Board appointed Mrs Jill May as the Company's Senior Independent Director (SID) with effect from 4 December 2020.
The key roles and responsibilities of the SID are as follows -
- providing support to the Chairman in relation to matters of Board effectiveness and governance
- being available to shareholders and the other Directors as an additional point of contact or to communicate any concerns to the Board
- leading the annual performance evaluation of the Chairman of the Board and succession planning for the Chairman's role and
- attending meetings with major shareholders alongside the Chairman, as required.
The Board has engaged external companies to undertake the investment management, administrative and custodial activities of the Company. Documented contractual arrangements are in place with these companies which define the areas where the Board has delegated responsibility to them.
The Company holds a minimum of four Board meetings per year to discuss strategy, general management, structure, finance, dividend payments, capital management, corporate governance, ESG matters, marketing, risk management, compliance and gearing, contracts and performance. The quarterly Board meetings are the principal source of regular information for the Board, enabling it to determine policy and to monitor performance, compliance and controls but these meetings are supplemented by communication and discussions throughout the year.
Representatives of the Investment Manager, Administrator and Company Secretary attend each Board meeting either in person or by videoconference, thus enabling the Board to fully discuss and review the Company's operations and performance. In addition, representatives from the Company's Broker attend at least two Board meetings a year. Each Director has direct access to the Investment Manager and Company Secretary and may at the expense of the Company seek independent professional advice on any matter.
Attendance at the Board and other meetings during the year was as follows -
Management
Board |
Audit & Risk Committee |
Engagement Committee |
||||||
Meetings |
Scheduled |
Attended |
|
Scheduled |
Attended |
|
Scheduled |
Attended |
Christopher Russell |
4 |
4 |
|
3 |
3 |
|
1 |
1 |
Jill May |
4 |
4 |
|
3 |
3 |
|
1 |
1 |
David Staples |
4 |
4 |
|
3 |
3 |
|
1 |
1 |
Shelagh Mason |
4 |
4 |
|
3 |
3 |
|
1 |
1 |
Nicholas Pink |
4 |
4 |
|
3 |
3 |
|
1 |
1 |
Susie Farnon was appointed subsequent to the year end, and therefore did not attend any meetings during the year. In addition to the above meetings, a number of ad-hoc meetings of an administrative nature were held during the year.
Conflicts of interest
Directors are required to disclose all actual and potential conflicts of interest as they arise for approval by the Board, who may impose restrictions or refuse to authorise conflicts. The process of consideration and, if appropriate, approval will be conducted only by those Directors with no material interest in the matter being considered. The Board maintains a Conflicts of Interest policy which is reviewed periodically and a Business Interests and Potential Conflicts of Interest Register which is reviewed by the Board at each quarterly Board meeting.
Directors' indemnity
Directors' and Officers' liability insurance cover is maintained by the Company on behalf of the Directors.
Re-election
The Company's Articles prescribe that, at each AGM, one-third of the Directors shall retire from office and may offer themselves for re-election. However, in line with best practice, the Board has determined that all of the Directors should stand for re-election at each AGM.
Accordingly, on 3 December 2021 at the 16th AGM of the Company, Nicholas Pink, Shelagh Mason, Jill May, Christopher Russell and David Staples retired as Directors of the Company and, being eligible, offered themselves for re-election, and were re-elected as Directors of the Company by the Shareholders.
On 16 June 2022, the Company announced that David Staples and Jill May have confirmed that they will retire from the Board on 2 December 2022, and that they would be replaced as Directors by Susie Farnon (with effect from 1 September 2022) and Solomon Soquar (with effect from
2 December 2022). The Board remains satisfied that the individual contributions of each Director are, and will continue to be, important to the Company's long-term sustainable success.
Accordingly, at the 17th AGM of the Company to be held on 2 December 2022, Susie Farnon and Solomon Soquar will be proposed for election, and Christopher Russell, Nicholas Pink and Shelagh Mason will be proposed for re-election. Further details regarding the experience of each of the Directors are set out below.
The Directors may at any time appoint any person to be a Director either to fill a vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office only until, and shall be eligible for election at, the next general meeting following their appointment but shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at that meeting if it is an AGM.
Board evaluation
Towards the end of the prior financial year, the Board engaged Lintstock, a firm highly experienced in conducting board evaluations, to facilitate an external evaluation of the Board, the Chairman and the Investment Manager. The Board evaluation considered a broad range of areas including;
Board composition and expertise, Board dynamics, the structure of the Board and its Committees, Board oversight of investment strategy and performance, relations with shareholders, oversight of risk management, succession planning and priorities for change during the forthcoming financial year.
The Investment Manager evaluation considered the success of the Company's investment policy, benchmarking against a peer group, the Investment Manager's communication of strategy and performance to the Board, shareholder perception of the Investment Manager and priorities for change during the forthcoming financial year.
The external evaluation identified the Board as a well-functioning body, with areas identified for further consideration including: seeking deeper engagement with shareholders following the change of Chair and SID; and ensuring effective face-to-face meetings between the Board and Investment Manager in the post-covid-19 environment. In November 2021, the Chairman and one Director attended an investment meeting arranged by Ruffer with a number of shareholders. Face- to-face meetings between the Board and the Investment Manager have resumed since the end of covid-19-related lock-downs.
The next externally facilitated Board evaluation will be conducted in relation to the financial year ending 30 June 2024.
During the financial years where an external evaluation is not conducted, the Board conducts an annual self-evaluation of its performance and that of the Company's individual Directors, which is led by the Chairman and, as regards the Chairman's performance evaluation, by the Senior Independent Director. The annual self-evaluation considers how the Board functions as a whole, taking into account the balance of skills, experience and length of service of each Director, and also reviews the individual performance of its members.
To facilitate the self-evaluation, the Company Secretary circulates a detailed questionnaire to each Director and a separate questionnaire for the evaluation of the Chairman. The questionnaires, once completed, are returned to the Company Secretary who collates responses, prepares a summary and discusses the Board evaluation with the Chairman prior to circulation to the remaining Board members. The performance of the Chairman is evaluated by the other Directors, led by the Senior Independent Director.
The Board considers the annual self-evaluation process to be appropriate having regard to the non- executive role of the Directors and the significant outsourcing of services by the Company to external providers.
Board succession planning
The Board considers it has a breadth of experience relevant to the Company, and the Directors believe that any changes to the Board's composition can be managed without undue disruption. An induction programme is in place for all Director appointees. Any proposals for a new Director are discussed and approved by the Board.
The Board's succession planning policy seeks to ensure that the Board remains well balanced and that the Directors have a sufficient level of skills, knowledge and experience to meet the needs of the Company. The Directors are ever-cognisant of the need for the Board to have a balance of gender and other attributes, including the requirement to appoint a majority of non-UK resident Directors.
The Board's policy is that a Director of the Company, who subsequently becomes Chairman, should serve for no more than a total of 12 years.
Board diversity
The Board supports the recommendations of the Davies Report and notes the recommendations of the Parker review into ethnic diversity and the Hampton-Alexander review on gender balance in FTSE leadership. The Board supports the widening of its diversity, whilst ensuring the capabilities, experience and background of each member remain appropriate to the Company and continue to contribute to overall Board effectiveness.
The Board is currently 50% female, reducing to 40% on the retirement of Jill May on 2 December 2022. The diversity requirements announced by the FCA for premium-listed companies for accounting periods commencing after 1 April 2022 will be met by RICL in its accounting period commencing 1 July 2022.
Committees of the Board
The Board has established an Audit and Risk Committee and a Management Engagement Committee and approved their terms of reference, copies of which can be obtained from the Company Secretary upon request and on the Company's website at ruffer.co.uk/ric.
The table below sets out the number of Committee meetings held during the year ended 30 June 2022 and the number of such meetings attended by each Committee member.
Audit and Risk Committee
The Company has established an Audit and Risk Committee, with formally delegated duties and responsibilities within written terms of reference. The Audit and Risk Committee is comprised of the entire Board and has been chaired by David Staples since 1 July 2018. The Audit and Risk Committee meets formally at least three times a year and each meeting is attended by the Auditor and Administrator.
A report of the Audit and Risk Committee detailing responsibilities and activities is presented above.
Management Engagement Committee
The Company has established a Management Engagement Committee, with formally delegated duties and responsibilities within written terms of reference. The Management Engagement Committee is comprised of the entire Board, with Jill May appointed as Chairman. The Management Engagement Committee meets annually in June each year and holds ad hoc meetings to address any arising issues as required.
The principal duties of the Committee are to review the performance of and contractual arrangements with the Investment Manager and all other service providers to the Company (other than the Auditor).
During the year the Committee has reviewed the services provided by its service providers, and recommended that the continuing appointments of the Company's Investment Manager and other service providers was in the best interests of the Company. The last meeting was held on 16 June 2022.
A report of the Management Engagement Committee detailing responsibilities and activities during the year is presented below.
Nomination Committee
The Board does not have a separate Nomination Committee, the functions of which are fulfilled by the Board. Any proposals for a new Director are discussed and approved by the Board. The Board will determine whether an external search consultancy or open advertising is used in the appointments of future non-executive Directors.
Remuneration Committee
In view of its non-executive and independent nature, the Board considers that it is not appropriate to have a Remuneration Committee as anticipated by the UK Code because this function is carried out as part of the regular Board business. A Remuneration report prepared by the Board is set out below.
Internal control
The Company's risk exposure and the effectiveness of its risk management and internal control systems are reviewed by the Audit and Risk Committee at its meetings and annually by the Board.
The Board is responsible for establishing and maintaining the Company's system of internal controls and for maintaining and reviewing its effectiveness. The system of internal controls is designed to manage rather than to eliminate the risk of failure to achieve business objectives and as such can only provide reasonable, but not absolute, assurance against material misstatement or loss. These controls aim to ensure that assets of the Company are safeguarded, proper accounting records are maintained and the financial information for publication is reliable. The Board uses a formal risk assessment matrix to identify and monitor business risks.
The Board has contractually delegated to external parties various functions as listed below. The duties of investment management, administration and custody are segregated. Each of the contracts entered into with the parties was entered into after full and proper consideration by the Board of the quality and cost of services offered, including the control systems in operation as far as they relate to the affairs of the Company.
The Board considers on an ongoing basis the process for identifying, evaluating and managing any significant risks faced by the Company. The process includes reviewing reports from the Company Secretary on risk control and compliance, in conjunction with the Investment Manager's regular reports which cover investment performance.
Investment and portfolio risk management is provided by Ruffer AIFM Limited, a company authorised by the FCA.
Administration, accounting, registrar, and company secretarial duties are performed by Sanne Fund Services (Guernsey) Limited (formerly Praxis Fund Services Limited), a company licensed and regulated by the Guernsey Financial Services Commission.
CREST agency functions are performed by Computershare Investor Services (Jersey) Limited, a company licensed and regulated by the Jersey Financial Services Commission.
Depositary services performed by Northern Trust (Guernsey) Limited, a company licensed and regulated by the Guernsey Financial Services Commission.
Custodial services are provided by Northern Trust (Guernsey) Limited, a company licensed and regulated by the Guernsey Financial Services Commission.
Sponsorship and brokering services are provided by Investec Bank plc (Investec), a firm which is authorised and regulated by the FCA.
The Board reviews regularly the performance of the service companies. The Auditor is reviewed by the Audit Committee and the other service providers by the Management Engagement Committee (MEC) as described in the MEC report.
The Board meets formally with the Investment Manager quarterly to review the performance of the investments in the light of the Company's investment objectives, and the Investment Manager's position against its peers. The Board also conducts an annual visit to the offices of Ruffer LLP to meet with certain of the senior executives