July 30 (Bloomberg) -- RAB Capital Plc, one of Northern Rock Plc's biggest shareholders when the bank was nationalized in February, said first-half profit fell 44 percent and assets under management declined, hurt by losses on its largest hedge fund.

Net income dropped to 8.7 million pounds ($17.2 million) from 15.4 million pounds a year earlier, the London-based hedge fund manager said in a statement today. Assets declined 12 percent to $5.9 billion from a year earlier.

RAB Special Situations Fund, the $1.4 billion fund managed by Chief Executive Officer Philip Richards, slipped 23 percent in six months to June 30. The pool, the company's largest, lost a third this year through July 24, regulatory filings show.

``There's nothing positive in there,'' said Irfan Younus, an analyst at NCB Stockbrokers in London, who has a ``hold'' recommendation on the shares. ``They've heavily marketed themselves as a star performer on the back of Special Situations, and it's now clearly seeing a lot of stress,'' said Younus, who said he will now revise his earnings estimates lower.

RAB rose 9.1 percent to 42 pence in London trading. The stock has declined 52 percent this year.

Today's gains may have been because some investors expect management will consider a buyout, said Gurjit Kambo, an analyst at Numis Securities Ltd. in London, who has a ``hold'' recommendation on the shares.

``I'm struggling to understand how else the shares could rise,'' said Kambo. ``The numbers were pretty poor and there's a continued reduction in funds under management.''

Assets Drop

RAB's assets dropped another 12 percent in the four weeks since the period ended, falling to $5.4 billion as of July 24, RAB said in its statement.

The Special Situations Fund's biggest investments include African Minerals Ltd., a London-based diamond miner that has fallen 25 percent since June. It also holds Falklands Oil and Gas Ltd., which has lost 3 percent this month, and Oxus Gold Plc, a holding company for precious-metal mining investments in Asia that has dropped 11 percent. The fund had an 8.18 percent holding in U.K. mortgage lender Northern Rock.

The Special Situations fund shrank by $626 million in the period, the biggest nominal drop among funds managed by the company. RAB Energy, its second-biggest fund, contracted by 24 percent in the period, falling to $750 million after redemptions and an 11 percent drop.

``We've been conscious of the consequences of having grown Special Situation and Energy fund has meant that we have a reasonably big emphasis on natural resources,'' said Executive Chairman Michael Alen-Buckley in a call telephone conference call with reporters today.

Smaller Funds

RAB said two-thirds of its funds ended the first half smaller than they started the year. Four funds lost more than 40 percent of their value in the period, led by the RAB European Loan fund, which is less than half the size it started the year.

``We are not expecting any respite before the end of the year,'' Alen-Buckley said in the statement today. ``The first half of 2008 has been a challenging environment and we have not escaped from the falls across global securities markets.''

Performance fees, the share of profits hedge fund managers keep from gains, were 8.3 million pounds, about a third of the 22.4 million generated in the first half of 2007. Management fees, which the company collects regardless of how the funds perform, rose 11 percent to 26.8 million pounds.

``We enter the second half of 2008 with significantly lower unrecognized performance fees, earned across fewer funds than 12 months ago, and a number of our funds are trading at levels below their high water mark,'' Richards and Alen-Buckley said in the statement. ``There has been no evidence to date of an easing in conditions for asset-raising.''

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net

Last Updated: July 30, 2008 12:00 EDT