Do you think Hansa Investment Company is a good investment?

For the first time, William Salomon has united the two trusts under his management

Do investors need to invest?

William, the son of banker Walter Salomon, has finally completed the process of sorting out his inheritance thirty-eight years after his death. A hidden treasure trove of value was initially thought to be contained within the intricate network of corporate cross-holdings between different trading companies and investment trusts. It quickly became clear, however, that the only value was what could be made out of the components.

The most challenging issue involved a company that operated tugboats in Brazilian ports. With a majority stake held by UK-listed Ocean Wilsons (LSE: OCN), this was transformed into a port services and logistics group and went public on the So Paulo market in 2007 as Wilson Sons.

In turn, private trusts connected to the Salomon family and Hansa Investment Company (LSE: HAN) control Ocean Wilsons. The majority ownership of the voting shares, which make up one-third of the total share capital, allows the same family trusts to control Hansa as well.

After selling its interest in Wilson Sons in October of last year, Ocean Wilsons had a sizable cash pile and an investment portfolio. Then, at the end of July, Hansa and Ocean Wilsons decided to combine, forming a single trust with 900 million dollars in assets. Both voting and non-voting shares are being issued in order to carry out the merger, which was approved by shareholders last week. Thus, Hansa's two-tiered structure and Salomons' control will remain in place.

With the Ocean Wilsons stake valued at market value, Hansas voting shares are trading at a 31 percent discount to net asset value (NAV), while its non-voting shares are trading at a 33 percent discount. When the merger is finalized, these discounts will surpass 40%, though, as Ocean Wilsons is currently trading at a discount of almost 40%. The performance and buybacks will determine whether that discount narrows. Performance will have to put in the most effort because buybacks will only be allowed to reach 23% annually because their goal is to supplement Hansa's modest 09% yield rather than to add value or lower the discount.

Is Hansa Investment Company a compelling prospect?

Over a one-year period, Hansa has returned 8.5 percent, 35 percent, and 63 percent. Hansa doesn't aim to stay up with the stock market, even though these underperform the MSCI All-Country World index (12 percent, 41 percent, and 81 percent, respectively). Rather, similar to RIT Capital Partners, it uses a multi-asset strategy to guard against bear markets.

Hansa's much lower exposure to private equity has helped it outperform RIT in recent years, particularly over the last three years.

Just 10% of the portfolio is made up of direct stocks, and less than 1% is made up of private equity. The remaining 10% is made up of "diversifying funds," such as hedge funds, and 53% is made up of "core and thematic funds," which include its 10% stake in a SandP 500 tracker and its 23% in Ocean Wilsons. With more private equity, Ocean Wilson's portfolio is comparable. Using managed funds to invest implies higher costs, but it also lowers dealing costs by decreasing portfolio turnover.

Having joined from HSBC in 2013, Alec Letchfield oversees the day-to-day management of both portfolios. In Ocean Wilson's annual report, Letchfield states, "We have been unashamedly bullish of equity markets, and in particular the US stockmarket, for many years now, ensuring that we remain fully invested." This suggests that, should his opinion change, he is prepared to lower his equity exposure, but he has done well to avoid doing so too soon.

Because of its complex past, Hansa does not fit the profiles of RIT, Ruffer, Capital Gearing, or Personal Assets; however, its track record of performance is comparable to all of them. The 40% discount is a great deal that will undoubtedly disappear over time. Because of the merger, the annual charge is being lowered to about 0.75%. The buyback policy is subject to change, and the voting structure shields the trust from corporate raiders. It's a long-term investment that appeals to cautious investors who aren't scared of uncertainty.