PLOT SPOILER!!!
I havent seen this film for a while, but from what I remember it was intentially ambigious. There are many ways to look at it: Firstly the figure in the red coat around Vencie could well have just been a dwarf murderer, that coincidentally wore the same red coat as Donald Sutherland's daughter. But, another way to look at it is that the figure was a manifestation of his Psyche. This is evident due to the supernatural aspects of the film (i.e The vision of the Funeral boat.) Also there is many references to the occult with the two sisters.But either way Nicholas Roeg, I reckon, has left it up to us to decide.