CERNO PACIFIC FUND: Boutique investment house specialising in identifying winning companies in the Pacific region
Cerno Capital is a London boutique investment house with three main strings to its bow. It runs multi-asset funds, global mandates and also specialises in identifying winning companies in the Pacific region.
It’s an approach that has seen the partnership quietly grow assets under management to £760million over the past 14 years. It’s a tightly run investment ship with just 16 employees.
‘Our investment strategy across the company is very much bottom up,’ says Fay Ren, one of Cerno’s fund managers. ‘We identify good businesses and then have conviction in all the positions we take. It’s a low turnover strategy – invest and then hold for the long term in the hope of making profits for our investors.’
Cerno has three mainstream funds and Ren runs the £100million Cerno Pacific Fund with Michael Flitton. It has 32 holdings and has the ability to invest across all the stock markets – developed or emerging – of the Pacific region. It means key stakes in Australian companies as well as businesses listed in Japan.
The fund also has the freedom to invest in emerging markets outside the region if better opportunities present themselves. This explains why it holds a stake in Argentine IT specialist Globant. ‘It’s Argentina’s answer to Accenture,’ says Ren. ‘It’s a consultancy business that is helping companies digitalise.’
Ren says the fund’s focus is on ‘innovation’ – identifying companies that have a competitive edge as a result of innovation. It also likes businesses such as Globant which have the tools that allow other companies to innovate. ‘We like companies in growth mode,’ she adds, ‘but with strong balance sheets, profits moving in the right direction and good cash flow.’
One business which Cerno Pacific holds because of its strong competitive edge is semiconductor equipment maker Tokyo Electron. ‘Its products are embedded in the semiconductor supply chain,’ says Ren. ‘They require high precision manufacturing – and high capital expenditure. It’s difficult for rivals to leapfrog them.’ She adds: ‘Tokyo Electron is in a powerful position. It’s selling its products to both China and the United States.’
Although a long-term investor, it doesn’t mean Cerno Pacific’s portfolio remains static. In recent months, it has bought into Taiwan-listed Silergy, a manufacturer of analogue integrated circuits that are used in most electronic devices. Ren says Silergy has the potential to grow into the ‘next Texas Instruments’ – the biggest player in this market. It has also purchased a stake in Chinese company WuXi Biologics that assists companies in getting drugs to market.
A key disposal was shares in online reading platform China Literature. This was because of the uncertainty surrounding the future direction of regulation. Cerno previously sold its shares in Chinese surveillance specialist company Hikvision after its cameras were reported being used in Uighur internment camps.
Cerno’s focused investment approach seems to be paying off. Over the past three years, the fund has generated a return of 102 per cent, way above the average sector (Asia Pacific including Japan) return of 53 per cent.
Although inflation remains a potential issue, Ren seems relatively unconcerned. ‘Every day, we question whether the companies we hold can keep growing against a backdrop of an everchanging global economy. The key is to remain watchful and on top of the investments we hold.’
The fund’s total annual charge is 1.21 per cent and the stock market identification code is BDCJ9Z3.
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