CERNO PACIFIC FUND: Boutique investment house specializing in identifying winning companies in the Pacific region
Cerno Capital is a London-based investment house with three main strings to its bow. She manages multi-asset funds, global mandates and also specializes in identifying winning companies in the Pacific region.
It’s an approach that has seen the partnership quietly increase assets under management to £ 760million over the past 14 years. It is a well managed investment vessel with only 16 employees.
“Our investment strategy across the company is very bottom-up,” says Fay Ren, one of Cerno’s fund managers. “We identify the right companies and then have conviction in whatever positions we take. It’s a low turnover strategy: invest and then hold for the long term in the hope of making a profit for our investors. ‘
Cerno has three consumer funds and Ren manages the £ 100million Cerno Pacific Fund with Michael Flitton. It has 32 holdings and has the capacity to invest in all stock markets – developed or emerging – in the Pacific region. This means key holdings in Australian companies as well as companies listed in Japan.
The fund also has the freedom to invest in emerging markets outside the region if better opportunities arise. This explains why he owns a stake in the Argentinian computer scientist Globant. “This is Argentina’s response to Accenture,” Ren says. “It’s a consulting firm that helps companies go digital. ”
Ren says the fund focuses on “innovation” – identifying companies that have a competitive advantage through innovation. She also likes companies like Globant which have the tools that allow other companies to innovate. “We like companies in growth mode,” she adds, “but with strong balance sheets, moving earnings and good cash flow. ”
One of the businesses owned by Cerno Pacific because of its strong competitive advantage is semiconductor equipment maker Tokyo Electron. “Its products are integrated into the semiconductor supply chain,” explains Ren. “They require high precision manufacturing – and high capital expenditure. It is difficult for rivals to overtake them. She adds: “Tokyo Electron is in a strong position. It sells its products to both China and the United States.
Even if this is a long-term investor, this does not mean that the Cerno Pacific portfolio remains static. In recent months, it has purchased Taiwan-listed Silergy, a manufacturer of analog integrated circuits used in most electronic devices. Ren says Silergy has the potential to become the “next Texas Instruments” – the biggest player in this market. He also bought a stake in Chinese company WuXi Biologics which helps companies bring drugs to market.
One of the main disposals was shares in the online reading platform China Literature. This was due to the uncertainty surrounding the future direction of regulation. Cerno previously sold its shares in Chinese surveillance firm Hikvision after its cameras were reported to be used in Uyghur internment camps.
Cerno’s targeted investment approach appears to be paying off. Over the past three years, the fund has generated a return of 102 percent, well above the industry average return (Asia-Pacific including Japan) of 53 percent.
Although inflation remains a potential problem, Ren seems relatively indifferent. “Every day, we wonder if the companies we own can continue to grow in the context of an ever-changing global economy. The key is to stay alert and on top of the investments we hold. ‘
The total annual fund fee is 1.21% and the stock market ID code is BDCJ9Z3.