Cerno Pacific quadruples assets as fund managers eye Chinese healthcare boom
Fund buoyed by growth in flows towards Asia
The Cerno Pacific fund has seen assets under management almost quadruple in 2020 amid stronger investor interest in the vehicle’s third year as a UCITS structure, with managers Michael Flitton and Fay Ren allocating new capital into Asian healthcare throughout the year.
Originally launched in 2009, Ren and Flitton replaced manager Nick Hornby in early 2018, amid a structural shift away from a multi-manager approach to direct investing.
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Cerno Pacific's AUM has remained steady at around £10m for most of its lifetime, but since the end of last year this has swollen to £40m, FE fundinfo data shows.
This has partially been a function of the fund's strong performance, having returned 38.2% year to date, compared to the IA Asia Pacific ex-Japan sector average of just 7.4% over the period.
Speaking to Investment Week Flitton noted the rise was from a "low base" and reflected the fact that Cerno Capital had not previously marketed the fund.
However, he also pointed to the broader growth of flows to Asia over the past year as a factor behind the growth, with investors increasingly becoming wary of valuations in the US.
He explained: "This has coincided serendipitously for us with people realising that there is - if not a bubble forming in US tech - at least quite egregious valuations there. If you put that together with a potentially declining US dollar environment, then people feel they should be having perhaps more allocation to Asia."
Flitton also attributed the growing investor interest to the fund's strategy, which attempts to differentiate itself from peers through a focus on Asian "innovation" as opposed to consumer growth.
He said: "There are some great growth houses out there with Asian businesses, but the vast majority who continue to invest in Asia focus on the high-end consumer.
"What we are trying to think about with regards to innovation is not necessarily growth, or tech, but innovation in the broadest way possible. It is about market, product and management as well."
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Healthcare
Throughout 2020 the management team has increased its exposure to the healthcare sector, having taken advantage of the March sell-off to buy CSL and sleep apnea device specialist ResMed, and add to existing positions.
Healthcare as a proportion of the portfolio has grown from 3.9% of the portfolio at the end of 2019 to 9% at the end of August, according to FE fundinfo. This compares to a 4.9% average allocation for its sector.
Ren explained the team is particularly positive on healthcare in China, which is now the second-largest healthcare market in the world "and growing at three to four times the global average".
She added: "The global healthcare market is growing to around 4%, whereas China is growing at above 20%. There is also a catalyst from this pandemic, because the Chinese government realised it needs to spend a lot more on upgrading the infrastructure, increasing capacity and access for 1.4 billion people."
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