GCQ posts 9.6pc fall since February, big jump in July

In its first letter to investors, the investment house started by ex-VGI executive Doug Tynan outlines its strategy and holdings.

The GCQ portfolio is heavily invested in Visa and MasterCard

GCQ, the hedge fund founded by former VGI Partners executive Doug Tynan, has outlined a near 40 per cent return since its inception in January 2021 – and a 9.6 per cent fall since it was opened to outside investment in February.

In the fund's first letter to investors, GCQ provides the fullest glimpse into the fund’s investment strategy and staffing mix since Mr Tynan split from VGI Partners, where he worked on high-profile activist campaigns against Slater & Gordon and others.

“Our team focuses its time on around 15 industries that meet our requirements. Within these industries, there are around 150 companies we research closely, and whose performance and valuation we monitor for potential inclusion in the portfolio,” the letter reads.

The 12-page letter notes 10 per cent of the portfolio is invested in Visa, and another six per cent im rival global consumer payments operator MasterCard. It also includes sizeable investments in luxury goods firms Richemont, Hermes and LVMH, as well as in S&P Global, Moody’s and MSCI. Other large investments include Amazon, some 10 per cent of the portfolio, and Alphabet, another nine per cent.

“While the medium-term economic outlook remains far from clear, we believe there are two causes for optimism emerging for GCQ investors,” it reads.

“First, earlier in the reporting season the CEOs of the major banks (who have possibly the best vantage point for viewing the macroeconomy) each commented positively on the health of business and consumer balance sheets, and continuing robust demand.

“Secondly, we have noted with great interest an emerging bifurcation between the performance of high-quality established companies with pricing power – which are reporting strong results – and lower-quality commoditised businesses that are struggling to maintain earnings in the face of inflation and broader challenges stemming from the macro environment.”

In particular, Mr Tynan and GCQ discuss with investors the New York-listed Fair Isaac Corporation, the owner of the intellectual property behind the FICO Score, a key measure of consumer credit risk in the US.

“While FICO is a local monopoly rather than a business with global growth, we believe the

company has a bright future as its core product is currently significantly underpriced

relative to the value it brings to the lending ecosystem,” the letter reads.

The letter notes the arrival of Stephen Higgins, previously the head of private wealth at GSFM, alongside several other new staff.

The fund’s 39.9 per cent return since inception compares to a 3.1 per cent rise in the MSCI World Index, while the -9.6 per cent result since February compares to a -10.6 per cent outcome for the benchmark index, and a -9.1 per cent result for the S&P 500.

“We understand the mindset of anyone who wishes that they had reduced their exposure to equities in the more buoyant market of late-2021, but history shows that successfully timing the market is no easy task,” the letter reads.

“Predicting future events – such as the outcome of an election, future interest rate movements or the severity of an unfolding pandemic – is fraught with difficulty. Even more difficult is assessing the market’s ultimate response to these events.”

A separate email sent to GCQ investors shows an indicative return for July of 11.5 per cent.

VGI’s ASX-listed investment fund returned 2.2 per cent in that month.

Mr Tynan had been a senior figure with VGI founder Rob Luciano until mid-2020. VGI has since merged with Regal Funds Management. That company is now known as Regal Partners.