29 May 2023
Doug Tynan’s GCQ has a simple investment secret
In a market crowded with macroeconomic crystal ball gazing and noisy high-conviction stock picking, the GCQ fundie is building a business based on one thing.
Doug Tynan loves a checklist. In a funds management market crowded with macroeconomic crystal ball gazing and noisy high-conviction stock picking, the former VGI Partners executive is building a business based on one thing: does an investment make it through an extensive vetting process.
So far, it appears to be working. His flagship GCQ fund posted a 26.1 per cent return for the six months to the end of April, outperforming its global equities benchmark by 17.6 per cent.
“Some of the key professions in the world, whether airline pilots or ER doctors, run off checklists because the world’s a very complicated place,” Tynan says in his first extended interview since starting GCQ Funds Management last year.
“However, in a lot of funds management, the more experienced a fund manager gets, the less they use a checklist. An airline pilot with 30 years’ experience can fly the thing blindfolded, but they still use the checklists, and they don’t begrudgingly do it. And whenever there’s an incident globally, they ground the planes, work out what went wrong and improve the list.
“We’ve done that with investing. Whenever we’ve made an error, or lost money, or not made the money that we thought we would have, we’ve stopped, said, ‘how could we have avoided this with the checklist?”‘
At VGI, Tynan’s partnership with Rob Luciano made the hedge fund one of the most prominent in the country. High-profile campaigns against Slater & Gordon, Estia and other ASX-listed groups followed. But Tynan left in 2020, and Luciano has gone on to merge VGI into Regal Funds Management.
Since that time, the sector has been upended, with one of the largest players, Magellan Financial, witnessing an exodus of investments after the departure of its co-founder, Hamish Douglass. Another major investor, Platinum Asset Management, is also sagging as funds are withdrawn.
For Tynan, this has turned into an unexpected opportunity. He says there were plenty of wealthy investors who followed him from VGI to GCQ because of their decades-long relationships, but the speed of his new fund’s entry into adviser channels was a surprise. The fund can now be found on the Morgan Stanley Private Wealth platform, among several others.
“Because of our returns, and because many people regard Magellan as no longer investible, and because Zenith gave us a recommended rating off the bat, all these advisers wanted us to be on their platforms,” he says. “There is no one else that is new, in global [equities], that is doing anything like this.”
Zenith’s endorsement has been particularly helpful. Its flagship research platform, Mosaic, ranks GCQ’s flagship fund as first among more than 500 global equities products for return since inception, while a note to advisers in March gave the fund a recommended rating.
“In the last three or four years, active fund managers apart from us have done terrible because they’ve been trying to be macro and time markets or epidemiologists picking vaccines,” Tynan says.
“We stick with the only things we are good at. Identifying very high-quality industry structures simply using our checklists, picking the best businesses within industries, and roughly knowing when they are cheap and roughly knowing when they are expensive.”
One of his investors is Danny Goldberg, the Sydney art collector and executive chairman of Dakota Capital. Goldberg says he first met Tynan at a VGI investment meeting. “One of the things I remember from the meeting was that, whether or not it was a stock that he was championing, Doug’s observation and comments were insightful and based on analysis and not intuition,” he says.
“I can play darts myself, I don’t need to pay someone to play darts for me. What makes more sense is to find someone who won’t play darts with my money, and in my view I can rely on GCQ to take a disciplined and intelligent approach to constructing their investment portfolio.”
The GCQ checklist filters out industries before turning to individual businesses. “In any five-year period, roughly 60 to 70 per cent of all the constituents on an index actually underperform that index. So if you can remove that 70 per cent, you’re starting ahead. Then the focus is on the 10 per cent of the 30 per cent that’s left,” Tynan says.
“There’s actually not that many companies in the world that fit through our checklist. It’s probably about 220 companies across 20 industries. Most fund managers have to have a much wider universe than that. One of our edges is being able to stick to those highest-quality monopolies, oligopolies, duopolies, and arguably brands in the world.
“Our favourite check on the list is ‘has there been any successful new competitor to that industry in the last 20 years? Has there not been?’ If there hasn’t been any successful competitor in the last 20 years, that’s wonderful. Then we want to find out why. Why hasn’t Mastercard and Visa had a new competitor since 1967, when Mastercard was set up?”
Mastercard and Visa are in GCQ’s portfolio, making up a combined 17 per cent of funds invested, as at the end of April. S&P Global, Moody’s and MSCI are also in the portfolio, along with Amazon and Microsoft. Tynan, who first invested in luxury goods through VGI’s Asia fund, had also taken large positions in LVMH, Hermes and Cartier-owner Richemont (although he has since sold a significant portion of his holdings in those companies).
“These brands have been around for 180 years, and they’ve survived world wars and depressions,” Tynan says. “There’s more millionaires and billionaires in the world every month, that’s a trend that’s going to continue.”
In particular, Tynan looks to see whether there are price tags on display in stores. If there aren’t, that’s a good sign. Even as prices go up, there is enormous demand for Hermes’ Birkin and Kelly bags – “even if you pass the interview”, Tynan adds. “Then you’ve got to wait seven years.”
So far, GCQ has less than $1 billion under management, a figure it is expected to surpass this year. Among his investors are just over 50 family offices, although this will be capped at 100, he says.
Chris Cuffe is another backer, and has placed money managed by his Australian Philanthropic Services, one of the country’s largest public ancillary funds, with GCQ.
“I look for fund managers who are, even in their personalities, just a little different,” he says. “Good ones are very focused, you could even use the word obsessive, quirky, a bit strange. Doug has most of these characteristics, and he loves investing and that’s music to my ears.”
Kylar Loussikian AFR – is the Australian Financial Review’s Deputy Editor (business)