Cedar Rock Capital Ltd.
Principals: Andy Brown, founder and chief executive officer; Nicholas Tingley, investment manager
Style: Long-only concentrated equity strategy
AUM as of Aug. 31: $500 million
Year-to-date performance: 6.75%
Benchmark (MSCI World): 16.2%
Alpha year to date: -9.4
Three-year annualized performance (MSDW Global Franchise fund): 11.97%
Benchmark (MSCI World): -12.95%
Three year alpha: 24.9
Before setting up Cedar Rock, Andy Brown and Nicholas Tingley were at Morgan Stanley Investment Management, London. Mr. Brown was managing director and was the sole portfolio manager of the Global Franchise fund; Mr. Tingley was executive director and was responsible for communicating the Global Franchise investment strategy to clients.
On leaving Morgan Stanley, Mr. Brown set up a similar concentrated global equity fund and brought with him a number of clients from his previous firm, according to local industry experts. (The three-year performance and alpha cited include some of Mr. Brown's tenure at Morgan Stanley.)
"His global equity product had stunning long-term performance at Morgan Stanley, but so far it has not been a great year for his way of running money," said one consultant.
Mr. Brown said his strategy is to invest only in those companies that can sustain high returns on capital, that have repeat purchase businesses and that generate significant excess free cash flow, as well as having low use of leverage. At the moment, Mr. Brown favors British firms Allied Domecq PLC and Imperial Tobacco PLC, and Spain's Zardoya Otis.
The strategy's returns haven't been good recently, Mr. Tingley said, because "the performance of the MSCI World index this year has been dominated by financials, technology and other economic-sensitive industries, as well as by low-quality companies that have all been re-rated on improved expectations for the global economy." Because Cedar Rock doesn't own any of these companies, "our performance has lagged the benchmark year to date, from an alpha perspective." But, he noted, "We take no note of benchmarks in what we do because we believe that benchmarks themselves contain many risky businesses that do not qualify for our style of conservative investing. We are not aiming to outperform a benchmark over a short time period, but rather to generate positive absolute returns over the long term with a capital preservation bias."