GCQ Funds Management, a Sydney-based hedge fund with an impressive annualised return of 30% since its 2022 launch, is betting on Japan’s burgeoning cloud accounting market as its next major growth driver, according to a report by Bloomberg.
The firm recently increased its stake in Money Forward, a small-cap stock it believes could quintuple in value over the next five years, fuelled by regulatory shifts requiring businesses in Japan to maintain electronic receipts.
At the same time, GCQ has exited positions in rating giants Moody’s Corp and S&P Global, citing diminished upside potential as investor expectations caught up with their robust performance.
The hedge fund’s strategy revolves around investing in sector-dominant companies with strong pricing power — a key advantage in today’s inflationary environment. Visa and Alphabet alone make up significant portions of the fund, with newer investments like Money Forward representing less than 5%.
“This is the first time a new company has passed our investment checklist in over three years,” said Doug Tynan, GCQ’s Chief Investment Officer and co-founder, in an interview. “Cloud accounting software is exceptional because these companies often operate as local monopolies.”
Tynan shared that the decision to invest in Money Forward was years in the making. The firm had been monitoring the company for nearly eight years but refrained from investing until it met their cash flow requirements. The turning point came earlier this year when one of Money Forward’s main competitors implemented a significant price hike, signalling a shift in market dynamics.
GCQ’s concentrated portfolio of around 20 stocks is designed to capitalise on the changing outlooks of dominant players. Tynan revealed that half of the fund’s outperformance comes from actively trading these stocks based on evolving industry conditions.
As of October, the fund had allocated about 13% of its holdings to Alphabet and Meta Platforms, and nearly 20% to payment giants Visa, and Mastercard. According to its latest investor letter, the fund has delivered net annual returns of 30.2% since its inception.
