The history of Pacific Horizon Investment Trust

© REUTERS/Kham Kham/la

For Asia as for Europe, the late 1980s was a tumultuous, transformative time.

In South Korea, Taiwan, the Philippines, Burma and Thailand, long-standing military dictatorships and Communist regimes were shaken by popular revolts. Many shifted to greater democracy while China pressed on with Deng Xiaoping’s ‘reform and opening’, which changed the economic order of the world.

Skyscrapers springing up in former paddy fields symbolised the opening of once-closed economies to foreign investment. The newcomers avidly embraced the globalised market system, although some countries contained only a handful of investible companies.

Against this background, Tyndall Funds, a London and Hong Kong-based boutique investment company, launched Pacific Horizon Investment Trust in September 1989. Its objective was to invest in east Asian stock markets “with emphasis on countries where foreign investment is currently restricted”.

The new Trust raised just over £20m. It used this to create a concentrated portfolio of 38 stocks. Its early emphasis was on companies from Thailand, a country whose 1980s promise was later eclipsed by repeated military coups. The five largest holdings were:

The timing was awful. There was one setback after another over the first 12 months of trade. South Korea experienced political unrest and market lows. The Philippines suffered floods, earthquakes and a rebellion. And Iraq invaded Kuwait, leading to a 14 per cent fall in the dollar that dragged down dollar-linked Asian currencies against the pound.

Jupiter Investment Management acquired Tyndall Funds in 1991, but the Trust’s fortunes continued to founder. By mid-1992, net assets had fallen to less than £11m, meaning they had nearly halved since launch. The poor performance led the board to jettison the managers in August 1992 and appoint Baillie Gifford. As Chairman Garnet Harrison noted the Edinburgh firm had “extensive experience of investment in the Asian region”.

© Kimimasa Mayama/AP/Shutterstock

Only a few months later, the 1997-98 Asian financial crisis began. Currency speculators forced Thailand to unpeg the baht from the US dollar. That set off a series of devaluations and other events across the region that led to stock market slumps and political unrest. The International Monetary Fund and the World Bank eventually intervened with $40bn of loans and other measures to restore calm.

As the new millennium dawned, the recovery gained momentum. The Trust’s net assets, aided by canny short-term purchases of other regional investment trusts at discounts of 25 per cent or wider, grew by 25 per cent over the year to 30 November 2000. That compared to a 2 per cent increase in the MSCI Far East (ex Japan) Index.

Over the next two years, the bursting of the internet bubble took its toll across all markets and regions before the Asian tiger roared once more. Even the forbidding Marxist-Leninist hold-out Vietnam opened its doors – the Trust first invested there in 2006 via Dragon Capital’s Vietnam Growth Fund. That same year, shareholders agreed to broaden Pacific Horizon’s view away from the Pacific Ocean, to include the Indian sub-continent. 

© REUTERS/Jorge Silva

By the end of 2007, the Trust’s total assets had reached £139m. That same year, Chairman Peter Mackay warned of “uncertainty about the impact of problems in the credit markets”. And Gerald Smith highlighted the Trust’s limited relative exposure to financial stocks. That was just as well, given the global banking crisis about to detonate. Despite shrewd positioning, the Trust couldn’t avoid the ill effects of the liquidity crisis when it struck.

Bear markets never last forever, and the Trust benefited from investments in Chinese internet firms over the following years: a 2008 stake in search provider Baidu and a 2012 holding in social networking and gaming giant Tencent. By 2014, the last year under manager Mike Gush, the Trust’s net assets had recovered to a high of £140m, translating to more than 200p per share for the first time.

Further success followed under managers Ewan Markson-Brown and Roderick Snell. Over the five years to 31 July 2018, net asset value and share price total returns of 95 per cent and 136 per cent were achieved versus 72 per cent from the MSCI All Country Asia (ex Japan) Index on the same basis.

Roderick Snell, a medical biologist by background, joined Baillie Gifford’s Emerging Markets Equity Team in 2008, having cut his teeth in UK and European equities. He took sole charge of Pacific Horizon in 2021.

As Asia has evolved, so too has the Trust’s portfolio, up to 15 per cent of which can be held in private companies. Snell substantially increased its exposure to India, whose stocks accounted for as much as 26 per cent of the portfolio in May 2022. Although he has since reduced the position, Snell enthuses about the “huge opportunities” as the ‘old India’ of industrial conglomerates gives way to the ‘new India’ of mobile- and data-driven ecommerce.

Mining and minerals stocks helped net asset value per share increase from 344p to 777p over the two years to 31 July 2021. The Trust significantly beat its benchmark, and net assets surpassed the half billion-pound mark for the first time.

Chairman Angus Macpherson characterises the market and economic backdrop in the Covid era as “business as unusual”.

“There is always uncertainly," he adds. "However, Asia is arguably in a more robust state than much of the developed world, having accumulated less debt and encountered less economic disruption.”

Snell’s enthusiasm for the region remains strong despite increased regional tensions and the disruption of the pandemic. For him, the Trust’s proper focus is on the “global rise in digital penetration, technological change and the rise of the Asian middle class”.

These fundamentals are set to underpin growth for decades to come. Pacific Horizon’s job is to seek out the best growth companies. They’re the ones that can keep pace with technological and behavioural change that has only accelerated over the Trust's four decades.