Your firm has a "multi-asset" approach and shares clients' intolerance for losses. In other words, how would you best describe your approach to risk? Risk is sometimes conflated with volatility, but these are not necessarily the same at all. Can you flesh out your risk approach?

Risk is not a number - we take a real-world approach to risk. This means assessing the prospect of outright capital loss. If we are allocating capital to a specialist manager, the key questions to seek comfort on are: “Is this a plausible way of making money? Do I understand what the manager is doing? Does this strategy depend to a great degree on leverage?” If we are investing directly in one of our long-term equity programmes, we think long and hard about industry structure, technological change and the sustainability of margins. Finally, we have a sclerotic fixation on liquidity, which must be available in all our investments. We can never be constrained if we change our minds.

At Cerno, how do you go about building a portfolio for a client? What key elements should be in a portfolio and what can you afford to leave out?

Suitability is the key watchword. Within that, our strategy encompasses, we hope, a high proportion of investment needs and expectations based on measures of diversity, geographic spread, asset class spread and sensitivity to drawdowns. The next key issue is whether income is required and can that income be taken from total return. If so, then we would suggest investing in our core strategy which seeks to generate a total return. With regard to allocation, we have no neutral or reference position. Inclusion is based on expectations of three year forward returns and so can include any liquid asset.

What sort of approach do your clients have to liquidity? Do they set high store by this or are they willing to hold illiquid assets, provided there is sufficient diversification?

Many of our clients are attuned to obtaining the illiquidity premium, principally by investing in unlisted enterprises. With a few small exceptions, they do this elsewhere and not with Cerno Capital. When we established our investment disciplines we had to decide what we would not do, and we consciously excluded illiquids. We want to be known for doing the liquid portion very well, and not by trying to do everything very well.

Are there new funds/approaches you have adopted at Cerno recently and if so, are there specific reasons for these?

The biggest evolution in the past five years was probably the widespread investment in a super long-term equity investment programme: Cerno Global Leaders. I regard this as the distilled version of everything I have learned in equity investment in the past 25 years. We invest in 20 companies, equally weighted, for the very long term. The selection process is very rigorous and the fund management portion of the exercise is therefore less consequential. I am very anti-glamour when it comes to fund management. The criteria are nothing more than common sense attributes, Warren Buffet style, ruthlessly applied. We think this will be a very significant creator of value, to our investors, over the long run.

We operate still in a low-rate environment although there are suggestions from some central banks that this might be starting to shift. What are clients looking for from Cerno? Are you hearing any changes in what client want at the moment?

One or two small hikes do very little to change the prevailing environment. Like many a blind date, expectations may well trump reality here. We share the Fed and Bank of England’s views that rate rises will be slow and gentle. In truth, investment returns have been pretty fine for investors who have committed properly to market risk. However, in our view, returns of the past five years are unlikely to be matched in the next five. It has been a while since we have seen any material losses in portfolios at large so when they come, even if they are temporary, they will come as a shock.

One of the most recent investment letters from Cerno referred to Greece. What is your latest take on the Greek situation in terms of any risks it might pose to markets more broadly? Also, do you have any particular thoughts about the market shifts in China, which some commentators have suggested are more serious than in Greece? Have you recently made any specific asset allocation shifts because of China/Greece/other?

We are fairly sanguine that Greek contagion risks are more political than economic. Greece is just not that significant in its economy alone and the weight of its debt is manageable even in a default situation. What the Greek crisis has done is once again exhibit, under the arc light of international scrutiny, how economists and financial authorities can make the most disastrous decisions; and I am not referring to Varoufakis here. Notions of genuine union have been crushed to sustain a Northern European, Calvinist ideology.

China’s economic malaise is of more consequence and threatens an important element of global corporate profits. Fixed asset investment and debt build up has been too rampant and a new regime is underway. Both are contributory factors and both point to a multi-year slowdown. Our base case is that global economic growth would tend to be weak and below par. The greater risk, surprisingly, is that growth is better than expected as this will expose central banks as being behind the curve. That situation is more challenging for financial assets.

I read with interest your presentation on demographics and debt. What would you say is the main take-away point for investors in the light of the conclusions from such figures? Are there particular insights that you gained from this study that you would say are actionable in portfolios?

The two studies yield observations that will essentially determine what type of investing world we will operate in. Due to demographic drag, growth will tend to disappoint. Corporate obsolescence will rise. The best companies will be quick to marshal relevant technologies and be creative mergers and acquirers. The best fund managers will be the people who spot these trends quickest. Due to debt overhang, treasuries will want interest rates to remain low, an outcome more easily achievable in “stronger” currencies such as sterling, dollar, euro and the Japanese yen.

 Are there particular recent developments at Cerno (new funds, hires, distribution deals, other) that you would like to draw attention to?

Cerno Capital is a firm with a core investment approach and multiple client types. With Hannah Sharman on board, joining us last year from the BlackRock sales team, we can talk as effectively to the UK retail base through advisors. This augments our existing business where we have direct relationships with private clients and work on a multi-generational basis.

Looking ahead for the next few years, where would you like to see Cerno as a business?

I’d like Cerno Capital to be thought of as a great organisation to place assets with, irrespective of size of assets. I would hope that we would be recognised as following a modern investment approach: investing globally, agnostic to vehicle and that we think deeply about what we do.