Institutional Investor's Alpha Magazine - September 2008 - (Page 46)

Frontier Investing Riyadh, which produces plastics, fertilizers and steel. “There’s a huge disconnect between the size of the opportunity and the investor awareness and understanding of the MENA region,” says Fenton, who founded Atlantic Financial in 1994. Sub-Saharan Africa, like MENA, is beneﬁting from steeper oil and commodities prices. Although high inﬂation rates have historically gone hand in hand with high growth rates in the region, inﬂation is easing as central bankers mend their tendency to print money willy-nilly at the behest of governments. The International Monetary Fund predicts that subSaharan African economic growth will reach 6.75 percent this year, up from 6 percent in 2007, and that inﬂation will drop to 6.75 percent, down from 7.5 percent in 2007. The combination of increasing growth and falling inﬂation is helping draw foreign capital, which totaled $53 billion in 2007, according to the IMF. Some managers say the best sub-Saharan opportunities are in fixed income and currency bonds, which typically involve a bet that a particular currency will appreciate and that its government can keep its fiscal house in order. FrontPoint’s Weiner likes Zambian local currency bonds, which yield 11 percent. The Zambian currency, the kwacha, has appreciated steadily alongside copper prices since early 2007; copper and cobalt represent 64 percent of the nation’s exports. Weiner points to Côte d’Ivoire’s distressed debt as another promising investment. The country has dollar- and euro-denominated debt on which the government has defaulted and which it is in the process of restructuring. “Over the next nine to 12 months, that story will play out as far as determining the right amount of debt forgiveof Iraq, he adds, the bonds should continue to pay: “It sounds a little contrarian, but as a ﬁ xed-income play, it’s a good investment.” T “There is a bullish outlook for acquisitions abroad in resource-rich places like Mongolia.” — ALISHER DJUMANOV EURASIA CAPITAL MANAGEMENT , ness,” explains Weiner. “It’s a fairly complicated analysis, but it’s a good way for hedge funds to deliver alpha.” Other Treasury bond opportunities, says Weiner, include those in Angola, Cameroon, the Republic of Congo, Ghana and Uganda. “A lot of them are petrol plays,” he explains. In addition to his investments in Africa, Weiner is putting money in a place most investors would think twice about: Iraqi government bonds. “We’re bullish on Iraq,” he says, noting that oil production is back up to prewar levels of 2.5 million barrels per day and that the Iraqi government is building up reserves thanks to high crude prices. Even in the event of a possible breakup 46 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2008 wo years ago, Susan Payne and her colleagues at Emergent Asset Management, a Surrey–based hedge fund ﬁrm, hatched a plan to launch a fund to invest in farmland in sub-Saharan Africa. Partnering with Pretoria, South Africa–based Grainvest Futures, a group of agricultural engineers and traders, EAM is launching the $250 million Africa Land Fund this month. The fund is buying up farmland to grow biofuel and industrial crops like corn and soybeans as well as timber and other food crops (the biofuel and industrial crops will be grown in sandy soil to avoid taking more-arable land from other farmers). As sub-Saharan farming becomes increasingly modern, EAM expects crop yields to rise signiﬁcantly and the value of farmland to appreciate. “These lands currently are one seventh the value of Argentinean or U.S. farmlands,” notes Payne, who founded EAM in 1997 and is its chief executive ofﬁcer. “So the returns of the fund will be through capital gains and also through returns delivered on crop yields. We are securitizing the land and returning an annual coupon to our investors on that land.” Payne — a lawyer by training who began her investment career in 1986 at J.P. Morgan & Co. in London, where she was head of emerging-markets sales for Europe — thinks the region will one day be one of the world’s major breadbaskets. “Because of its series of microclimates, its highlands, its agricultural diversity and good logistics, South Africa and sub-Saharan Africa can deliver an enormous amount of food,” she says, predicting that initial big investors in her fund will include sovereign wealth funds, university endowments, pensions, funds of funds and wealthy individuals. “Food security will be one of the driving themes over the next few decades.” EAM’s African Land Fund, which Payne believes is capable of returning 30 percent annually, offers a unique combination of social responsibility and environmental sustainability in a neatly fashionable package. Aside from limiting its use of arable land, the fund plans to set aside some proﬁts for school construction and programs that provide local residents with computers. “When you can make the returns that we are projecting and still wrap a socially responsible investing element in, then you’ve hit a home run,” Payne says. Taking a completely different approach, Greylock Capital, a $600 million New York–based hedge fund ﬁrm, is launching the Africa Opportunity Fund, a banklike venture that will provide long-term financing to promising companies in Cameroon, Ghana, Nigeria, Tanzania and Uganda. The fund will provide the kind of two-, three- and ﬁve-year loans that can be hard to come by in Africa. Investors will get an equity kicker, says Greylock Capital chief executive ofﬁcer and president Hans Humes, who will manage the portfolio and

Table of Contents Feed for the Digital Edition of Institutional Investor's Alpha Magazine - September 2008

Institutional Investor's Alpha Magazine - September 2008 Contents Letter from the Editor Longs & Shorts Pension Corner: Culling the Herd The Good Guys: Ending the Cycle Interview: Press Credentials Cover Story: Rethinking Chris Hohn Strategies: At the Edge of the Earth Profile: Alpha Femals Strategies: Tails, You Lose Research Center: The Top Equity Trading Firms Alpha Bytes: The Light Is On Unhedged: Commentary: Not-So-Dire Diagnosis

Institutional Investor's Alpha Magazine - September 2008

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.