Institutional Investor's Alpha Magazine - September 2008 - (Page 48)

Frontier Investing says the plan should be attractive to borrowers and investors alike. “We’re coming in on the ground and allowing companies that in the past would have to plan from quarter to quarter to think in terms of a ﬁve-year plan,” Humes notes. “And if it works and growth takes off, as we expect it will, then we’re asking them to give us a piece of the upside.” The idea is to ﬁ nd companies that are below the radar, and Humes should be able to do so, given his background as an active investor in Africa for more than a decade at Madrid-based Banco Santander. Greylock would like to raise $200 million to $300 million and is looking to do about 30 deals of $2 million to $10 milforeign investment, particularly in Eurasian Natural Resource Corp., the world’s biggest producer of ferrochrome, an essential component in steel production. The company also supplies 40 percent of the world’s gallium, a key material in the manufacture of some semiconductors. Shares of ENRC soared after it began trading on the London Stock Exchange in December 2007, and by late summer the stock price was up more than 100 percent since its IPO. Alisher Djumanov, a managing partner of Eurasia Capital Management, a subsidiary of Singapore-based Eurasia Capital Group, says London-based ENRC may merge with Kazakhmys, the biggest copper miner in Eurasia and the tenth-biggest in the world, also based in London. “The Kazakh government is encouraging the consolidation,” says Djumanov, whose ﬁrm’s ofﬁces are in Almaty, Kazakhstan. “But whether or not this consolidation takes place, there is a bullish outlook for acquisitions abroad in resource-rich places like Mongolia.” Indeed, Djumanov sees value in a Mongolia mining project heavily backed by Vancouver, British Columbia– based Ivanhoe Mines. Ivanhoe’s core assets include its Oyu Tolgoi copper and gold mine holdings in southern Mongolia and its stakes in Mongolian coal miner SouthGobi Energy Resources. With frontier promise comes peril, however, a point well illustrated in recent weeks in Georgia. That country’s ﬁnancial sector is reeling after the Russian invasion: Fitch Ratings swiftly downgraded the country’s major banks, including Tbilisi-based Bank of Georgia, to “negative” from “stable.” Still, Djumanov has been impressed by that bank’s efforts in recent years to bring in a team of foreign professionals to help introduce Western-style management and transparency. Bank of Georgia has been a key player in attracting hundreds of millions of dollars in foreign investment. Although the political climate in sub-Saharan Africa and the Middle East is calmer than it has been, tensions lurk beneath the surface and around the edges. Kazakhstan is not that far north of Afghanistan and Pakistan; Zambia borders troublesome Zimbabwe; Iraq is a gamble by any stretch. Therein lies a fundamentally vexing issue for investors: In addition to the usual market corrections that accompany any hot new market, frontiers are especially vulnerable to political upheaval. Analyzing that possibility — in addition to understanding the particular market risks — requires a unique and uncommon skill set. So it’s no surprise that DB Advisors’ Gray says frontier markets remain underappreciated by most foreign investors, though he expects that to change, probably sooner rather than later. “We’ve been investing in these countries for ten years,” he says. “We know the companies. We’ve seen the changes. We’ve seen the ups and the downs. These companies are well positioned, and we’re waiting for other investors to discover the opportunities.” “Last year five of the ten fastest-growing economies in the world were in Africa.” — TERRENCE GRAY, DB ADVISORS lion apiece. Humes, who hopes to deliver annual returns of 25 to 35 percent, says the greatest challenge lies in educating potential borrowers about the advantages of making long-range plans rather than working from quarter to quarter. Part of Greylock’s strategy is to leverage the deals by tapping U.S. government lending recently earmarked by President George W. Bush’s administration to bolster investment in Africa through the Overseas Private Investment Corp., a U.S. agency established in 1971 to help American businesses invest abroad and to foster development in new and emerging markets. Humes says that move will prove immensely helpful to efforts like his. Noting likenesses between Africa and such Latin American countries as Colombia, the Dominican Republic and Peru, which still lack well-developed commercial banking sectors, Humes says Greylock is planning a similar fund for that region. “We’re providing something that’s off the beaten track,” he says. “Identifying the people, identifying the projects — we’ve done that. Executing the deals is the tough thing.” E urasia is alluring, too, with its appeal most evident in a handful of former Soviet republics. Some managers say the best way to play that frontier is not through commodities, sovereign debt or currencies but by betting on publicly traded securities. “Kazakhstan has been a big focus for us,” says FrontPoint’s Weiner, a fan of Astana Finance. Although its proﬁts were up 25.9 percent in 2007, the bank’s share price has been under stress of late, dragged down by the same sector that has been hampering the U.S. economy: real estate. Kazakhstan’s rich mining sector has also attracted 48 • INSTITUTIONAL INVESTOR’S ALPHA • SEPTEMBER 2008

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

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