Blazing Trails: Managing Risk-Reward in Frontier Markets | Summary and Q&A

TL;DR

Discover the potential of frontier markets as an investment opportunity with higher growth rates and returns compared to developed economies.

Key Insights

• ✋ Frontier markets offer opportunities for higher growth and returns compared to developed markets.
• ✳️ Political analysis and evaluation of the governance and transparency of each country are critical in managing risk.
• 🪛 Investments in frontier markets are often driven by domestic changes and advancements, creating unique value.
• ⏳ Liquidity in frontier markets may be lower initially but can improve over time with increased interest and investment in the sector.
• 🧑‍🏭 Investing in frontier markets requires a comprehensive and multipolar approach, considering factors beyond market comparables.
• ↩️ Investments in troubled companies can be turned around with the right management, proving the potential of frontier markets.
• 🪜 Overcoming political and operational risks requires a deep understanding of the local market dynamics and identification of value-adding opportunities.

Transcript

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Questions & Answers

Q: Why do frontier markets present attractive investment opportunities?

Frontier markets offer the potential for high growth rates and returns, driven by domestic changes and advancements that create value.

Q: How do investors manage risk in frontier markets?

Risk is subjective, but having a knowledgeable team with expertise in developing countries and a strong understanding of the local markets can mitigate potential risks.

Q: What role does political risk play in investing in frontier markets?

Political risk is a crucial factor to consider, and extensive analysis is conducted to evaluate each country's political environment. The governance and level of transparency are essential in determining the investment potential.

Q: How does investment valuation work in frontier markets?

Valuation in frontier markets is based on high teens returns on equity, regardless of market fluctuations. The focus is on sustainable long-term value creation rather than short-term gains.

Summary & Key Takeaways

• Bolton Capital Management focuses on trading equity and debt in public markets across frontier markets, taking advantage of unique value and structural anomalies.

• Ripplewood Holdings adopts a concentrated, high-conviction investing approach, aiming for long-term value creation instead of short-term gains.

• Abu Dhabi Financial Group capitalizes on complicated opportunities in emerging and frontier markets, leveraging expertise and problem-solving capabilities.