Gavin Serkin is the Managing Editor of Frontier Funds and the Frontera News service, and leads a radio show dedicated to emerging and frontier markets. He covered developing economies as the Emerging Markets Editor-at-Large at Bloomberg News for over 16 years and is the author of “Frontier: Exploring the Top Ten Emerging Markets of Tomorrow.” The Financial Times called Serkin’s book a “must read for investors wanting to find out how valuation in emerging markets really works.”
Serkin recently discussed some of the best practices and trends for investors in frontier markets.
How do you identify specific opportunities in frontier markets?
It’s old-fashioned networking. It’s talking to a lot of people on the ground, particularly in frontier markets. It’s not like you can pick up the FT and you can find all the analysis you want. The whole point of frontier markets is that there is a dearth of information, so you’ve got to do your research as an investor.
You need to identify a network of people so you can get involved in what they are up to. Or spot opportunities yourself.
You need to have experts on the ground that know the legal system, know their way around politics. You know that the people who handle contracts are not always the people who determine contracts. So you’ve got to know who you are dealing with, who will ultimately be deciding things. You’ve got to know the role of corruption and you’ve got to know whether you’d be comfortable with what you’d be getting involved in. That all takes deep information
What are best practices for due diligence once you have identified an opportunity in a frontier market?
It’s like due diligence magnified a million times. Everything that you are dealing with is not straightforward. You need multiple sources on all your information.
For instance, if you are doing a deal in say, Myanmar, and you are a U.S. investor or a European investor, you have to be sure that you are not dealing with individuals who have sanctions against them.
But, in places like Myanmar, companies can be extremely opaque. You may know who the chairman is, who the board is, but you don’t quite know related parties – parties that are possibly linked to the old military regime. And as an investor, you have to be careful because you could get in big trouble from U.S. regulators, European regulators for a breach of sanctions.
With that in mind, for investors to go in there, you have to think about how much work it takes to uncover what you need to know. There are companies that will do international due diligence for you.
One company I work closely with, West Sands Advisory, specializes in shadow governance. They specialize in knowing who is really governing things – whether the contract will always go to the president’s brother in law – that kind of thing. That takes a deep network. They are a mix of analysts and people who have worked in intelligence.
You are going to be speaking at the Global Private Equity Conference in D.C. in May. What do you think will be some of the hot topics at the conference?
Things could be at a turning point in frontier markets. You’ve had about three years of down markets in emerging markets and frontier markets. A huge amount of money has come out of the public markets, so I think this will be a bit of stepping back and surveying the scene.
I think there will be an interest in impact investing – looking at who the players are that could be making a difference.
And I think on a relative scale, there will be a lot of comparing Africa to South Asia.
South Asia has had a much better story of late. I think there will be a lot of cross-comparison of what’s going right in South Asia and whether that’s sustainable. Or whether the investment now switches back to Africa – which had been everyone’s favorite a few years ago.
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