But these risky assets and dislocated markets are being discounted for different reasons. There is obviously a common element of extreme risk aversion toward anything considered not “safe” or considered “emerging and frontier”, which may account for some of the discount. But we believe there are idiosyncratic factors that can better explain this discount, and the underlying deep value opportunity it represents, than the conventional worldview does.
One such idiosyncratic factor we focus on, which we believe gives us an edge, is the handful of geographically strategic countries that are experiencing a ‘double transition’ from both a State-led economy to a market-based economy and from a Resource-based rent economy to a diversified productivity-enhanced economy. This double transition is further compounded by the observation that in these economies the rationale for decision-making have begun to shift from a ‘political focus’ – with optimization of political resources by a ruling elite becoming the principal driving force behind all decisions – to an ‘economic focus,’ with a resulting gradual depoliticizing of regulations, where performance of the economy is at the core agenda.
This strategy relies on establishing a persistent presence locally and through maintaining pro-active interactions with local players in order to understand the political, cultural and economic dynamics of a region. This is a prerequisite for gaining a working understanding of the ‘underwater deep currents’ and sudden disruptions that shape these markets, which are undergoing large-scale complex transitions. This strategy offers insight into the reason behind why we concentrate on a specific set of markets with common idiosyncratic characteristics (the double transition mentioned above), which display the right momentum (from political to economic focus), and in which we are building significant local presence and/or deal-related expertise.