The Dutch pension asset manager's Asia Pacific head of real estate says his team has just had one of its busiest years ever and that 2021 is looking similarly promising.
The new fund will be managed by Sean Taylor, who heads the emerging markets team at Gam, an active investment management firm with around $76 billion in assets under management mostly in alternative strategies. Taylor manages a number of equity long/short mandates, including both an emerging markets fund and a frontier opportunities fund. His investment experience in the Middle East, where he is based, covers more than a decade, having previously set up the first Arab fund for SG Asset Management in 1997.
The new fund will have a significant bias towards the Middle East and the Gulf region, where Gam sees positive developments on both the political and economic fronts.
ôThe investment opportunities in the Middle East are driven by the regionÆs solid financial standing and significant infrastructure investment programmes,ö Taylor says.
The Middle East is relatively uncorrelated with the rest of the world and even inter-regionally, Taylor notes. ôFor example, Morocco and Saudi Arabia do not move together, Saudi Arabia and the United Arab Emirates have historically shown negative correlation with global trends,ö he says.
So far, the proposed allocation of the fundÆs assets is 80-100% in Middle East markets such as the United Arab Emirates, Bahrain, Egypt, Jordan, Kuwait, Morocco, Turkey, Oman, Qatar and Saudi Arabia. Assuming only 80% goes to the Middle East, up to 20% could be shared by frontier markets in the Asean, emerging Europe, and other regions worldwide.
Frontier markets are developing economies with relatively undeveloped equity markets. There is no strict definition for what constitutes a frontier market, but they typically fall outside the emerging markets indices such as the MSCI Emerging Markets Index. Frontier markets tend to comprise the Middle Eastern, African and some of the smaller Asian and Eastern European markets.
With a combined market capitalisation of around $1.7 trillion, frontier markets are in the early stages of development and growing towards entry into the emerging markets indices. They offer the prospect of high growth rates and returns, together with low correlation to the more mainstream emerging and developed markets.
Diversification is among the key merits of investing in frontier markets, Taylor notes. ôOne of the key characteristics of the frontier economies is that they continue to be less connected to the global market cycle and less dependent on developed market growth,ö he says.
Early access to frontier markets is what the new fund will be looking for, and offering to its subscribers.
The fund will combine top-down macroeconomic analysis with bottom-up stock picking. Country and sector selection form the framework for portfolio construction. It will seek to add value on three fronts: longer-term structural themes, which form the core of the portfolio; stocks that are likely to converge to developed market ratings; and trading opportunities resulting from high volatility.
The frontier markets stock universe will be screened for market capitalisation, valuation, returns and growth to create a list of companies for further analysis. This list of potential investment targets will be analysed and scored, with a focus on returns and valuations relative to local market and global comparatives.
Three elements will set the framework for portfolio construction: key portfolio themes; specific stock ideas; and the overall outlook for the Middle Eastern and other frontier markets. Stocks will be selected based on these drivers and sized according to TaylorÆs level of conviction, but with emphasis on diversification through the inclusion of a range of themes, countries and sectors. The portfolio will have around 30 to 50 stocks.
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