We have time on our hands at Wasserdicht Pension Funds. Fiduciary managers have given up calling us; they have finally understood we do not want to be a part of this inexplicable momentum, the movement that outsources everything to the hands of supposed expert practitioners. Even in this we recognise that momentum and value are negatively correlated!
We continue to steer our course and the investment committee - which effectively means me - has now decided to look at frontier markets. This is exciting. We often forget we have the power to assess an asset class without the advice of outsiders. Of course we have meetings with managers to ‘learn’ from them (who does not?), but the concluding analysis is ours. And as part of due diligence, I manage to combine some bottom-up analysis with a holiday.
And so I am in Mauritius and head for Port Louis for some hands-on research. In a taxi that proceeds quickly to the headquarters of SugTexFins, the words of a frontier specialist come to mind. ‘Greater volatility, currency and political risk, unintelligible accounting practices and different legal systems - these can all seriously affect your investment in securities of issuers in frontier markets’.
I meet Mr Hugo Delaporte, a director at the company. ‘Why the name SugTexFins?’ ‘It is what we do. Sugar, Textiles and Financial Services. Tourism is the only other option for us, but we do not want hotels yet. And also it would present challenges to the branding.’Hugo continues: ‘There are only 30 companies listed on our exchange but we are one of the largest. ‘What about monetary and fiscal policy?’ ‘I will not hide things; there is a budget deficit of 4.5% of GDP and we have received funding from the World Bank. We have also received money from the EU to compensate for the removal of sugar subsidies. We have recently had a 100bps cut in our repo rate to weaken the rupee. You, alongside the US, are the main export markets.’
‘So why should a Dutch pension fund buy Mauritian shares?’ ‘Because in 2007, when you were beginning to feel the credit crisis we grew our economy by 20%. We have GDP at well over $9bn and per capita income is well above that of established markets such as Brazil’. ‘Ah’.
‘Mr Mullen, you are new to markets such as ours are you not?’ ‘Yes, I am.’ ‘Would you consider appointing an external manager to look after these types of decisions?’ ‘We would.’ ‘Good, you should appoint our asset management division, SugTexFins asset management. We know what is going on and we can help develop your knowledge. Who better to manage your emerging market exposure than emerging market asset managers? We know what is going to happen sooner than you ever will.’
‘It will be a bitter pill for our regulator and all the fiduciary managers.’ ‘Perhaps, but we have plenty of sugar.’
Pieter Mullen is investment director at Wasserdicht Pension Funds