Saturday 18 November 2017

No frontier too far for an investor with global reach

Overseeing $50bn in emerging and new market funds can be a daunting task, which is why Mark Mobius spends 300 days a year on the road seeking out opportunities. By John Mulligan

If it's Monday, it must be Singapore. Even though he's pushing 76, Mark Mobius packs a punishing travel schedule.

Regarded as one of the world's leading investors, the veteran executive chairman of the Franklin Templeton Emerging Markets division reckons he's on the road about 300 days of the year.

While he may ostensibly divide his residence primarily between the Asian city state of Singapore and Hong Kong, home is really a hotel room.

His travels in the past week will have taken him to places such as Romania and Monte Carlo. He has frequently -- or repetitively, depending on your viewpoint -- been labelled the 'Indiana Jones' of the investment world (he's only six years older than Harrison Ford, after all).

He oversees about $50bn (€39bn) in emerging and frontier market funds for Franklin Templeton.

"Kicking the tyres," he says, is an important part of his and his team's work. Among the funds Mr Mobius manages is the $1bn Templeton Frontier Fund.

It's focused on countries that aren't yet even considered emerging markets, where the risks are high but the potential for big rewards drives the investment.

But this isn't straightforward for Mr Mobius and his research colleagues, who are based in 18 different countries. To find out what they need to know about the companies they're considering investing in means going there in person and trying to overcome suspicion.

"In any of these markets, it's just a tremendous challenge in getting information, which is why we call them frontier," he explains.

"It doesn't mean that people are not co-operative, but the information is just not there. That's the reason why we travel so much.

"We have to visit every company that we invest in. That's very important, because you're on the ground talking to people, talking to the general manager, the finance director and so forth. We spend a lot of time doing the groundwork."

And that groundwork appears to pay off.

The Templeton Frontier Markets Fund, which was launched in late 2008, has, with dividends reinvested, delivered a 58.1pc return for investors since then.

Just over 12pc of its assets are invested in Nigeria, with Kazakhstan second at 9.5pc (Ireland and UK-listed Dragon Oil is the fund's third-biggest holding).

Vietnam is the third-biggest target, where 8.5pc of the portfolio is, followed by Qatar and Saudi Arabia. The single biggest holdings are represented by banks, energy firms and telecommunications.

RaboDirect has just started marketing the fund to investors in Ireland with an entry point as low as €100.

Other frontier fund managers conversely believe that traipsing around prodding managers for answers frequently isn't the best use of their time. Another fund manager who targets investment in Mongolia recently lamented in the 'Financial Times' that getting out and about can be fruitless.

"There are some people who think for research you've got to go out and kick tyres," said Johan Kahm, the founder of FMG Mongolia Fund.

He insisted that companies either "don't tell you the truth, or they tell you nothing because they're not allowed to tell you anything".

But despite targeting a raft of countries where even the most adventurous smelly backpacker might not dare to tread, Mongolia is one that Mr Mobius has steered clear of -- for now at least.

"I visited one vodka maker in the middle of Mongolia called Genghis Khan Vodka. One of our guys sampled the vodka and nearly fell over," jokes Mr Mobius.

"One of the reasons why we're not holding any Mongolian stocks is because there's no good global custodian set up in Mongolia to hold shares," he adds more seriously, pointing out that a lot of the team's work not only involves identifying possible investments, but making sure the assets are subsequently going to be safe and accessible.

Safe and accessible is probably just how many well-heeled investors view Mr Mobius, who's credited with developing the term "emerging markets", but has previously insisted he didn't, just that he "wrote the book".

Born in New York to a baker father who hailed from Germany and a Puerto Rican mother, Mr Mobius is consistently shy about divulging too much regarding his personal life.

He ditched his US citizenship a number of years ago in favour of a German passport, which he has said made it much easier for travelling to the kinds of places where a US passport could cause difficulties.

After attending Boston University he dabbled in everything from arts and theatre to experimental psychology before pursuing a doctorate in economics and political science at the Massachusetts Institute of Technology.

Thinking ahead has been one of his traits. In 1971 -- a year before US President Richard Nixon's historic visit to China that normalised relations between the two countries -- Mr Mobius, addressing a seminar sponsored by a US asset management firm, proposed the establishment of a private China trade fund to promote commercial exchanges between the two nations.

He said it should be free of US government funding to "minimise political complications".

With the frontier fund, it's the gleaning of information that continues to be one of the biggest issues.

"Some companies are very open and transparent, but a lot of them just don't know what their responsibilities are as a listed company," Mr Mobius points out. "They don't realise that they have to give information out to shareholders. It's not necessarily a matter of them trying to hide something, they just don't know why they should give information out to some stranger."

Among the countries that Mr Mobius's frontier fund has invested in are Saudi Arabia and the United Arab Emirates. The oil-rich states, with high per-capita incomes, aren't necessarily the types of places that you might consider to be frontiers, exactly.

But, as Mr Mobius points out, the wealth is generally unequally distributed, so there's scope for growth among non-ruling classes.

He says that in Saudi Arabia there is a high birth rate, while the government there is pumping money into the economy. But the reason such places are still considered frontier states is seen in the very reason why all that money is being injected.

As citizens in countries such as Libya, Algeria, Egypt, Bahrain and Syria rose up against regimes, the Saudi government got nervous. There were even a few demonstrations. In an effort to pre-empt and quell wider unrest, the Saudi government last year unveiled a five-year $385bn investment programme that will see new roads, schools, hospitals and other facilities built.

Whatever internal difficulties -- political or economic -- that the frontier markets may experience, Mr Mobius insists they're relatively impervious to the types of shocks that have caused serious upheaval in Europe and reverberated across most advanced economies.

"When markets in the West get hit, there's a tendency for these frontier markets not to be impacted so much," he says. "It's quite interesting in that sense. But as they become more popular, that picture could change. It could create a problem."

For now, it would seem Mr Mobius has little problem teasing out where best to put investors' money. And it's not under the hotel pillow.

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