Private equity in emerging frontiers 05.03.12
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Transcript of Private equity in emerging frontiers 05.03.12
Private Equity
in
Emerging Frontiers
“It was the best of times, it was the worst of times,
it was the age of wisdom, it was the age of foolishness,
it was the epoch of belief, it was the epoch of incredulity,
it was the season of Light, it was the season of Darkness,
it was the spring of hope, it was the winter of despair,
we had everything before us, we had nothing before us,
we were all going direct to heaven, we were all going direct the other way…”
Charles Dickens, A Tale of Two Cities, 1859
CONTRARIAN
INVESTORS
IMPACT
INVESTORS
FRONTIER PRIVATE EQUITY
Financial Returns Social Returns
• BEHAVIORIAL FINANCE
• CHALLENGE THE CONSENSUS
• CYCLES; REVERSIONS TO THE MEAN
• DEEP VALUE NOT MOMENTUM
• AUSTRIAN ECONOMICS / LIBERTARIANISM
DR MARC FABER
Leopard Capital Chairman
JIM ROGERS
Leopard Capital Advisor
DR JIM WALKER
Leopard Capital Director
FRONTIER PRIVATE EQUITY
CHOOSING
FRONTIERS
Not all Frontiers are
“Emerging Frontiers”
Transitional:
• War
• Disaster
• Ideology
Poor
Unpopular
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Political Risk Index 2011 - Maplecroft
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EIU’s Political Instability Index shows the level of threat posed to governments
by social protest, covering the period 2009/10.
Iraq 8.8
Cambodia 7.9
Afghanistan 7.5
Yemen 6.3
Bahrain 5.0
Libya 4.6
Syria 4.6
Tunisia 4.2
Egypt 3.8
Highest Risk = 10.0
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Southeast Asia: Caribbean: East Africa:
Cambodia Haiti Ethiopia
Laos Cuba Kenya
Vietnam Rwanda
Thailand South America: South Sudan
Myanmar Colombia
Venezuela West Africa
South Asia:
Bangladesh Central America: Central Africa
Sri Lanka Honduras
Nepal Nicaragua
Bhutan Belize
Red: Extreme Frontiers
FOUR SUNRISE
ECONOMIES
Region Country Pop. GDP Per Cap GDP Religion
(mn) (USDm) (PPP; USD, IMF) (primary)__
Southeast Asia Cambodia 14 11 2,286 Buddhist
South Asia Bangladesh 162 100 1,697 Moslem
Americas Haiti 10 7 1,241 Voodoo
Africa Ethiopia 85 30 1,092 Christian COMPARISON: USA 307 14,120 47,284
Tropic of Cancer
Equator
Cambodia Bangladesh Haiti Ethiopia
Region Glory Days Centuries Recent Source of Impoverishment
Cambodia Angkor 9-15th War, Marxism, Genocide, Governance
Bangladesh Pala 8-12th Governance
Haiti French Colony 18-19th Governance, Natural Disasters
Ethiopia Abyssinia 0–10th Marxism, Civil War, Governance
Invest here
21
• Compact coastal country (Florida-sized)
bordering Thailand, Vietnam, Laos
• Mostly flat: farmland, forests, long
rivers, huge lake, 440km coast, seaport
• Low-density population, youthful
(14mn people, avg. age 21)
• Sufficient farmland, water, and labor
for major agri-business
• Untapped minerals, oil and gas
• Global tourism appeal anchored by
Angkor Wat World Heritage Site
• Land bridge links Vietnam and Thailand
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• World’s 7th largest population (162mn)
• Densely packed (imagine moving half of
USA’s population into Iowa)
• Fertile agricultural nation on the
low-lying Ganges Delta; flood prone
• Low-income, subsistence-based economy
moving up the value chain
• Vast pool of young, low-cost labor
• Opportunities in garments,
pharmaceuticals, and services
(IT services, health care, education etc)
• Awakening capital market
• Sovereign rating upgraded
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• Once a rich French colony; now the poorest country in American Hemisphere
• Ravaged by most damaging earthquake in modern history in January 2010
• Rugged landmass, the size of Massachusetts, scenic but 98% deforested
• 5 decades of bad governance; now the “NGO Republic”
• 90% of professionals have emigrated; large Diaspora and remittance inflow
• Hard working, trainable labor force (10mn population)
• USA allows duty free garment imports
from Haiti (HOPE Act)
• Proud, vibrant culture; tourism potential
• $5-10 billion of assistance pledged
• Private sector small, undercapitalized
• Exceptional opportunities to rebuild an
entire economy, with donor support
• Political stability uncertain
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• Africa’s second largest population (85m) after Nigeria; #14 in world
• Landmass the size of Texas + California, with varied terrain and climate
• Cradle of civilization, oldest human remains; among oldest independent
countries in world; never colonized; Christianized in 4th Century AD
• Marxist 1973-1991; now capitalist but state still owns all the land
• No foreign banks; telecoms monopoly
• Transport and power constraints
• Capital Addis Ababa: 3mn population
• 85% of the people are farmers
• Largest livestock herd in Africa
• Key exports: coffee, flowers, qat,
oilseeds, leather products, livestock
• Good tourism potential
Four countries with:
• 94% of USA’s population
• <1% of USA’s economy
• early in their cycles
• off the radar screen
Globalization winners:
• cheap labor
• food based economies
• untapped resources
• Duty Free exporters
GROWTH DRIVERS
IN COMMON
THEME 1:
POWERFUL
DEMOGRAPHICS
Source: United Nations Population Division, 2007
6 billion (3x) more people
in the developing world
during my expected lifetime
Source: US Census Bureau
Expanding Labor Forces and Domestic Consumption in the least developed world
Source: US Census Bureau
Shrinking Labor Forces and Consumption Ahead in Russia and China
Brazil and India
look fine
Source:
US Census Bureau
Source: World Bank
Source: World Bank
THEME 2:
BETTER
INFRASTRUCTURE
USA: Major Infrastructure Achievements 150 years
1811 - Oregon Trail
1869 - First Transcontinental Railroad
1935 - Hoover Dam
1937 - Golden Gate Bridge
1956-66 - Interstate Highway Program
Cambodia: Infrastructure Achievements 25 years (1995-2020)
- All national highways paved (2 lane)
- Trans-national railroad
- New bridges on all major river crossings
- Seaport expanded
- Several new major river ports
- Nationwide 3G and 4G phone service
- 5 hydro dams under construction
10x in
25 years
Half of America’s bridges are past their
intended lifespan. Budgets are being cut.
The Future of American Infrastructure The Future of Asian Infrastructure
Japan is donating and building
Cambodia’s largest bridge to
complete the Asian Highway
Source: World Bank
Telecoms Monopoly
Similar slope to US,
10 years behind
THEME 3:
UNBURDENED
Our new brewery in Cambodia faced no Government mandated:
• minimum wage
• health insurance
• social security
• handicap toilets
• sprinkler systems
• brewery license
• formulation standards
• health & safety warnings on labels
• recycling deposits on labels
• advertising prohibitions
• age and time restriction on beer sales to consumers
• different state laws to sell beer in different parts of Cambodia
• requirement to sell only to wholesalers
• Alcohol & Tobacco Tax & Trade Bureau (TTB)
• Federal Trade Commission (FTC)
• State Alcohol Beverage Control Boards
• etc.
THEME 4:
DEFENSIVE
AGRO-ECONOMIES
Sources: Food and Agriculture Organization of the United Nations, 2009; United Nations Population Division, 2006
Food Supply Falling:
• Urban Development
• Soil Degradation
• Droughts and water shortages
• Floods
• Diminishing returns from
“Green Revolution” inputs
Food Demand Rising:
• Increasing global population
• Developing world affordability
• Rising meat demand
• Biofuels demand
Source: World Bank
Cambodia Ethiopia
Bangladesh Haiti
HOW TO ENGAGE
49
Read
Travel
Network
Relocate
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Assume world is static
Watch CNN
Consult your financial advisor
Founded in 2007 to launch pioneering private equity funds in frontier markets
A partnership of 20 contrarians with decades of investment experience in developing countries, e.g.:
• Marc Faber voted one of the World’s Five Wisest Investors – Bloomberg
• Jim Walker voted Asia’s #1 Economist for 11 consecutive years –Asiamoney
• Paul Supramaniam founder of LawAsia and one of Singapore’s top M&A attorneys
• Gordian Gaeta former Managing Partner at Booz Allen Consulting - Asia
• Andrew Fraser former Group CEO of Baring Securities
• Henry Looser former Head of Private Banking at Bank Julius Baer
• Eric Wetlaufer former Chief Investment Officer of Fidelity Research & Management
• Terry Mahony Chairman of VinaCapital Group (largest Vietnam fund manager)
• Alexandre de Lesseps Director of BlueOrchard Finance (leading global microfinance fund)
• Anthony Moody Asia Chairman, Sindicatum Carbon Capital (environmental projects)
• Robert Keith Co-founder of Charles Street International (global investment firm)
Cayman-domiciled with offices in Hong Kong, Cambodia, Laos, Haiti, Bangladesh and Sri Lanka
Licensed and regulated by Hong Kong Securities & Futures Commission
Member of EMPEA and LAVCA, signatory of UNPRI Principles
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www.leopardcapital.com
WWW.EMERGINGFRONTIERSBLOG.COM
NEWSLETTER WWW.LEOPARDCAPITAL.BLOGSPOT.COM
Write me at: [email protected]
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Exit or Expand profession
Expatriate
Entrepreneur
Note: you can bring a Leopard on your journey