Fri, 05/09/2008 - 07:00
Asset managers and investors are starting to awaken to the potential offered by Africa after decades of misgovernment and economic stagnation. Mohammed Hanif, chief investment officer at Insparo Asset Management in London, says the firm's newly-launched Insparo Africa Fund offers investors currently underweight in the Middle East and Africa with focused exposure to an attractive if complicated region.
HW: What is the background to your company and fund?
MH: Insparo Asset Management was set up in July 2007 by its principals and has seed capital of USD125m that is locked up for four years. Major shareholders in Insparo include IPGL, a private holding company in which Icap chief executive Michael Spencer together with his wife and family trusts, and a US family office.
Insparo aims to be the premier asset management firm focusing on frontier and niche markets that require specialist skills to identify and analyse opportunities but also on the ground relationships and presence in order to access deal flow.
Insparo launched its inaugural fund, the Cayman-domiciled Insparo Africa Fund, on May 30 this year. A genuine multistrategy fund, it invests in assets including fixed income (bonds and loans), equities and local market products, comprising loans as well as bonds. The fund focuses on investments in sub-Saharan Africa and the Middle East and North Africa regions. It specifically excludes South Africa, which Insparo believes is not a frontier financial market and is correlated to the main emerging market universe.
HW: Who are your service providers?
MH: The administrator of the Insparo Africa Fund is Caledonian (Isle of Man), its auditor is KPMG and its legal counsel is Ogier.
HW: How and where do you distribute the fund? What is the profile of your current and targeted client base?
MH: Insparo has done very little formal marketing, and has in the main responded to enquiries generated by our fund profile. Our top priority has been to put our seed capital to work effectively and build a dynamic and diversified portfolio of assets.
Interest in Insparo has come from a diversified group of investors including high net worth individuals, family offices, private banks, endowments and funds of funds in the US, Asia and Europe. Insparo provides investors that are already exposed to emerging markets but feel underweight in the Middle East and Africa with a way to gain focused exposure to an attractive if complicated region.
Despite our lack of formal marketing Insparo has already attracted third-party funds. Once our seed capital is fully invested, Insparo anticipate being in a position to proactively market the fund later this year.
HW: What is your investment process?
MH: The investment process of the fund is to focus on identifying growth drivers and the sustainability of these within the region, country and sector. With the fund being multistrategy, exposure is gained through the most efficient instruments and parts of the capital structure, allowing the fund to take exposure in countries where barriers to entry such as exchange control restrictions may exist.
HW: How do you generate ideas for the fund?
MH: The principals believe top-down analysis is a given - detailed macroeconomic analysis and sectoral understanding is not added value - and prefer to talk about seeking out deep-value investments through access to better information, superior analysis and wider deal flow.
Its multi-disciplined strategy and team skills enable Insparo to identify, analyse and undertake investments and deals that many managers will not be aware of. For example, Insparo has just taken local currency exposure in Iraq.
Idea generation is therefore a combination of experience and knowledge being put to use through a network of information and contacts to identify and execute opportunities that many managers have not even heard of, let alone be able to execute.
HW: What is your approach to managing risk?
MH: In frontier markets, diversification is a key element of risk management. We limit exposure for any one position to a maximum of 15 per cent of net assets and for any one country to 40 per cent of assets. Furthermore, we restrict exposure to unlisted equity to a maximum of 15 per cent.
This framework encourages position diversification but allows us to go overweight in country exposure, which we believe is also a key element in capturing country-specific events that when they occur tend to be larger than events affecting individual corporate names.
We also take an active view on currency. We will either hedge the underlying currency, or if we are bullish on it this view can become part of the strategy as an overlay on the investment.
Finally, the risk advisory and investment management board meet on a monthly basis to review and discuss risk positions.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
MH: Launching a fund in what have been the most challenging two months for at least a generation may seem crazy, but we believe there are many attractive opportunities that may be volatile in the short term but will generate very attractive returns for our investors over the longer term.
Investing in frontier markets is a long-term proposition, and we need time to assess performance against expectations. However, we have made a good start toward building a portfolio that stands us in good stead for the future.
We live in interesting times and the global economic and market outlooks remain highly fluid. Despite the global environment we will not change our investment style. Investments are driven by fundamental analysis and over a longer time horizon. Of course valuation is a key metric, and our entry points reflect the market circumstances.
HW: What opportunities are you looking at right now?
MH: We are currently working on a number of interesting opportunities in sectors such as the financial services, telecommunications, agriculture and consumer-driven industries in Sierra Leone, Zambia, and Kenya.
We are also looking at opportunities across the Maghreb that will benefit from liberalisation of financial markets as well as the region's compelling underlying fundamentals. Finally, we have some special situations-type opportunities presenting themselves over the coming months in Zimbabwe, the Seychelles and Pakistan.
HW: What events do you expect to see in your sector in the year ahead?
MH: The most significant events specific to our regions will be forthcoming elections in Côte d'Ivoire, Ghana, Zambia, Pakistan, Angola, Rwanda and Algeria. The opportunity is really seeing these as potential turning points and in the post-election scenario seeking investment opportunities.
Generally speaking, we expect further financial services sector consolidation together with a deepening of financial markets with the continuing development of local markets across sub-Saharan Africa, coupled with demand from a sophisticated investor base. In the Maghreb we expect a continued push for economic diversification and market liberalisation, for instance in Algeria.
HW: How will these developments affect your portfolio?
MH: We are positioned relatively defensively at the moment, keeping duration short and only looking at compelling equity opportunities. In circumstances such as the markets are experiencing today globally, it pays to do your homework and wait for the right opportunity at the right price. We will be opportunistic when deploying capital in this environment.
HW: What differentiates you from other managers in your sector?
MH: Insparo's investment management team came together with a unique combination of skills relevant for the focus on frontier and niche markets in which Insparo operates. Collectively the team has more than 40 years' experience in deep-value investments across emerging markets, from the Russia crisis of 1997-98 to Iraq in 2004, encompassing many other special situations along the way.
I was previously responsible for emerging market distressed debt and special situations at Bluebay Asset Management and have more than 10 years' experience in emerging markets proprietary trading and portfolio management. I was previously a director in the illiquid emerging market proprietary trading business at Dresdner Kleinwort Wasserstein.
Insparo head of research Francis Beddington was previously head of research for Central and Eastern Europe, the Middle East and Africa at Standard Bank, and was one of the driving forces behind the development of domestic bond markets in various African countries. Francis has 15 years' experience in African markets, including senior roles at Chase Manhattan, JPMorgan Chase and in the UK government's Overseas Development Administration.
HW: Do you have plans for further product launches in the near future?
MH: While we do not have imminent product launches planned, we are monitoring opportunities in other niche markets. The management's skills and experience are best employed in frontier markets to take advantage of under-researched opportunities.
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