Frontier and Emerging Markets - IFEBP · Frontier and Emerging Markets • 50% of all new wealth...
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The opinions expressed in this presentation are those of the speaker. The International Foundation disclaims responsibility for views expressed and statements made by the program speakers. Frontier and Emerging Markets James E. Meketa Managing Principal, Chairman Meketa Investment Group, Inc. Westwood, Massachusetts I13-1
Transcript of Frontier and Emerging Markets - IFEBP · Frontier and Emerging Markets • 50% of all new wealth...
The opinions expressed in this presentation are those of the speaker. The International Foundationdisclaims responsibility for views expressed and statements made by the program speakers.
Frontier and Emerging Markets
James E. MeketaManaging Principal, ChairmanMeketa Investment Group, Inc.Westwood, Massachusetts
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• What are emerging and frontier markets?• How do these markets differ from
developed markets?• What risks should trustees consider?• Which investment approach is better:
active or passive?• What about private equity and debt?
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Global Markets
• Developed• Emerging• Frontier
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Developed Markets
Population GDP
North America (U.S. and Canada)
350M $19T
Europe 500M $18T
Japan 127M $5T
Australia 24M $2T
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Characteristics of Developed Markets
• Stable governments• Efficient and transparent financial
institutions• Currencies managed by strong central
banks• High but stagnant per capita incomes
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Characteristics of Developed Markets
• Open to foreign ownership and investment• Ease of capital movement• High rates of consumption vs. production
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Global Significance of Developed Markets
• Population 14%• Share of Global GDP 50%
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50% of All Global Wealth Creation Takes Place in
Emerging and Frontier Markets
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Emerging Markets (the Big Four)
Population GDP
China 1,300M $11T
India 1,300M $2T
Brazil 200M $2T
Russia 142M $2T
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Other Emerging Market Countries
Mexico Peru
Indonesia Nigeria
Turkey South Africa
Saudi Arabia
South Korea
Malaysia
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Characteristics of Emerging Markets
• High rates of income growth (many now middle-class)
• Unstable governments• High levels of corruption, little
transparency• Volatile currencies managed by weak
central banks
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Characteristics of Emerging Markets
• Emphasis on production and exports over consumption
• Open to foreign ownership and investment (sometimes)
• Capital movement may be difficult or impossible
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Growth of Emerging Markets
2000 37% global GDP
2016 50% global GDP
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Benefits of Diversification
Developed Markets Emerging MarketsStability High Growth/ReturnsSafety High Growth/Returns
Liquidity High Growth/ReturnsInnovation High Growth/Returns
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Expected Returns
2016-2036U.S. Equities 7.8%Developed Market Equities 8.1%Emerging Market Equities 10.5%
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Why Are Emerging Market Expected Returns so
Much Higher?
• Demographics
• Global connectedness
• Free technology transfers
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Demographics
• A full generation younger• Starting families and businesses• Little debt overhang• Extremely optimistic
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Connectedness
• China 1943• Mongolia 2011• Argentina 2015
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Free Technology Transfers
• iPhones• Advanced jet air craft• Antibiotics• International banking system• Easy access to capital
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Emerging Global Middle Class
China 1,300 millionIndia 1,300 millionBrazil 200 millionVietnam 90 millionIndonesia 250 millionTurkey 75 millionSouth Korea 50 million
Between 2 Billion and 2.5 Billion are Middle Class
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Emerging Global Middle Class
• Pets• Braces• Clean public toilets• Local tourists
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What Do They Look Like?
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Lima, Peru 1989 Shining Path Guerillas
Lima, Peru 2012
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Mongolia 1989 Communist Dictatorship
Mongolia 2011
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What Are Frontier Markets?
Places you might not want to visit as a tourist• The Stans• Bangladesh• Senegal• Argentina
But also: • Vietnam• Bulgaria
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Frontier Markets
• Exciting to visit• Virtually impossible to invest
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What Risks Should Trustees Consider?
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Active or Passive?
• Large Allocations: Active• Small Diversification Allocation: Passive
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Public Market Funds
• 235 emerging equity funds = $870 billion• 65 emerging debt funds = $280 billion• 20 frontier (equity and debt) funds =
$4 billion
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What About Private Equity and Debt?
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Private Market Funds
• 250 private equity funds in emerging (with some frontier)
• Approx. 15% of all private equity funds raised
• Concentrated in BRICs– Brazil, Russia, India, China
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Frontier Private Market Funds
• 75-100 total general partners• Perhaps 5% of all non-developed funds• $ amount rising rapidly
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62nd Annual Employee Benefits ConferenceNovember 13-16, 2016Orlando, Florida
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Frontier and Emerging Markets
• 50% of all new wealth will come from emerging and frontier markets
• Conditions in emerging markets are improving rapidly
• Many investment vehicles exist
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2017 Educational ProgramsInvestments
63rd Annual Employee Benefits Conference October 22-25, 2017 Las Vegas, Nevadawww.ifebp.org/usannual
Investments InstituteMarch 13-15, 2017 Phoenix, Arizonawww.ifebp.org/investments
Portfolio Concepts and ManagementMay 1-4, 2017 Philadelphia, Pennsylvaniawww.ifebp.org/wharton
Related ReadingVisit one of the on-site Bookstore locations or see www.ifebp.org/bookstore for more books.
The Tools & Techniques of Investment Planning, 3rd EditionItem #9029www.ifebp.org/books.asp?9029
816
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