IFCAssetManagementCompany’sTakeonEmergingMarketsand
Infrastructure
WithGavinWilsonofIFCAMC
DavidSnow,Privcap:
Today, we’re joined by Gavin Wilson of IFC Asset Management.
Gavin,welcometoPrivcap.Thanksforbeinghere.
GavinWilson,IFCInvestmentManagement: Thankyouforhavingme.
Snow:
Since its founding in 2009, and with you at the helm, what have
youlearnedabouttherightwaytodothis?Howhaveyourefined
theIFCAssetManagementapproach?
Wilson:
Thestrategyhasbeenslowlybutsurely.Imean,we’reluckyto
havehadaprettysuccessfultrackrecordintermsofcreatingnew
fundsandraisingthem.Wenowhave,Ithink,cumulativelyraised
about$8.7billion.Thatincludesabout$2billionorsoofIFC
money,soit’sabout$6billionandabitofexternalmoney.That’s
across11differentfunds.Whatwe’vetriedtodoishaveeachfund
bereasonablyfocused,butbroadenoughtohaveadiversified
portfolio.So,ourcoredirectequityfundsareeitherregionalor
sectoral.Onthesectoralside,wehaveinfrastructureandthe
financialsector,twoofIFCbiggestsectorsintermsofit'sown
investing.
Snow:
Soasyouknow,manyemergingeconomiesaroundtheworldhave
taken an economic hit, which has caused a lot of international
capitaltowithdrawfromemergingmarketsoratleasttobemore
hesitant.Whatdoesitlooklikenowwithinyourportfolio?Whatis
the real impact of this economic downturn and how worried
shouldinvestorsbe?
Wilson:
Ithinkweneedtodistinguishbetweenaforeign-exchangehitand
aslowing-growthscenario.Firstofall,growthexpectationsacross
theglobearelowernowthantheywereafewmonthsorayearor
two ago. That affects both the emerging world as well as the
developed world. Financial returns are not directly correlated to
economicgrowth,butobviouslyyouwouldprefertohaveahigher
growthscenario.Thisissomethingthatvariescountrybycountry.
What I would say is that I think the macro environment is a bit
more important now than it was a few years ago, because the
macrostoryindifferentcountriesismorevariegatedthanitused
tobe.Oneobviousexampleofthatiscommodityexportersversus
commodity importers being hit in very different ways by the
reductioninoilprices.That’sontheeconomicmacroside.Atthe
company level, some of our companies are doing extremely well,
despitethebigger-picturegrowthstory.
Snow:
Wilson:
Snow:
Wilson:
Ontheforeignexchangeside,we,likemanyinvestors,denominate
our funds in dollars. But they’re not U.S.-dollar funds. In other
words,whenglobalassetmanagersareallocatingtothefundswe
manage, they’re not saying, “That’s a U.S.-dollar allocation.” If
anything,they’reactuallysaying,“That’sanemergingmarketnonU.S.dollarallocation.”Ofcourseitlooksbadwhenthedollarrises
very quickly; therefore, any fund that’s denominated in dollars,
which is investing in other currencies, gets hit. But investors are
savvy enough to see the real return versus the dollar return and
also to compare against benchmarks. At some future time, the
dollarwillsnapback.We’veevenseenthatinthelastfewweeksas
what’shappeningwiththedollartrajectory.
What makes you most bullish or most excited about being an
investor in the emerging markets as you look around the world?
Whetherit’sademographicsetoffactsoracyclicalunderstanding,
whatmakesyouexcitedtobeinthepositionyou’rein?
The long-term fundamentals are terrific. Demographic, dividend,
urbanization, increased trade, open markets, better regulation—
all these things are very attractive if you’re a long-term, patient
capitalinvestor.ButIthinkwhat’sparticularlyexcitingisthefact
that the perception and the reality of risk aredifferent. Bythat,I
meantherealriskislowerthanpeopleperceiveittobe.So,ifyou
areabletounderstandthatrisk,youcantakeadvantageofitand
makealotofmoneywhilehavingahugeimpact,preciselybecause
theworldperceivestherisktobehigherthanitreallyis.
Theemergingmarketshaveahugechallengeandanopportunity
in the form of infrastructure. Your firm invests in infrastructure
assets—what are some really interesting plays and opportunities
youseefromyourvantagepoint?
Indevelopedmarkets,infrastructureistypicallylowriskandlow
return. In many cases, [it’s] existing assets and a question of
operatingthemwithgovernment-backedcontractsandreasonably
lowreturns,butverylowrisk.
Now,inemergingmarkets,alotoftheinfrastructureinvestments
arereallyinprivateequities,justtheyhappentobeinsectorswe
traditionally we call “infrastructure.” They could be greenfield
[projects],wherethere’srealconstructionriskandyou’recreating
primary demand for those infrastructure services, whether it be
ports, roads, airports, bridges or whatever it might be. That’s
primarydemandthat’sbeingcreatedandthere’srealconstruction
risk. But the opportunity to earn private equity-style returns,
whether or not you refinance once you’ve gotten past the
construction phase, which I think we’re going to increasingly see
as pension funds come into more brownfield assets in emerging
markets,whichtraditionallytheyhaven’tdone.
In addition, even with brownfield assets, there are operating
companiesthatarethemselvesgreatgrowthstories.Becausethey
are gradually working and growing into a market which
traditionallyhasbeenservedbypublicutilitiesandmunicipalities
andwheresomeoftheseregulatoryregimesinemergingmarkets
aremuchmoremodernandinvestor-friendlythantheequivalent
regimesindevelopedmarkets.
Take water in Brazil, for instance. It’s a much more investorfriendly regulatory regime than, for instance, in the U.S., where
thereareveryfewprivatewaterutilities,tomyknowledge.But,in
Brazil, there’s opportunity for good private operators to grow by
getting more concessions from states and municipalities. These
areexistingassets,butyoucanstillbuildagrowthstoryaroundit
through a good operating company that’s able to provide more
efficientandbetterservicesforthepeopleofthosecountries.