Gemcorp Capital, a specialist investor bringing private credit to emerging markets, has recently published a whitepaper entitled Unmasking the Potential: Navigating Opportunities, Myths and Strategies in EM Private Credit.
Gemcorp co-founder Parvoleta Shtereva explains that she is in her 31st year of working in the emerging markets having started as an economist in 1994. By 2008 she was working at Goldman Sachs, where she would eventually meet the other co-founders of Gemcorp, and watching the effect the GFC had on emerging markets, and particularly private credit.
“We realised it was a vast unexplored and unaddressed market and that there was a real need for private market credit in emerging markets. The banks were withdrawing at the time and we thought we could find better returns for units of risk in this uncrowded asset class in uncrowded markets.”
The firm has the internal make-up of an investment bank and a strong investment focus. “Everything we have invested in has been originated in house and we have attracted co-investors too,” she says, reporting that some 11 years after launch, they have invested more than USD8 billion in emerging markets with at least 50 per cent of the portfolio in private credit, running alongside some macro instruments used for hedging of seizing opportunistic returns. The firm has generated double digit net returns on fees on average over the whole period.
“In terms of geography the portfolios have had quite a concentration in Africa to do with pre-existing relationships and experience and our ability to generate high yielding transactions when interest rates were close to zero,” she says.
“We now find that we have been able to broaden geographically but our African home is in Angola and we have people in South Africa and offices in New York, Asia and the middle east.
“We put an emphasis on the structure and security, so we look for asset heavy borrowers. We particularly like infrastructure projects for returns and also social impact projects and the two are connected because they are often priority projects for host governments.”
However, she also notes that the firm is quite agnostic as to industry as long as they can structure something ‘safe for our investors’.
Sectors they have worked in include telecoms, data, energy including oil and gas and also clean energy plus industrials and fintech.
“In the team we have all sorts of expertise and if not, we have technical advisers and we are very curious and like doing new things,” she says.
“Our investors are sovereign entities and our vehicles are locked up for three to six years,” Shtereva says. Since last year the firm has been marketing new vehicles to institutional investors and now hope to market to a wider audience in the US, Europe, the UK, the middle east and Asia.
“If you look to the continent of Africa but also across the broader emerging markets, there is a severe need for infrastructure but in Africa there are lots of countries with need for an electricity grid and generation – some countries in Africa have 25 per cent of their needs covered by generated power.”
A clean water supply is also a dire need in Africa, Shtereva says.
“If you consider what for us are the basics of life, there is a huge lack of basic infrastructure and service provision and very importantly if you also think from the point of view of demographics , Africa and Asia will be the last geographies with a positive birth rate so the human workers of tomorrow you find them in these geographies so you have to put in place the infrastructure and basis of creating the industry to create employment.
“There are plenty of good vital projects to invest in so it is entirely scalable and then there is something else we see which is a lot of countries where the industrial sectors or economy are coming out of state control, addressing foreign investors, raising new funding and becoming more efficient.”
Shtereva says this is particularly apparent in central Asia where there are countries that are rich in labour and where they want to raise opportunities for them to stay in their own jurisdiction.
The past story was that emerging market countries that produced primary commodities saw them shipped out to be refined and then reimported.
“Now looking to vertically integrate and develop to include processing and to capture more value added,” she says.
“We believe that private credit is a good choice to manage risk as the transactions are very bespoke and provide a close control through the security package over the development of the company and exaction of whichever business plan you agreed on.
“Diversification comes between different countries and different exposures to commodities and because we are able to trade the traded markets as well occasionally where we feel uncomfortable such as with oil prices, we can trade some options or futures or some hedges in specific commodities.”
Currency issues are managed by ensuring that the fund’s borrowers have hard currency to repay their debts.
