Think emerging-markets economies are fundamentally riskier than so-called core markets like the U.S., the U.K. and Germany? Think again. At least that’s what British investor and economist Jerome Booth believes, and the co-founder of emerging-markets investment giant Ashmore Group is putting his money where his mouth is.
Booth, 52, helped launch London-headquartered, $58.9 billion Ashmore in 1999 and served as the firm’s head of research through 2013. After spending a couple of years snapping up telecommunications, film and other businesses around the world through New Sparta, his London-based private investment office, he’s returning to his asset management roots.
Booth’s newest venture — New Sparta Asset Management (NSAM), which he expects to be up and running by mid-2016 — will use a specialist sector strategy to invest in private businesses in emerging markets. Starting early next year, NSAM plans to raise between $250 million and $500 million from global institutional investors, according to head of distribution Mark Weiller.
Booth’s Core-Periphery Disease theory, partly outlined in his 2014 book Emerging Markets in an Upside Down World: Challenging Perceptions in Asset Allocation and Investment, suggests that investors worry too much about how decisions in developed countries affect developing economies, because causality works both ways. Central banks in China, Brazil and other developing countries hold a total of roughly $11 trillion in core sovereign debt, he says, and sovereign wealth funds hold an additional $3 trillion to $5 trillion. The recent sell-off in emerging markets could persuade some of those banks to shift out of U.S. Treasuries and euro zone government bonds and into cheaper emerging markets, which could rock the developed world, he contends.
Booth, who says he still owns a significant stake in Ashmore, will serve as chair of NSAM and will chair the investment committee. Notable hires include Ashmore alumni Ousmène Mandeng, former deputy chief of the general resources division with the International Monetary Fund’s finance department, as head of research and development; and Weiller, who spent a decade with the firm. At first NSAM will focus on building out renewable and conventional energy sources in sub-Saharan Africa, mainly by constructing and financing power stations.
Booth, who holds M.Phil. and D.Phil. degrees in economics from the University of Oxford, believes Africa is hungry for private energy investment. Roughly two thirds of sub-Saharan Africa have no power. Despite an abundance of natural energy resources, from oil and natural gas to coal, fuels are not evenly distributed among Africa’s 54 countries, and the electric grid is aging and patchy at best. The region accounts for 13 percent of the world’s population, yet it’s home to 48 percent of those without access to electricity, according to New York–based consulting firm McKinsey & Co. The upshot for communities that lack power and those that endure rolling blackouts is stunted educational and economic activity after dusk. Students can’t complete homework, and shops can’t carry out business.
NSAM will join forces with local developers to fund and build power stations, sharing expertise to help those companies grow sustainably. Booth and his team will actively manage exposures across various project time lines, from the development stage — bringing a project from the drawing board to financial close — to buildout, which typically requires private equity and debt funding, and operation. Exits can vary from public listings to selling to strategic, private equity or longer-term fixed-income infrastructure investors.
From a manager’s point of view, African energy is an excellent investment opportunity because it’s noncyclical and there’s high demand for private sector involvement, particularly through public-private partnerships, Booth says. For its part, Africa’s population will benefit from improved living standards and the economic boost provided by greater productivity. But challenges lie ahead. “There are three main bottlenecks associated with power stations in Africa,” notes Booth, an honorary visiting professor at Cass Business School of City University London: sourcing equity investors, completing the development stage and communicating with local governments. These can be resolved by building a highly experienced specialist team within a fund management firm with a wide network of contacts that can identify problems early and maintain solid relationships with government officials, lenders and others, he says.
Eventually, NSAM’s portfolio will diversify into other sectors in Africa and beyond, probably starting with telecommunications, says Booth, who became interested in emerging markets through his mother, a former employee of Oxford, U.K.–based antipoverty nonprofit Oxfam. “By focusing on a single sector at a time, the fund has better control of information, which lowers the risk,” he adds. In doing so, Booth and NSAM will also seek to challenge conventional investment wisdom to the core.
