I’ve raised the notion of ‘Frontier Finance’ on this blog a few times (here, here and here). But...this just in...‘frontier finance’ has now officially graduated from ‘musings on a blog’ into ‘full-fledged research project’. As such, I spent Sunday at the Annual Meeting of the Association of American Geographers in New York presenting a paper entitled...what else...‘Frontier Finance’ that I’ve been writing with my co-author and buddy Adam Dixon. So what is ‘frontier finance’, you ask? Well, it’s a simple recipe:
First, you’ve got a rising number of investors popping up in locations that have no history of financial services (i.e., the ‘frontiers of finance’). From Abu Dhabi, Alaska, and Alberta to Wyoming, Venezuela and even Vietnam, frontier investors are increasingly common.
Second, you’ve got a palpable dissatisfaction with many of the traditional institutions of finance and investment among these frontier investors (due to a widespread perception of misaligned interests, high fees, poor returns, short-termism, etc.) As such, in the post crisis environment, many institutional investors are willing to think creatively about deploying their capital, such as through in-house investments, seeding or large and creative mandates. The objective is to lower fees and align interests over the long term.
Put the two trends together, and you’ve got Frontier Finance, people! A growing community of direct investors located in cities that don’t have a long history of financial services! And that, I would argue, is where things get very interesting for nerds like us. We get to think creatively about how investors in these outposts of finance can replicate the benefits (externalities) of financial centers. For example, how do these funds hire the talented staff they require? Even better question: Can they hire the staff they require?
And this is where some of the threads on this blog really come together: It seems that frontier investors are looking to overcome the loss of agglomeration economies present in traditional financial centers by leveraging network economies through collaboration and co-investment with like minded investors. Fascinating.
Anyway, it was a pretty nice little Sunday. Big thanks to the tens upon tens of people that showed up. Your comments and critiques were very useful. If you’re interested in seeing the PPT, here you go.
