Frontier Markets Due Diligence, Investing in Myanmar Edition

Leopard Capital CEO Doug Clayton’s interview with CNBC’s Bernie Lo has my attention right now because it provides a good starting framework for thinking about due diligence approaches to frontier markets investing. Take a look at the clip first and then we’ll think about why any of this matters:

What Clayton has to say is no doubt interesting, but more interesting to me are the questions Lo asks. Within a single three-minute, 20-second clip, Lo manages to cover everything you’d want covered in the first round preliminary inquiry into a frontier market with these basic questions:

  1. Who/what are the real drivers behind the speed/pace/dynamic of economic reforms?
  2. Is this for real?
  3. What is your level of engagement in the country?
  4. What are the most promising industries/companies/sectors/opportunities?
  5. Clarification on your level of engagement (following up previous answer on local companies’ need to partner with multinationals)
  6. What sort of time horizon should potential investors expect when devising exit strategies?
  7. How credible is the data?
  8. Where is the capital coming from / who is the target audience?

And that’s it. First round over.

Second round questions are a different conversation and variable dependent on the first round answers (surprisingly, this Fox Business interview with Ron Florance of Wells Fargo Private Bank manages to address some second-round issues, but that’s a testament to Florance’s astuteness over the reporter’s ooh-aah-gee-whiz gushing). But for a first-hit country-focused inquiry, particularly inside of four minutes, you really can’t ask for more and I think we’ve all sat through meetings that took far longer and achieved decidedly less.

If I were sitting in Lo’s chair and I had one more minute of air time, I’d probably ask something to do with legal or rule of law concerns to get Clayton to say something about protection for foreign investors, expropriation risks, honoring contracts, something to that effect.

Bernie Lo’s efficiency is even more apparent when compared against this previous attempt from some of his colleagues a few months ago while interviewing Craig Steffensen of the Asian Development Bank:

Personally, I got a lot more value for my time out of the first video, and there are a few reasons for this.

One is that the anchors in the second video, in my opinion, weren’t framing the questions correctly as they were clearly geared toward a market setting that is still not applicable to Myanmar (“When will this begin to pay dividends?”). I confess I’m not a regular CNBC watcher as most of what I’ve found on there leans more toward the Jim Cramer Mad Money end of the spectrum, but Bernie Lo has demonstrated that at least one person in that network is on the ball as frontier markets are concerned.

Another difference is the interviewee. Steffenson’s answers are meandering and a bit too open-ended. Having never met Steffenson personally, but having dealt with other development bank representatives, I can attest to at least part of this lack of clarity resulting from the nature of what a development bank’s mission is (see question 3 of Bernie Lo’s list above). Doug Clayton, by contrast, has his own skin in the game and is not interviewing by phone but in the studio face to face. He talks up his book when he can, but this is to be expected from an actively engaged player and Clayton isn’t nearly as flagrant as some others on this front (Mark Mobius, for example)

And of course part of this is no doubt due to the freshness of the topic. I suppose a couple of months ago we were all still getting used to the idea of addressing a new market in stages as formative as Myanmar’s. It’s not every day that we get to watch a market develop practically straight out of the womb and as we continue understanding and learning more about the sort of trajectory Myanmar is headed for, due diligence is all the more vital.

2 responses to “Frontier Markets Due Diligence, Investing in Myanmar Edition

  1. Pingback: Frontier Markets Due Diligence, Round Two - Diverging Markets

  2. Pingback: Leopard Capital discusses Frontier Markets as a safe haven