douglas polunin prepares to bring out a emerging markets portfolio with a dublin listing
Pictet's former head of emerging markets is to launch his first offshore fund under the Polunin Capital Partners brand.
Douglas Polunin is applying for a Dublin-listing for an open-ended Cayman domiciled portfolio. He expects the fund to be open to investors later this month with a minimum investment of $125,000.
The fund will use the same process as the one Polunin created when he was responsible for setting up Pictet's emerging markets operation.
The system primarily revolves around 'replacement cost' and is applicable only to industrial, output-based companies. Polunin said the system works by calculating the cost of replacement for a company's output, for example a concrete producer.
'Then we look at the valuation of the company in the stock market in terms of market cap per tonne of rated capacity adjusted for the balance sheet,' he said.
Companies around the world in the same industry can then be compared.
While there are some types of company this system doesn't apply to ' financial services, for example ' Polunin estimates it covers 80% of his universe, including technology, steel, paper, cement, chemicals, auto manufacturing and shipbuilding industries.
'The universe is everything outside the MSCI world index,' he added. 'That includes Middle Eastern companies in Saudi and Kuwait for example.'
The investment boutique has three experienced fund managers in addition to Polunin. Julian Garel-Jones launched the Rothschilds Five Arrows Latin American and Chile Fund before covering Latin America at Pictet; Paul Parsons was head of Asia for Pictet; and Aditya Mehta covered EMEA at Credit Suisse.
All of them will be seeding the fund with their own money, as well as seeking institutional backing. Despite its global nature, with the liquidity problems in these markets, capacity will probably be limited to around $500m.
This is a good time to launch an emerging markets fund, according to Polunin.
'Emerging has been in an eight-year bear market,' he said. 'We are going to see the bottom at the beginning of next year. Gradual accumulation is right at this stage. What is interesting is that the index for emerging markets has a higher yield than two-year US Treasuries and that is a first for a long time ' as long as I have been looking at them. If you take the period 1982 to 1993, emerging markets outperformed the world index by hundreds of percent.'
He predicts the cycle will last for around seven or eight years, with different corrections in between.
By that time, he expects to have diversified, possibly into regional products. One point of particular interest is emerging corporate bonds.
'The emerging corporate bond market is very poorly understood,' he stated. 'Nobody talks about it. They talk about the Brady market, but they do not talk about Indian corporate bonds and I think there is a lot of scope for that kind of thing.'
‘Important to have an anchor’
Report to be written by TPR
Lack of innovation for solutions
Some 2,000 consumers affected