Returns versus risk is a dichotomous relationship that we just cant seem to get away from. While it is true that the relationship exists in virtually all investment opportunities, some ventures pose significantly more risk to get at those Holy Grail returns than do others. One relatively new type of fund stretches the risk factor to such an extent that the Financial Industry Regulatory Authority (FINRA) has seen fit to issue a special investor alert. But thats not stopping investors from pumping in millions and getting back awesome returns so far.
Slovenia: the Final Frontier
While there is no precise definition of what a frontier fund is, it has been described as akin to an emerging market fund, but based on a smaller economy that hosts smaller, less developed markets than the widely recognized emerging market economies of Brazil, Russia, India, China and South Africa (BRICS). Frontier countries are also characterized by their less established regulatory, legal and financial accounting infrastructures, a greater likelihood for political instability and a general dearth of multinational corporations or significant international trade. Among those countries identified as meeting the definition of a frontier are Argentina, Lebanon, Nigeria, Vietnam and Slovenia.
Gaining Investor Attention
Notwithstanding the immaturity of frontier markets and economies, they are nevertheless gaining the attention and money of investors for a variety of reasons. Chief among them is as a way to diversify assets and take advantage of the outstanding potential: The thinking seems to be that from such a low starting point, these economies and their related funds can only go up. For many, the gamble paid off. During the first 10 months of 2013, the MSCI Frontier Markets Index yielded average returns of 21.1 percent, while the MSCI Emerging Markets Index returned only 0.3 percent during that same period.
Why the Need for a Special Alert?
This month FINRA issued an Investor Alert titled Frontier FundsTravel With Care, in which it set forth investor tips on how to avoid problems with frontier fund investing. The alert was issued in order to caution those interested in frontier market investing to carefully consider the heightened risks in such markets. According to Gerri Walsh, FINRA’s senior vice president for Investor Education:
Investors seeking potentially higher returns in frontier funds should understand that the promise of higher returns always carries more risk and the past performance of any fund is never a guarantee of future results. Before investing in a frontier fund, investors should consider whether and how such an investment might fit as part of a well-diversified portfolio.
At present, a limited number of funds specifically focus on frontier markets, but the number is growing.
David draws on 20+ years’ experience in both legal practice and in business services delivery since his own call to the Bar in 1989. With several years in the startup environment, including as a co-founder in the legal tech space specifically, he brings a unique and timely perspective on the role of data, automation and artificial intelligence in the modern and efficient delivery of services for legal consumers. Having been both a corporate buyer of legal services and a services provider, he identifies the greater efficiency and value that can be achieved in legal operations for corporate buyers especially.
An attorney, David worked for law firms Pinsent Masons and Linklaters in London before moving to New York to join Credit Suisse. As CAO, he helped negotiate & execute the relocation of Credit Suisse into its new NYC global HQ. Subsequently, David directed major global outsourcing, shared sourcing, HR operations & process efficiency initiatives including the digitization of records, the global roll-out of PeopleSoft HRMS & Y2K. David has worked extensively in the UK, US, Philippines, India and China markets in the areas of data management, human resources and business process outsourcing.
Most recently, David has been successfully investing in and serving as an advisory board member of several legal services start-ups including a cloud-based solution for legal process automation and e-filing; and a technology solution for large-scale capture of court and other public data used for litigation analysis, among others.
David graduated from the University of Manchester with Honors in Law and Bar School (College of Legal Education) in London, and has been a member of Middle Temple since 1989. He is the founder and former Chairman of The Global Sourcing Council.
Member: Bar of England & Wales, ABA, NYCBA, ACC, DRI