We see value in various asset valuations in emerging economies of East European countries, Africa and Central Asia. This may exist in both debt and equity instruments because of general emerging markets trends, such as political and corporate governance risks, lack of coverage and research, and often basic information, leading to market inefficiencies. Actionable strategies can either take advantage of such general trends or exploit discrepancies between specific securities in relation to a general trend.
Further investment opportunities stem from M&A activity, as companies from more developed economies buy further into less developed lands. This drives convergence in valuations as acquisition and control premiums paid provide valuation uptick that may be taken advantage of. Improving legal framework, business standards and general comfort in previously avoided jurisdictions are expected to drive further expansion of Western companies in the region.
There also exist many classic asset value arbitrage opportunities. Structural or market specific imperfections may often lead to asset valuations at a discount to NAV or realisable value, providing opportunities for arbitrage. Sum-of-the-parts value of conglomerates relative to their market valuations and closed-end fund discounts are among examples.
We also see value in influencing the running of the companies in which we invest, primarily through the casting of shareholder voting. We aim to deter poor governance that may pose a long-term threat to the profitability of the companies we invest in.