Active Management Still Matters in Emerging Markets | Jamie Carter
Monetary Matters with Jack Farley
Deep Dive
Why did Jamie Carter leave his previous firm after 15 years?
Jamie Carter felt stale after 15 years and wanted to try something new, get his entrepreneurial juices flowing again, and focus more on the business development side. He also considered the firm's succession and the changes in the market as factors.
Why is emerging markets still a strong area for fundamental active management?
Emerging markets remain inefficient, with significant alpha opportunities due to diverse languages, local cultures, and state-owned or state-influenced companies. Active managers can identify and navigate these complexities better than passive or quantitative strategies.
How does the team at Varus manage decision-making in emerging markets?
Varus has a three-person investment team that works together for collective decision-making. Each member brings diverse geographical and sector expertise, ensuring a well-rounded perspective and reducing the risk of overlooking key points.
Why is raising capital in the UK more challenging compared to the US?
Raising capital in the UK is more challenging due to increased regulation, higher costs, and the disappearance or consolidation of some key capital pools, such as defined benefit pension schemes. The US market, with its larger number of sophisticated and long-term-focused investors, is more favorable.
What are the key factors for a successful boutique investment firm in the early stages?
Key factors include clear planning, understanding the target market, having the right connections, and setting realistic client expectations. Boutiques also need to focus on getting the first 30 to 50 million in AUM to make the business viable and attract larger investors.
Why do Varus's founders believe in a long-only approach for emerging markets?
The founders believe that a long-only approach in emerging markets is more aligned with their investment philosophy and avoids the distractions and costs associated with hedging. They also see better opportunities in long-term, high-conviction investing.
How does Varus manage compliance and regulatory requirements in the UK?
Varus has a compliance officer who must prove relevant experience. The FCA authorization process is long and complex, requiring detailed paperwork and regular submissions, which adds to the operational costs. However, this ensures a higher level of oversight and control.
Why is succession planning a critical issue for mature boutiques?
Succession planning is critical because it can lead to overreaching and overstretching, which creates friction and resource issues. Unexpected succession, such as key person illness, and planned succession, like making the firm multi-generational, both require careful management to maintain alignment and client trust.
How does Varus ensure alignment with its investors?
Varus ensures alignment by focusing on a single strategy, setting clear performance expectations, and maintaining a small, co-invested team. They aim to build a long-term relationship with investors who understand and support their approach, even during tough periods.
Why are US investors more likely to allocate to emerging markets despite uncertainty?
US investors recognize the long-term growth potential in emerging markets, especially in new economy businesses. Despite the current political uncertainty, they are looking for contrarian opportunities and are more likely to allocate to EM if they see a strong, bottom-up investment thesis.
- Started at Mercury Asset Management
- Joined Oldfield Partners in 2005
- Became CEO in 2013
- Firm grew to manage around $6 billion in assets
- Left Oldfield Partners in 2020
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