Russell Investments to bring frontier fund to institutional investors

Russell Investments is about to launch a frontier fund that will be available to Australian institutional investors.

Chief investment officer for Australasia Symon Parish said Russell launched a frontier (or ‘emerging’ emerging market) fund in the US in 2009 which was structured for pension funds, while another fund was about to be launched out of Ireland through which Australian institutional investors could gain exposure.

Because frontier markets were a specialised and “fairy exotic” asset class that investors had to take a longer-term perspective on, Parish said Russell was not looking to make the fund available to retail investors yet.

“It’s not ruled out for retail; it’s just that we’re starting in the institutional space,” he said.

Parish said one of the problems with offering frontier funds was that people were still getting their heads around how they were defined.

“To some extent it’s anything that’s not in the developed or normal emerging markets indices,” said Parish. “Those markets by their nature are going to have less developed economies, they’re going to be poorer and they are going to have less democratic Government structures and legal systems. There will be fewer investments and a lot less information.”

He said all of this makes for a riskier investment, and therefore independent research, diversification and active management become all the more important.

“But the flipside is that there is the potential for fantastic returns because the markets are less efficient, and because you are essentially tapping into the upswing of growth as they come into the developed framework,” he said.

“There’s a beta and an alpha argument for frontier markets,” he added. “Beta is about trying to get onto that upswing of economic and market development. The alpha story is about the fact that the markets are inefficient and there’s less information, so there’s a greater opportunity to add value by picking the right investments.”

Paris reiterated the fact that this is not an area for uncertain investors.

“Even for a fairly sophisticated superannuation fund or Government pool of money, it requires very specialised research resources,” he said.

Some of the countries identified as presenting opportunities include Nigeria, South Africa, Colombia, Kenya, Sri Lanka, Egypt, Argentina, Ghana, Bangladesh, Jordan, Trinidad & Tobago, Kazakhstan, Romania and Qatar.