Paradice funds chase emerging markets growth

Recently hitting its two-year anniversary, Paradice Investment Management’s emerging markets strategy has been on a “rollercoaster ride”.

Co-portfolio managers Edward Su and Michael Roberge have spent the last two years navigating the frenzied market volatility of covid-19, the fallout of mass protests in Hong Kong, and trade wars with China as they pursue opportunities in this lucrative but underappreciated region.

“In EM (emerging markets), you cannot paint with a broad brush,” Su told this masthead in an interview from Paradice’s San Francisco office. “There are 27 different countries in emerging markets, and they’re all in different stages of their lifecycle, have different geopolitical issues, have different election cycles, different deficit levels. You can’t completely disaggregate yourself from macro and focus only on bottom-up investing.

Institutional investors have become more interested in deploying capital to EM in recent years as their rapidly growing middle-classes present an unprecedented growth proposition but have historically held off due to sub-par returns and/or volatility.

Active management can be a boon in this area, and big funds began approaching founder David Paradice in 2016 in search of strong EM managers. That led to the hire of Su and Roberge from US-based Artisan Partners, where they were supporting the Developing World Strategy.

Both Su and Roberge saw the job as an opportunity to build out their own franchise, and they were further emboldened by two large super funds and a government fund jumping onboard in 2019.

“It was an opportunity for us to bet on ourselves,” Su said. “It was too good of an opportunity for us to pass up. In addition, Paradice’s relationships and partnerships they’ve built up over the years meant there was pretty strong potential that we’d be able to get some early support from institutional clients from day one and that was pretty attractive to Mike and I.”

Su said: “Our approach to investing in EM is focused on really isolating the domestic demand opportunity, participating in that rising consumer story in EM as opposed to the more cyclical export driven opportunities, commodities focused business models, and older models like banks and SOEs that have historically dominated the EM class…

“Inherent in our philosophy and our strategy has been a constant of managing risk at the holistic level and we’ve always tried to be more protective on the down side. That’s where we’ve been able to add value.”

 

Read the full article on Investor Strategy here.