The Yield Desert: Why Investment Managers are Venturing into Frontier Markets
With yields in developed markets frequently struggling to outpace inflation, investment managers are being pushed further afield in their "hunt for yield." This has led to a renewed interest in "Frontier Markets"—nations that are even less developed than traditional emerging markets. From the growing tech ecosystems of Nigeria to the industrial hubs of Vietnam, investment managers are venturing into territories that offer explosive growth potential but come with significant "sovereign risk" and "liquidity constraints."
Operating in a frontier market requires an investment manager to be a boots-on-the-ground detective. Standardized financial reporting is often non-existent, and political stability can change with a single election. Therefore, the manager must rely on qualitative research, local partnerships, and a high tolerance for ambiguity. For the institutional investor in Europe or America, these markets offer a rare opportunity to capture early-stage growth in economies that are just beginning to integrate into the global supply chain. It is the ultimate test of an investment manager’s ability to separate genuine opportunity from systemic chaos.