France's Lutetia Capital is launching the Lutetia Emerging Opportunities fund this week, becoming the latest manager hoping to profit from the expansion of infrastructure in developing economies.
France’s Lutetia Capital is launching the Lutetia Emerging Opportunities fund this week, becoming the latest manager hoping to profit from the expansion of infrastructure in developing economies.
The Ucits III compliant fund is managed by Claude Tiramani, who joined the Paris-based boutique from BNP Paribas Asset Management. His Parvest China fund there made 957% in the 15 years to April, while Parvest Emerging Markets Europe fund made 69% over five years, according to Lutetia.
Companies involved in developing countries’ infrastructure projects will be one of three themes Tiramani will focus on at Lutetia. The two others are emerging market companies with pricing power, and those benefiting from growing local consumption.
His focus on infrastructure follows that of Latin American investment boutique BNY Asset Management ARX Investimentos, which launched the Latin America Infrastructure fund in August. First State Investments and Macquarie have each also garened European interest for infrastructure funds this year.
Tiramani said EMs were “at the start of an infrastructure spending cycle, and there is pent-up demand for infrastructure everywhere.”
Malaysia is expected to spend $440bn on it by 2012, while India expects to spend $680bn over 10 years. Similar stories emerge throughout southeast Asia.
He said: “It is not sustainable to grow your GDP at 8%, as India has over the past three years, for example, without having the infrastructure, so they will spend to generate capacity in their economy. We are overweight in China and all Asian markets.”
He said developed economies wanted developing counterparts to spend on infrastructure, partly because it boosts sales by Western heavy machinery companies, which in turn helps re-balance emerging economies’ balances of trade, so relieving pressure for them to recycle growing capital reserves into developed world currencies. “We will see Western governments encourage big emerging infrastructure projects.”
Alex Gorra, BNY Mellon ARX’s head of international platform, said thematic emerging market funds are the logical next step in EM investing, after BRIC and GEM funds.
“Latin America is the only region in the world that has the confluence of infrastructure need, and the right economic conditions for those types of investments to flourish,” he said.
Asian infrastructure build-out was often State-led, whereas in Latin America private companies were left to get on with it. They have become more willing to undertake long-term projects as historically high interest rates, and inflation, have fallen, Gorra said.
BNY Mellon Asset Management’s fund will be up to 80% in Brazil and Mexico.
Brazil is expected to spend $161bn on infrastructure by 2013, 37% more than between 2005 and 2008. Gorra said its hosting the 2014 football FIFA World Cup and 2016 Olympics shone the spotlight on it, but they were not the main reasons for infrastructure improvements.
Brazil needs to link provincial cities by road and rail, improve inefficient ports, and improve its energy infrastructure to satisfy growth in annual demand Gorra expects to be 14%.
At Lutetia Tiramani will be able to deviate from his benchmark by up to 8%, and hold up to 40% cash, in aiming to beat the MSCI Emerging Markets index by 15%. Lutetia’s fund has a US dollar share class, and a euro one hedged against dollars, and retail units for as little as €100, or institutional units charging lower fees, for €500,000.
BNY Mellon AM’s fund, available for £5,000 upwards, aims to beat the MSCI Latin America 10/40 index over a three to four-year period.
BNY Mellon AM Arx is also considering launching a regulated version of its Brazilian hedge fund, Gorra said.