Private equity and asset management groups across Asia are turning their focus to Mongolia as the country’s economy is expected to grow by double digits in 2010 and beyond.
At an investment summit in London held at the end of November, managers from several firms announced plans for further investments into the country. Mongolia’s mining sector has been attracting the most interest so far from foreigners, but lately there has been growing interest in property and listed equities.
Thomas Holland, partner and head of Asia at global investment management and advisory firm Cube Capital, compared Mongolia with countries such as Vietnam, where streets are named after people who fought foreigners, and said there is none of that in Mongolia. His firm has been active in the real estate sector, betting that forecasted economic growth will translate into attractive property yields.
Mr Holland said: “It’s an amazing growth story, so we have put some positions out there. We’ve invested about $15m into the country, mostly in high-end and stressed real estate, but some listed equities, too.”
Alessandra Pasian, a senior banker for equity funds at the European Bank for Reconstruction and Development (EBRD), said the bank is launching a Mongolian private equity fund that will focus on other areas in the country’s economy besides mining. Its target size will be $50m, with an estimated $10m of that coming from her organisation. The EBRD will not be managing the fund itself, instead going with an external fund manager based in Hong Kong, with a local team in Mongolia.
Ms Pasian said: “We liked the idea of a fund that did not focus on mining or any particular sector, and that looked at SMEs in the country.”
The panellists were in unison on the opportunities in the country but also agreed that, as in any frontier market, there are substantial risks. Each manager said that having a local partner and maintaining high levels of due diligence is key, as it would be foolish to show up in such a remote country without local expertise.
O Orkhon, deputy CEO at the Trade and Development Bank of Mongolia, said that this goes both ways. In his view, both foreigners and Mongolians should take a long look at who they do business with when it comes to their investments in the country. He said that, in the past, foreign investment had been too short term and they now need to find investors who are committed for more years.