London-headquartered Gemcorp Capital Management Limited, which began operations in 2014, has had another successful year with its multi-strategy Gemcorp Fund I, which focuses on emerging markets, investing across private credit, private equity (opportunistically), public credit, global macro and trade finance strategies.
Gemcorp’s main credit strategy, which accounts for the bulk of the firm’s US$1 billion in institutional assets, returned -0.36% in December, bringing 2022 final net performance to +15.07%.
It has returned a net annualised +11.53% since inception in September 2014.
Gemcorp’s flagship fund has a multi-product mandate, looking to invest through the cycle. The core portfolio is concentrated on private credit, borne out of where the team has identified the best market opportunity set over the years.
CIO Parvoleta Shtereva, who is responsible for the firm’s investment portfolio, has more than two decades of experience working across Eastern Europe, Africa and the Middle East, historically managing credit portfolios for Black River Asset Management and Goldman Sachs.
Founder and chairman Atanas Bostandjiev was previously CEO of VTB Capital UK and prior to that a partner at Goldman Sachs in London, where he was responsible for co-running the emerging markets business in Central and Eastern Europe, the Middle East and Africa.
Also part of the investment committee is John Fulton, who is the firm’s chief financial officer, and Felipe Berliner, who heads the structuring team. Fulton has over 20 years of senior leadership in global finance roles in public and private companies across developed and emerging markets, while Berliner has spent most of his career at Merrill Lynch and Goldman Sachs in the emerging markets structuring team and then at VTB Capital working on financing in Sub-Saharan Africa,
Most of our team worked at Goldman Sachs together pre-2018,” says Shtereva. “We saw first-hand the withdrawal of credit from emerging markets after the global financial crisis – specifically in structured credit transactions. We saw the need to originate transactions ourselves as we knew we couldn’t acquire these assets from investment banks. To that end, we have the full investment skillset typically found in an investment bank.”
With a core strategy of investing in unique self-originated private credit and special situations, the team has undertaken more than $6 billion in credit and equity transactions since inception, with their bespoke credit solutions accelerating the growth of sovereign and corporate borrowers across 25 emerging markets and 13 vital industry sectors.
Gemcorp Capital Management is authorised and regulated by the UK’s Financial Conduct Authority. It is part of the Gemcorp Group, which has offices in Angola, Switzerland and Dubai. The Gemcorp team is regularly on the road, travelling to engage corporates, sovereigns, and investors. The team has strong legacy links in Angola, where it remains active, and also undertook transactions in Ghana, Zimbabwe and South Africa last year.
By region, the multi-strategy portfolio has its largest net exposure in sub-Saharan Africa, at 38%, followed by Europe and the Middle East (ex-G10) at 23%, and then Latin America & Caribbean and Asia.
Sectoral exposure includes a net 28% in logistics and infrastructure, 23% in sovereign, as well as financials and oil & gas.
“Our ability to hedge allows us significant outperformance,” says Shtereva. “We have taken the portfolio through a number of crises, including the Russian crisis of 2014, the China event in 2016 and more recently, the 2020-2022 Covid-initiated disruption. Our portfolio approach has been tested.”
Shtereva describes the team as “very biased emerging market lifers”, with their passion and knowledge built over long and varied careers.
She notes that private credit opportunities offer superior risk-adjusted returns at a time when geographic banking systems, particularly in Africa, can’t fulfil a funding role.
“Most economies in Africa have low bank assets to GDP, some below 30%, and the capital markets provide liquidity to African sovereigns on a sporadic basis,” she says. “There is a funding gap in capital expenditure for corporates and also sovereign needs, and there are often narrow windows to create solutions. In these situations, capital really does make a difference.”
Trade finance has also seen a withdrawal of capital, and intra-Africa trade in particular needs funding or else commodities don’t move.
“These are the themes we work around,” she says. “It is important to talk to investors all the time – there are fears around Africa, particularly in the areas of governance and business models. Our own experience is testament to fact that you can find safe and robust ways to lend in Africa.”
The portfolio typically has 10-15 deals on the book at any given time, with high-touch involvement from Gemcorp and a constant inflow of deals being evaluated.
Direct lending positions are typically secured, US-dollar denominated short-term and medium-term credit facilities, aimed at providing growth capital to corporations and governments. Most corporate transactions are self-liquidating (paid from cashflows), with an average duration of 2.5 years to allow for capex build-out, while sovereign deals tend to be more vanilla and have longer terms.
In trade finance, the team extends short-term bespoke and innovative trade finance structures, delivering differentiated returns and positive social impact.
Its opportunistic credit and macro investment strategies seek to exploit fundamental value and market liquidity dislocations, with comprehensive overlay hedging strategies to optimise returns and mitigate portfolio volatility.
On the private equity side, they undertake select investments in disruptive technologies, supporting EM founderled businesses, which provide unique solutions for financial inclusion and clean energy.
Shtereva notes that recent history in Africa and other frontier markets has shown that currency risk can destroy returns, particularly in economies that depend on commodities, with artificially priced exchange rates causing distortions.
“If you don’t have forex reserves, you can’t control currency volatility,” she says. “For us it is very important to understand the macro environment before you start with the micro forensics. Sometimes it feels like private investors are too focused on micros.’’
“We take a top-down approach and in 28 years we have learned that we have to get that right. We pay attention to not taking primary forex risk and we take exposure to asset-heavy businesses.”
Portfolio examples include fintech company Jumo and mobile technology company Africell, both of which have extensive operations across Africa.
“Jumo has built an amazing platform where banks can lend to individual customers,” she says. “The unit cost of traditional banking in Africa is high and fintech has leapfrogged this – it really is the only way to do it. The mobile wallet is an incredible innovation touching millions of customers, many of whom are entrepreneurs. It is a very interesting story and we are passionate about helping to develop this business.
Similarly, Africell has found a way to operate in markets where a Western mindset doesn’t work, building out broad 2G and 3G connectivity, supporting technological advances and enabling people to work from home, in a continent with a young workforce in need of opportunity.
“These are things that developed economies takes for granted. But they have a huge social impact. We are consumed by the big themes of energy, infrastructure, and tech connectivity. Ultimately some generational investment needs to be made and a flexible and innovative approach is needed. It has been a very rewarding journey for us.”
Gemcorp’s 15.07% return for 2022 compares with average hedge fund performance of 1.6% in EM credit, and 0.99% from macro diversified EM, according to HSBC Hedge Weekly.
The Cayman-domiciled US-dollar fund is available to offshore institutional investors with a five-year lockup. Current investors are widespread, including pension funds, hedge funds and DFIs