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Henrik Kahm, manager of the Iraq Fund at emerging and frontier market multi-manager specialist FMG, cautions that emerging market investments are for long-term investors and are not appropriate for those looking for a quick return because of their volatile nature, which can lead to abrupt rises and declines in share prices.

GFM: What is the history and background of your company, principals and funds?

HK: FMG is a specialist in emerging and frontier market investments, using the multi-manager route to diversify investment risk. It was founded in 1989 and provides a variety of alternative investment products. The firm has developed a good network of industry contacts, which helps identify the best managers during their early stages of development.

Currently we are managing 12 open-ended funds, Africa, China, Combo, Global, India Opportunity, MENA, Real Estate, Rising 3, Russia, Russian Federation, Iraq and Rising 6, which invest in Iraq, Africa, China, India, Brazil and Russia. FMG mixes different investment styles in the various funds, notably traditional long-only with alternative managers, to lower risk and volatility.
 
GFM: Who are your main service providers?
 
HK: Our main service providers are Credit Suisse, KPMG and Apex Fund Services. Apex carries out NAV calculation, anti-money laundering due diligence, registration, transfer agency and corporate secretarial. Credit Suisse is custodian to all funds except the Real Estate Fund, where Banque Privée Espirito Santo acts as custodian, and Rising 6, where ING Luxembourg is custodian.
 
GFM: What is your distribution strategy and targeted client base?
 
HK: FMG targets institutional and retail investors through our in-house team of sales experts. The firm’s client base is primarily Scandinavian, with an important presence in the rest of Europe plus a fast-growing market share in South-East Asia.
 
GFM: What impact has the recent global financial crisis and economic downturn had on your business?
 
HK: For some emerging markets funds the recent downturn has been worse than it should have been, but others, such as the Iraq Fund, have bucked the trend and been positive.
 
GFM: Please describe your investment process.
 
HK: FMG uses a matrix for existing and new manager evaluations comprising a subjective portion, a quantitative position and a compliance portion. This tool indicates how well a manager will fit into the portfolio relative to existing positions, and whether managers are underperforming. The investment guidelines limit the size of any single manager exposure, while new entrants start as trial managers with a small allocation that may increase over time as the level of confidence rises.
 
GFM: How do you generate ideas for your funds?
 
HK: We generate ideas mainly during meetings of our investment committee. This includes Johan Kahm and Arild Johansen, who are responsible for manager selection, monitoring and overall portfolio construction and performance results.
 
The investment team provides support on all aspects of the manager selection process, including quantitative and qualitative screening, data and investment analysis. The investment committee makes the macro decision as to which country to invest into, and then we select a number of successful local investment managers with different investment styles to make investments on behalf of FMG.
 
GFM: What is your approach to managing risk?
 
HK: Emerging markets are inherently risky and volatile, and are generally associated with risk factors such as political and economic instability, changes in national policies and exchange rate fluctuations. Investors should therefore conduct a risk assessment and decide the appropriate amount to be invested from information about the funds and other sources.
 
Because of their expanding nature, emerging market valuations can rise and decline abruptly at times, and investors must determine whether these fluctuations can be tolerated. Emerging market investments are for long-term horizons and are not appropriate for those looking for a quick return on investment. FMG Investors should have a three- to five-year time horizon.
 
GFM: How has your fund performed?
 
HK: The FMG Iraq Fund continues to outperform world stock markets. The fund’s main share class was up 13.1 per cent in 2010, following its launch in May last year, and gained 4.6 per cent over the first 10 months of 2011.
 
GFM: What developments do you expect to see in the coming year?
 
HK: We expect emerging and frontier markets to outperform world stock markets. At the moment, we find that the Iraqi market is totally uncorrelated to any other stock market, and that shows in the performance of our fund.
 
GFM: What do investors currently expect from managers?
 
HK: Investors expect steady capital growth from our long-term funds.
 
GFM: What differentiates you from other managers in your sector?
 
HK: We are experts in emerging markets and have successfully launched specialist funds before larger fund houses followed suit.
 
GFM: How do you view the environment for fundraising over the coming 12 months?
 
HK: It looks promising if we can continue to show reasonable fund performance.

 

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