Frontera Capital is a boutique investment firm which focuses on fixed income and money market investment opportunities in frontier markets.
What We Do
Frontera Capital focuses on financial inter-mediation seeking to match international investor risk appetite with domestic funding needs in frontier markets, in terms of the principal components of the value chain – originating, structuring and distributing frontier market risk transactions.
Frontier markets are early stage emerging markets and are mostly characterised by rapid, but volatile GDP growth with significant and increasing funding needs.
Some corporates in frontier markets are able to tap international capital markets, but only in hard currency. This exposes local borrowers to FX mismatches, as they borrow in hard currency and their assets are local currency. This is the gap Frontera looks for solving.
Frontera Capital provides long-term local currency funding in local currency and FX hedging products to both lenders and borrowers
Frontera Capital contributes to create a secondary markets of loans from financial institutions in emerging markets.
A frontier market is an economic term coined by the International Finance Corporation in 1992 commonly used to describe a subset of emerging markets with much less developed economies and capital markets.
Frontier markets are ‘investable’, but have lower bond and equity market capitalization, liquidity and turnover than established emerging markets.
Frontier markets are typically pursued by investors seeking high, long term returns and low correlations with other markets.
The implication of a country being labeled as frontier is that, over time, the market will become more liquid and exhibit similar risk and return characteristics as the larger, more liquid developed emerging markets.
Frontier markets are more organized as an asset class in listed equities than in fixed income markets given the former’s classification on qualifying criteria for inclusion in ‘investable’ indices, notably the MSCI suite of frontier markets.
Frontier markets are mostly characterized by rapid GDP growth and, as a result, rising funding needs. By matching investment demand with supply, Frontera Capital is able to bridge this funding gap and, in so doing, help to deepen local currency sovereign debt markets; provide local corporates access to the international capital markets and facilitate financing of infrastructure projects.
On the demand side, a quest for both diversification (to reduce portfolio beta) and yield (to enhance portfolio alpha) will likely see more investors allocating capital ‘down the risk curve’ into sovereign local currency funding as well as corporate financing opportunities and more direct infrastructure funding that have hitherto not been generally available given that these frontier market sectors are relatively undeveloped.
On the supply side
Two types of corporates will likely be seeking funding solutions:
- In fast growing frontier economies, local funding sources are limited. As local economies diversify, indigenous companies will increasingly need to look to offshore investors as a viable funding source for their incremental capital raising requirements.
- Equally, the prospect of rising per capita incomes in economically diversifying frontier markets will also attract ever more international companies, many of whom will seek to match their Treasury funding on a market-matched basis, seeking to raise their incremental capital from outside a parent balance sheet from both local and offshore investors.