The Asset Classes

Emerging Markets Hard Currency Debt
Well established and widely accepted asset class of fixed income instruments in primarily dollar denominated instruments that historically have shown a very strong performance and proven diversification benefits to investors. Typical performance drivers can be split in domestic and international originated factors such as politics, reform agenda, fiscal and monetary credibility and relations to international investors such as IMF and the World Bank (domestic), and global growth, US interest rates and the overall risk willingness (international). Fixed income instruments of sovereign emerging markets hard currency debt is typically governed by international law.

Emerging Markets Local Currency Debt
Growing asset class of local currency denominated instruments that give investors access to the ongoing development and maturation of local yield curves and in many cases attractive local currency markets. Typical performance drivers can be split in domestic and international originated factors such as politics, reform agenda, fiscal and monetary credibility and relations to international investors such as IMF and the World Bank (domestic), and global growth, US interest rates and overall risk willingness (international). Other important drivers include domestic and external balances and capital flows (financial and foreign direct investments).

By including emerging markets currencies in a diversified way investors dramatically increase the range of investment opportunities due to regional and regime differentiation and include one of the most effective ways to capture positive as well as negative risk premium due to the fact that it displays an unparalleled level of market efficiency and liquidity. Fixed income instruments of sovereign emerging markets local currency debt is typically governed by local law. As such local currency debt instruments are more vulnerable to FX controls and other restrictions.

Frontier Markets
New and upcoming asset class of emerging markets characterized by usually relatively small economies, even by emerging markets standards. Information is generally less available than in established emerging markets. However, what frontier markets lack in economic size, they make up for in potential. With a high projected real GDP growth over the next 5-10 years global frontier markets are expected to have a firm grip in the growth baton in many years to come. Performance drivers include untapped natural resources and economic potential, foreign direct investments, improving political and economic governance and development of local financial markets. Frontier markets are a far crowded trade with very low participation from foreign investors and inefficient valuations due to the political and economic risk perception and the small and illiquid nature of the markets.

As such frontier markets represent an untapped long term potential that looks very compelling from a strategic perspective. Through our economic and political investment models, our access to an variety of local contacts and many years of experience investing in frontier markets Global Evolution is well equipped to identify investment opportunities with attractive risk-return characteristics and to benefit from first mover advantage. Fixed income instruments of frontier markets are governed by a combination of both international and local law. As such local currency debt instruments are more vulnerable to FX controls and other restrictions.