Thinking against the current: The best instrument in the toolbox

<div class="grid grid--33-66-col"><div class="col"><img loading="lazy" src="/getContentAsset/6f31815b-059e-4f86-9965-83418930642d/cb87803a-320c-480f-ab75-7b9029eaaf79/GEMCORP_10_11_2020_Parvoleta_0086_V2.jpg?language=en" alt="Parvoleta Shtereva" title="Parvoleta Shtereva" style="width: 180px" class="fr-fic fr-dii"></div><span style="font-size: 12px"><div class="col"><strong>PARVOLETA SHTEREVA<br></strong>CO-FOUNDER AND CHIEF INVESTMENT OFFICER<br><br><p>Parvoleta Shtereva is a Co-Founder and Chief Investment Officer of Gemcorp Capital, where she oversees the firm’s investment portfolio and leads the execution and ongoing management of investments.<br><br>Parvoleta has spent more than two decades investing across emerging markets, with a particular focus on Eastern Europe, the Middle East and Africa. Born and raised in Bulgaria, she came of age during a period of profound political and economic change, an experience that shaped both her professional career and long-standing commitment to emerging economies. What began as a career opportunity became a vocation: as she describes herself, Parvoleta is an “emerging markets lifer”.</p></div></span></div><hr><p><em>Investors can learn far more in the early-morning light of an emerging market city than they ever will from a London desk.</em></p><p><br></p><p data-pasted="true">Over two decades and change on the road together, we covered the distance to the moon and back, several times over. We lost and found each other more times than I care to remember. Sadly, our journey came to an end when one of us lost a wheel on a gravel path in Central Asia – a terminal wound for a two-wheeled suitcase.</p><p>I surprised myself by feeling emotional at retiring my travel companion.¹ Among many adventures and discoveries, this ugly, battered suitcase was witness to a fundamental truth about emerging market investing: it is impossible to do it well from behind a desk in London.</p><p>Our industry has become increasingly comfortable doing things remotely. With the help of artificial intelligence, 24-hour news cycle, unlimited social media “reporting” and opinions, expertise is easy to come by these days. And with the ubiquitous use of video conferencing, the world seems to be at our fingertips. Yet for all these advances, things always look different on the ground.</p><p><br></p><h2>The importance of being present</h2><p>If a picture tells a thousand words,² watching a city come to life in the early morning light may just tell you everything.&nbsp;</p><p>For the less poetically minded, here are some statistics to prove the point, discovered and reviewed with the help of AI (we are not Luddites, after all). A human being can perceive 750 megabytes of raw sensory input in the span of ten minutes, equivalent to approximately half a million pages of text. In comparison, the six-tome edition of the Rise and Fall of the Roman Empire has around 3,600 pages.&nbsp;</p><p>Of course, we don’t process sensory information anywhere close to the same speed we perceive it, and certainly not consciously, but this is not a piece about cognition. Let’s just say visiting a place is like diving deep into an ocean of datapoints. &nbsp;</p><p>There is a special power in being physically present that connecting virtually cannot replicate. You hear undertones in conversations; you watch small shifts in body language and inevitably learn something about the quality of human relationships.&nbsp;</p><p>Why should anyone care? It helps to know if a company’s management is united behind a strategy or just humouring a dominant shareholder with endless appetite for leverage and expansion.&nbsp;</p><p>A ratings report or the latest financials can tell you a lot about a company’s financial health at the end of the reporting period but cannot tell you how a crisis will be handled or warn of an impending pivot in strategy. I have seen many companies enter a tough period with good financial metrics but end it in default or a restructuring while, ex-ante, more leveraged peers sail through. The difference is always quality of management, clarity and discipline in execution and good decision-making under pressure.</p><p>Turning to sovereigns, it has been a long-running joke in emerging markets (but also not far from the truth) that the central bank will disparage the ministry of finance and vice versa. Beyond the usual rivalries and debates about theory and purity of purpose, it helps to know if the lack of policy coordination is so acute that a crisis is almost guaranteed.&nbsp;</p><p>It also helps to understand if the political will is in place to implement much talked-about reforms. Sometimes a throwaway comment and whispers in a corridor will betray the fragility of a coalition; an official will blurt out in frustration (and in their mother tongue): “Well, we agreed because that’s what the multilateral institutions asked for, but there is zero chance we will actually do it.”³ &nbsp;</p><p>Equally, more often than not, you may be confronted with unexpected normality on the ground while headlines continue to spell gloom and the screens are awash in red. It has always been my view that to be a good investor, you have to see the world as it is, not as you want or believe it to be.</p><p><br></p><h2><strong>Life on the road</strong></h2><p data-pasted="true">Emerging markets have come in and out of fashion for as long as I have worked in them. Often, they are perceived as riskier in every way. Yet, risk is in the eye of the beholder. Preconceptions, prejudice and ignorance dissolve on the road. I know this because I have been guilty of all three. Being able to witness and judge for yourself is essential, increasingly so in a polarised, complex but still interdependent world.&nbsp;</p><p>Global narratives may dominate market and public discourse, but local realities determine outcomes. Investors often blame geography when things go wrong. But when you scratch beneath the surface, the root cause is usually a question that was never asked because someone firmly believed they already knew the answer.&nbsp;</p><p>In private credit, a deal is never just a transaction. It is a relationship built on trust. You need to spend time with shareholders and management, see how they make decisions, understand their history and what drives them. Hear what they are proud of and what keeps them awake at night.&nbsp;</p><p>Such a hands-on approach may be unfashionable in an era of scaled asset management and remote efficiency. Some investors may decide emerging markets are too complicated, too unpredictable or too far from home. But for those of us who believe emerging markets offer the world's most compelling investment opportunities, there is no substitute for seeing them for yourself. You cannot build a differentiated portfolio from the comfort of a London or New York office, relying on the same information as everyone else.</p><p><br></p><h2><strong>Being expeditionary and being local</strong></h2><p data-pasted="true">At Gemcorp Capital, we believe that being expeditionary and local is the best way to invest in emerging markets. That is not a slogan. It is a way of working, grounded in humility.</p><p>What expeditionary means to us: we go to places others do not, we go to places sometimes years ahead of an actual transaction, we often spend time away from the capital cities and government offices.&nbsp;</p><p>This is our equivalent to the proverbial taxi driver conversation many refer to as “local colour”. Importantly, travelling with EMpower⁴ has taught me more about the socioeconomic and political imperatives of a range of emerging market countries – more than any Article IV report or official analysis ever will. You learn a lot about the future of a society by seeing how it treats its most disadvantaged citizens and also by listening to the aspirations of its young people.</p><p>Travelling extensively has taught me that emerging markets are neither exotic nor unfathomable. They are home to real people building real businesses under often difficult circumstances. When you show up, consistently and in good faith, they let you into their world and that is when the best opportunities can emerge.</p><p>I have always seen travel as an enormous privilege. Something that was mostly taken away in my childhood became a constant source of wonder later in life. I believe travelling is good for the soul and brain alike and a reminder of our humanity.</p><p><br></p><h2><strong>A call to the allocators of the world</strong></h2><p data-pasted="true">The tools of our labour are simple: curiosity, being present, forgetting about yourself and a willingness to listen.&nbsp;</p><p>So here is my call to the asset allocators of the world – in the immortal words of Taylor Swift: “come back… be here.”&nbsp;</p><p>See for yourself the early morning light in cities you have read about but never walked through. You may discover parts of the world that are far more investable than they look from your desk.&nbsp;</p><p><br></p><p data-pasted="true"><strong>Endnotes</strong></p><ol><li>A new, not as ugly, but even more boring looking Samsonite has been procured</li><li>One of my favourite expressions.&nbsp;</li><li>Happens more often than people would admit.</li><li>It's been my privilege to be a Board Director of EMpower – The Emerging Markets Foundation - in the UK. EMpower partners with local organisations in the emerging markets to enable marginalised young people to transform their lives and communities.</li></ol><p><br></p><p style="font-size: 12px"><strong>Important Information:</strong></p><p style="font-size: 12px">This content has been prepared solely for informational purposes by Gemcorp (as defined below), is confidential and may not be reproduced.</p><p style="font-size: 12px">This content does not constitute an offer or solicitation of an offer with respect to the purchase or sale of any security and should not be relied upon when evaluating the merits of investing in any securities or form the basis of an investment decision. The information in this content has been obtained from various third-party sources, some of them forward-looking statements and/or projections. 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