Picture this: You’re standing at the entrance of a country club 100 kilometers south of Kuala Lumpur, covered in mud and sweat, on bicycles, looking like you’ve just emerged from a survival expedition rather than a boardroom. That was our team earlier this year. We were halfway through a 1,400-kilometer pedaling investment tour across Malaysia, with nothing but the essentials as we traversed jungles, dodged giant iguanas, and navigated unfamiliar terrain — all in search of hidden investment opportunities.
This wasn’t just about getting from point A to point B; it was about becoming immersed in the local environment, meeting 26 CEOs across six Malaysian states, and uncovering the stories and strategies that no annual report could ever capture. While this might seem extreme, it’s emblematic of the lengths to which we go to truly understand the markets we invest in.
Over the past five years, we have held more than 2,500 meetings with companies in 42 countries. This commitment to hands-on research, combined with insights from our Wharton education, has placed the Evli Emerging Frontier Fund’s performance in the top quartile for five consecutive years, leading to a 17.8 percent annualized return and catapulting the fund to first place out of all 1,500 emerging markets funds globally tracked by Bloomberg.
12 Markets in 12 Months
In May 2019, when we formed our team — a connection made through Wharton MBA Career Management — we set the audacious goal of managing the best-performing emerging-markets fund in the world. Our small wins are finding stocks that more than double in value in the first 12 months. We have determined that stocks trading at single-digit multiples and growing earnings by over 20 percent with clear catalysts are the most likely candidates. As emeritus finance professor Jeremy Siegel says, markets are quite efficient, so it’s nearly impossible to find such undervalued high-quality growth stocks in the S&P 500. However, they do exist on the exchanges of over 50 more obscure stock markets, such as those in Vietnam, Pakistan, and Indonesia.
Taking inspiration from Burton’s Lauder Institute summer immersions, we decided to live in 12 emerging markets for one month each. Our adventure began in the Philippines, where we found ourselves running on a highway after a driver made a wrong turn and got stuck in traffic in between two of our roughly six daily meetings, plus climbing to the 43rd floor after an elevator refused to work. Across our “12 Markets in 12 Months” project, we gained deep knowledge as we attempted to meet the CEO of every listed company as well as central bank governors, stock exchange presidents, local fund managers, and many others.
In each market, we searched the Wharton directory and attempted to have lunch each day with a different alumnus, ranging from the CEO of a brokerage in Bangladesh to the founder of a water startup in South Africa. These meetings proved to be invaluable. In some cases, we learned insights about the managers of listed companies we had met. In others, we made lifelong friends. As a result, we finished each month with a strong local Wharton network that we have drawn from in the subsequent years.
After moving our families to a new Airbnb each month and completing stays in nine countries across Asia, Africa, and the Middle East, our project came to a screeching halt in Turkey in March 2020 due to COVID. However, having met 632 companies, we were well equipped to identify a handful capable of thriving during challenging times. Most of these businesses would have done well even if the pandemic was resolved quickly — but our biggest win, a Malaysian medical gloves manufacturer, returned more than 1,400 percent of our investment during the first four months.
Decoding Signals From CEOs and ESG
After business meetings went virtual, we decided to replicate this project in 2021. However, rather than traveling from our home base in Dubai, we would attempt to meet every listed company across all emerging markets, one sector at a time. Since we weren’t traveling between meetings, we could conduct up to 13 of them a day, covering Asia in the morning and Latin America in the late afternoons. Not only did we find a dozen-plus multi-baggers; we collected and rigorously analyzed extensive data from the 1,471 meetings. Our most important insight: The sentiment of CEOs is highly predictive of future stock price returns, so we pay close attention not only to the information management presents but also to the tone of the information.
As professor Chris Geczy teaches in his impact investing class, selective ESG topics can provide signals for identifying high-performing investments. To capitalize on these signals, we ask each company to complete a proprietary ESG due-diligence questionnaire focused on those topics. Our analysis has shown that ESG recommendations, particularly those related to investor transparency, create a positive feedback loop that enhances returns. While advising portfolio companies on improving investor communication and transparency, we have found that those with the brightest prospects are most likely to follow our advice, thus amplifying the impact of our recommendations.
Students of the Market
In the years since the pandemic’s onset, we have resumed our travels around the world. In addition to our bike trek through Malaysia, our search for undervalued investments has taken us on a tugboat off the coast of Chile, down a fireman’s pole to the full-service bar of a tech company in Namibia, and swimming from Europe to Asia in Turkey. We are students of the market, and these firsthand experiences have offered us insights that have constantly evolved our investment process. We expect to continue evolving over the next five years and anticipate that our Wharton education and alumni network will continue to play a vital role in our success.
Burton Flynn WG14 and Ivan Nechunaev WG19 are managing partner and senior investment professional, respectively, for Terra Nova Capital, the investment advisor to the $300 million Evli Emerging Frontier Fund. They chronicle their adventures at terranovaca.com/journal.
Published as “Adventure Capitalists” in the Fall/Winter 2024 issue of Wharton Magazine.
