As the US sovereign debt market grapples with its challenges amid investor controversy over software exposure, many stakeholders are looking to emerging markets. Despite the ongoing war in the Middle East, the administration still sees opportunities in the region.
“It would be foolish to say that what happens in the region does not affect us,” said Alper Kilic, head of alternative credit at Ninety One. “Of course it has an impact on us, like everyone else. But in terms of its focus in the middle of the year, I expect the Middle East to remain the region of greatest growth.”
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One of the asset manager’s strategies focuses on infrastructure lending, such as energy, telecommunications, transportation and healthcare. And for Kilic, Saudi Arabia and the United Arab Emirates are two markets where the economy has been driven by infrastructure.
Despite concerns about the current geopolitical situation in the region, Kilic said the team has not moved “a foot” and is still moving forward with its expansion plans in the Middle East, following the opening of offices in Abu Dhabi and Riyadh last year.
He says they are also starting to get more calls from investors looking to diversify their exposure to sovereign debt away from the US. Some of the features that make emerging market loans attractive, despite the high country risk, are that they have very low leverage – about 3x to 4x on average – and strong covenants in most deals. In contrast to more developed markets, payday loans are rarely used.
Ninety One is currently raising its emerging markets infrastructure debt fund, which is expected to close for the first time in the summer with half of its total $1bn (£0.74bn) raised.
Negotiations are ongoing
It’s a similar story for Janus Henderson, who is still looking for opportunities in the Middle East.
Erdem Kilic, who is the principal of the Emerging Market Private Investments Team that manages assets in the world, said that at first there was a shock in the region but the processes that had started and the obligations that were agreed with the funds have not stopped or are going back.
“The performance of private credit in the region has not been bad,” he added. “Our limited partners are making money and they are satisfied.
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“Are there new investors knocking? No, not right now, no one is saying ‘let’s rush to invest right now’ when things like this happen. But the discussions we already had are continuing.”
He also mentioned that the deployment is ongoing and has not had a major impact on borrowers. But as oil prices continue to rise because of the war, he says, at some point, everyone will be affected – even in Janus Henderson’s areas of focus, which are health care, education, business services and consumer goods.
Meanwhile, Illya Zyskind, senior portfolio manager in BlueBay’s fixed income group at RBC Global Asset Management said the group has been actively looking at the Middle East but currently has no investments there. This is because spreads were low and prices were high.
“Within oil and gas and oilfield services, some of the infrastructure stakeholders are facing the eye of the storm,” he explained. “That being said, it’s a region with a lot of constraints – with the power of governments to support many industries. We have deep pockets and the head to withstand some pressures.”
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