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Investment Approach

Frontier and emerging markets encompass a wide set of countries that are at different stages of their development cycle. It is imperative, in our view, that one defines their core competence when faced with such a large and diverse opportunity set. We strongly believe that this is a pre-requisite for the delivery of successful investment results.

At Vergent, three factors determine our ability to express an edge in the market. First, countries and industries should offer a potentially large and scalable market for our companies to invest in. This factor is typically expressed in large populations but can also be the result of anomalous market structures, regulation and reform, and/or premiumization. Second, and by definition, these countries should have developing market characteristics such that they reap long-term benefits from urbanization, technology, infrastructure, and improved access to education, healthcare, and financial services (i.e.: a lower socioeconomic base). Third, the capital markets on which many of our companies are listed should, all else equal, have a lower degree of institutional participation and generally be considered “exotic” for a global portfolio (i.e.: inefficient). Overall, our skillset and experience is best suited for companies operating in large and growing markets, whose consumers are likely to experience an improvement in their living standards over time, and whose securities are traded inefficiently compared to their mainstream emerging and developed market peers.

This focus allows us to build a concentrated portfolio of companies that have developed a demonstrable competitive advantage in their respective industries and over time can compound shareholder capital at a rate that far exceeds expectations embedded in current market prices.

We believe that the outcome of our process will be materially enhanced through long-term ownership of our companies. To be able to be long-term owners, we spend a considerable amount of time assessing our companies’ ability to generate incrementally higher returns on capital over time. Before investing, our team diligently learns about the business, its history, its management, brands, and positioning vis-à-vis customers, competitors, suppliers, and capital providers. We build financial models to capture key ratios and trends that we deem to be material to our understanding of the business. We also seek to gain a strong understanding of the company’s corporate culture, the incentive structure of its key managers, and the role its board and controlling shareholders play in the business. Our preference for family-controlled and entrepreneur-run businesses make this is a particularly interesting part of our process. Our process is iterative in nature and that allows for thoughtful testing of the original basis of our investment and an up-to-date sense of the intrinsic value range of our companies.

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