Bill Browder is no stranger to the emerging markets, having previously invested billions in Russia through investment management firm Hermitage Capital Management.
Today he avoids such markets at all costs. In this two-minute video, Browder explains why the importance of rule of law and property rights are integral shouldn’t be underestimated.
Read our Privately Speaking interview with Browder here.
I made my money as an investor in emerging markets, and as of right now I don’t have a single penny invested in emerging markets. Why is that? Well, my story is probably the textbook story on how emerging-market investment can go wrong and, particularly, how rule of law and property rights are so bad in emerging markets. And I think that most investors tend to undervalue the importance of rule of law and property rights when they look at emerging markets.
Investors look at the general economic situation of an emerging market. They’ll look at the growth of certain sectors of emerging markets. They’ll look at growth of certain companies and say “wow, that looks really interesting”. And perhaps even the valuations are good in those situations.
The problem with emerging markets is that before you ever get to any of those things you’ve got to know that in five years’ time or in 10 years’ time or whenever you want to exit that the success that you’ve had will be yours and not stolen from you by somebody else. And I’ve seen in Russia – but it’s not just in Russia – that the rule of law and property rights don’t exist, and so if you have a big economic success, there’s a reasonable chance that somebody is going to come along and steal it from you. And so you can’t do your analysis and, say, look at the sector – you love retail or consumer and you love the management – and it’s all gonna go well. And then you find out that it played out exactly as you predicted. But then one terrible thing happened, which is that some rival oligarch came in and stole it from you.
– Toby Mitchenall and Alex Lynn contributed to this report.