Looking for Opportunity Where Few Others Invest

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The New York Times
Thursday, December 27, 2012

Looking for Opportunity Where Few Others Invest

By RON GLUCKMAN

PHNOM PENH, Cambodia - Investors started poking around for deals here five years ago, as the war-torn country began to move past its legacy of genocide and coups. When the global financial crisis struck, Cambodia's fast-growing economy crashed and the dollars flowing from abroad evaporated.

Douglas Clayton stayed put. In the midst of the crisis, he raised $34 million, starting the first investment fund focused on Cambodia.

"High risk also means the potential for high returns," said Mr. Clayton, the founder of Leopard Capital.

Persistence can pay in this frontier market of 15 million people. Despite some rocky deals, the fund over all has posted solid gains on several investments, according to Leopard Capital. The three investments sold so far by Leopard have generated average annual returns of 36 percent.

"We got in early and have done well," said Mr. Clayton, 52.

Building on the experience, Mr. Clayton is expanding into other regions with similar characteristics. This year, Leopard Capital started the first big investment fund in Haiti, backed by economic development organizations like the World Bank's International Finance Corporation. In coming months, he plans to start portfolios focused on Myanmar, Bangladesh and Mongolia. He also plans the first investment fund for Bhutan, which has been reticent about outside money.

"We are trying to pioneer this investment class," he said. "We can put money in places it's never really been, and get good results."

He will have to tread cautiously. Mr. Clayton is moving into treacherous investment territory, plagued by infrastructure problems, corruption, political instability and weak or nonexistent regulatory leadership. For example, Mongolia's economy is on shaky ground after a series of political maneuvers left foreign investors nervous.

"We've proven ourselves here in Cambodia, and feel we can go anywhere," Mr. Clayton said.

The potential payoff can be substantial. Some investors can double or triple their capital, according to Kathleen Ng, managing director at the Center for Asia Private Equity Research, which tracks fund performance in the region.

Ms. Ng said that China has been the hottest area for investment in Asia for years, but as returns have peaked, many began looking further afield, to places like Vietnam and Indonesia. Countries like Cambodia, Laos and Bangladesh - all Leopard targets - are just now getting on investors' radars.

"Frontier markets really attract a different investor," Ms. Ng said. "For the right fund - and a first mover - you can make a lot of money." Even now, Ms. Ng notes, Leopard remains one of the few private equity funds focused exclusively on the region.

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