[Investors interact daily with ideas, services, products and companies, yet often fail to effectively link their success to investment opportunities. It can be argued that identifying investment opportunities is about much more than just numbers. It can also be about having a perspective and mindset that cultivates a sense of where to look and what to look for. This is especially true of the multi-dimensional endeavor of international investing.
In his global travels, Commonwealth Funds President and Head Portfolio Manager Rob Scharar—who is also president of the advisor FCA Corp of Houston Texas—has observed first-hand the value of having a very practical lens focused on the business activity on the ground. Through his decades of direct investments and participatory business consulting expertise in a wide group of frontier and emerging markets, his firm has developed local knowledge and practical business experience with access to ongoing on-the-ground insights. He has taken this knowledge and perspective to offer investment opportunities not easily accessible to most U.S. investors providing increased opportunities for portfolio diversification.
It is for this reason that we went to Institute member Rob Scharar to get a year-end update on his business activities and investment perspectives on the eclectic mix of international funds he manages separately focused on Africa, Australia/New Zealand, and Japan, as well as a real estate fund and diversified global fund. We are particularly interested in learning from his experiences and unique viewpoints on these international markets in the wake of the ongoing coronavirus pandemic and what he sees as opportunities.]
Bill Hortz: What has been your experience in dealing with the pandemic and its ongoing restrictions in travel?
Rob Scharar: Despite Covid’s lockdown of most international travel, 2021 was the most active global exposure I have had in my career thanks to technology coupled with our deep and diversified contacts created through years of on-the-ground travel. While sharing a meal or in-person contacts are missing, we have learned to use programs like Microsoft teams to personalize the interactions and our global contacts have come up with many innovative ways to enhance the experience. We now can meet with multiple parties, share documents, pictures, tour facilities even with live walk-arounds where we are shown real-time business activities and join business discussions in progress.
Our prior contacts welcome the opportunity to catch up in real-time because our involvement is not limited to being physically in the country and we have increased opportunities to interact. In establishing new business relations - which we look forward to building on in person when conditions permit - we believe a combination of virtual and in-person will provide even greater future opportunities.
Hortz: Can you give us a brief recap on some of your current perspectives on some of your key investment areas of Africa, Australia/New Zealand, global real estate, Japan and Latin America?
Scharar: Africa/South Africa—Despite its resources (the world’s largest producer of platinum, gold and chromium) and maturing industry sectors (robust energy, transport and financial sectors), South Africa has endured a period of declining growth over the last several years due to several challenges. For example, the country is plagued by frequent electrical outages due to its only electricity provider Eskom being hampered by aging equipment and mismanagement; its sovereign debt rating being downgraded by both Fitch and Standard & Poor’s to non-investment grade; and there is a growing shortage of skilled workers due to elevated levels of emigration to the United Kingdom, Australia, New Zealand, Canada and the United States.
Despite the challenges, there are several bright spots to watch for as the second largest African economy seeks to build on its status as a market with a developing consumer class. Their challenges are also driving innovation, as some companies turn to renewable energy sources, particularly with their emerging solar power industry providing an opportunity for significant growth. South African companies continue to lead growth and economic integration across Africa giving them a distinct advantage over international companies in terms of capitalizing on opportunities in the region. Kenya Airways also signed a Strategic Partnership Agreement with South African Airways on November 25 concluding an important milestone to jointly launch a pan-African airline group by 2023. The signing of this agreement will see both companies working together to expand passenger traffic, cargo opportunities, and could be a major help in bringing increased access to resources and business collaboration for the continent.
Australia/New Zealand—Though often overshadowed by the more densely populated East Coast, which includes Melbourne and Sydney, South Australia deserves serious consideration as a travel destination, whether for business or pleasure. In a trip to the region, I visited the Barossa region just outside Adelaide, Australia’s premier wine area. During his visit, I met with wine producers and farmers where I witnessed examples of innovation by family businesses that were adjusting to their competition by rethinking how they produce and/or market their products. I met with owners of Hutton Vale Farm and Elderton Wine, which openly shared their philosophy on how they run each arm of their businesses in a sustainable manner while at the same time entwining them together as a whole and how successful family businesses innovate.
These trips we have taken over the years continuously validate an axiom that we believe in at the Commonwealth Funds which is that small and medium size publicly traded companies offer great opportunities for those willing to investigate to find and get to know them.
Global Real Estate—Real Estate is much more than bricks and mortar. To be a successful investor in the real estate industry, it is important to not only analyze and understand the industry-specific economic indicators, but also to understand the second and third order effects of their impacts. Trends outside of customary performance metrics could also soon come into play.