Investors who think emerging markets have gotten humdrum should visit Waterford Partners L.L.C., New York.
Established last year by Edward T. Bozaan, the firm focuses on distressed emerging markets - those wallowing in declines of 40% to 70% from their peak.
The theory is these battered markets are poised for a rebound. Their performance also is lowly correlated with other markets.
Thus, Mr. Bozaan and company has sizable exposures in what may seem like danger zones. He has 14% in war-torn Sri Lanka; about 14% in what had been politically tumultuous Pakistan; about 20% in Thailand, whose market is off about 68% from its January 1994 peak; and 20% in Korea, which is still off about 42% from its peak. Waterford even has 4% in Albania, where it has bought privatization vouchers, and about 7% in Romania. (The fund can invest a small amount in pre-emerging markets.)
But investors in these markets must be able to wait for their recoveries. Thus, Waterford imposes a minimum investment period of 18 months in its funds.
So far, Waterford has attracted commitments and allocations of about $35 million in total for two funds - one for U.S. investors and an offshore fund for non-U.S. investors. While he wants to cap the investments in the funds at a total of $50 million, he hopes to start a new vehicle for larger institutions, such as pension funds. This would invest in more liquid, but still distressed, emerging markets.
