“Many companies in emerging markets have good ESG practices, but with active engagement we can improve the disclosure of these practices to unlock value and trigger a cycle of positive change.” said Emily Alejos, Director of Investments at Cartica Management. Through its fundamental analysis framework, integrated macro-analysis and country-specific research, and active ESG engagement, Cartica aims to create value for companies and its shareholders.

The company was founded by seasoned investors, including former executives of the International Finance Corporation, the private sector investment arm of the World Bank Group. The founders have a deep history dating back to the 1990s of investing in emerging market companies using investment theses based on both fundamentals and improvements in corporate governance, the environment and the environment. social practices. Investing in emerging markets requires an understanding of the unique cultural, political, structural and economic factors that influence the performance of investments in this diverse set of countries.

“We knew that investing in emerging companies where value could be added through ESG and governance improvements could be both profitable and important for economic development. This reduces the cost of capital for companies and makes markets deeper and more transparent ”, said Teresa Barger, founder and CEO of Cartica.

Over a decade later, the company has remained true to its mission and is focused on identifying emerging companies with good business models, good management teams and strong or improving balance sheets. Three fundamental principles are the basis of Cartica’s investment philosophy and value creation strategy today:

  1. Bottom-up fundamental analysis
  2. Integrated macro and country research, and risk analysis
  3. Active engagement of the company, in particular on ESG-related issues and in improving ESG practices

With these beliefs in mind, Cartica Management created an investment process that allowed the team to build a focused, high conviction emerging markets strategy of 20 to 30 names. He is a benchmark agnostic with an active share consistently above 98%.

The investment process includes several stages of research, analysis and review by the investment committee of potential companies in the portfolio. At each of these stages, the team examines the company’s ESG risks and opportunities and takes them into consideration when developing an ESG engagement strategy for that company.

Cartica begins with a bottom-up analysis of a company’s finances, business model, leadership team, and corporate culture. The team assesses target companies for (a) their openness to making value enhancing improvements and (b) proven high integrity. The team then uses their knowledge of emerging market macroeconomics and local policy dynamics to assess whether the risks of a specific investment have been properly factored into financial models.

“Our ‘integrity check’ is an important part of the Cartica process”, said Kate Ahern, ESG manager of Cartica. Before making any investment, the investment team will examine the “integrity” of the management, board of directors and controlling shareholders of the company. This analysis aims to assess whether the investment team believes that the company is likely to be managed for the benefit of all shareholders, including minority shareholders. Given the predominance of controlling shareholders as well as the absence of sound legal and regulatory practices in more developed markets, it may be particularly important to assess the integrity of the players. This includes an analysis of a company’s history of relationships with its minority shareholders, bondholders, lenders and others, which Cartica says is a critical way to identify downside risks. Thanks to the extensive contacts and work of the emerging markets investment team, Cartica often has direct connections with individuals with first-hand knowledge of the past behavior of controlling shareholders and management and their reputation for integrity. . Before approving an investment, an investment thesis and an engagement thesis are articulated.

Once an investment is invested in the concentrated equity portfolio, Cartica takes an active ownership approach. The team works with company management to compare and seek to improve their E, S and G practices, to ensure that good policies integrate these practices into the culture and to develop disclosures of these practices and policies. . Cartica’s goal is to make the companies in its portfolio more valuable by addressing elements of ESG opportunity or risk and beyond, often in capital markets facing issues such as seller-side hedging or shortfalls. disparities between share classes.

For example, the lack of diversity on a company’s board of directors should trigger a red flag as to whether a company is forward-thinking and committed to hiring the best talent. This is an area that Cartica intends to improve through active engagement with its portfolio companies, and the team often initiates these difficult conversations with management about it.

“We want to know that the board is doing everything it can to provide expert advice and oversight and not just focusing on keeping the status quo and seeing friends once in a while. trimester.“Kate Ahern said.

It is a good sign to see the members of the board of directors demonstrating that they will go beyond their bubble to find a different and additive expertise for the company. A 2019 study of publicly traded U.S. companies found that having a woman on the board can help moderate male CEO overconfidence. The effect is reduced risk, lower M&A transaction costs and better business decision making.

Cartica has also studied academic work on the contribution of corporate culture to financial performance. The team uses this knowledge both to assess the chances of success of target companies and to create a dynamic culture at Cartica based on humility, honesty and collaboration, as well as the common goal of making companies more valuable while creating returns for investors.

“A strong investment sense, ESG commitment and diverse leadership are a powerful combination that we believe will keep the company at the highest level for decades to come,” said Emily Alejos. Cartica Management is majority owned and led by women and continues to attract a high performing team motivated to be a catalyst for positive change while creating long term value for businesses, shareholders and communities.

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