Illustrative Continuities:
Consolidation of Cyclical Industries
Globalization is driving the long-term consolidation of many high-cyclicality industries. As can be seen in the steel and aluminum industries, consolidation can increase market power, improve margins, reduce cyclicality, and attract higher valuation multiples.
With our support, Globe Specialty Metals (NASDAQ: GSM) executed a series of accretive international acquisitions. Through this consolidation, Globe became the world's largest producer of silicon metal.
Aspirations of a Transnational Middle Class
Within 20 years, the middle class in the world's emerging markets is projected to total 1.25 billion. The aspirations of this new class drive increasing demand for important high-value services, such private health care and education.
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Multinational pharmaceutical companies are pursuing this opportunity-both by investing to identify new compounds and by rapidly expanding to emerging markets. Our portfolio company, ReSearch Pharmaceutical Services ("RPS"), is a leading provider of integrated clinical development outsourcing solutions to the bio-pharmaceutical industry. With our support, RPS expanded its global operations across to Europe and Asia and deepened its relationships with major pharmaceutical companies.
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Post-secondary education penetration in most emerging economies is well below that of more developed nations. In Brazil for example, penetration is just over 20%; in some regions of Brazil, such as the northeast, penetration is just over 10%. We have invested in one of the most profitable university systems in Brazil—Faculdade Mauricio de Nassau ("FMN"), a for-profit, post-secondary educational institution based in Recife. We are actively assisting the company with its strategy of organic and acquisition-driven growth.
Emerging Markets-led Mergers & Acquisitions
Over the past decade, the share of cross-border M&A led by emerging market entities will continue to increase. This continuity is fueled by a period of sustained growth in Asia and the Gulf Region, and the rise of sovereign wealth funds-as well as by realignment of capital triggered by the financial crisis of 2008.
Anticipating demand for energy and natural resource assets by emerging markets acquirers, we invested in Fondul Proprietatea ("Fondul"). Fondul, created by the Romanian government to compensate individuals for expropriation by the communist regime, owns valuable minority stakes in wide-range of Romanian energy and natural resource companies.
Future of Financial Services
Despite the financial crisis of 2008, a well-functioning, well-managed financial system remains a prerequisite to sustained economic growth. Areas we find promising include: mid-market lending in well-regulated systems and the integration of the insurance and capital markets.
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Banco Daycoval (BOVESPA: DAYC4.SA) is a world-class Brazilian bank dedicated to serving the needs of small- and medium-sized firms across Brazil. With a Basel ratio of more than 20%, Daycoval is uniquely positioned to benefit from the continued growth of Brazil's mid-market.
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The 2008 financial crisis made clear the need for the further integration of the insurance and capital markets. The nexus of these markets is the market for the insurance-linked securities ("ILS"). In 2009, we launched Cartesian IrisRe, a specialized asset management firm focused on ILS.
Dominance of Wireless Technologies
Wireless technologies have become an essential good. Worldwide, mobile telephony subscribers outnumber fixed-line subscribers by almost three to one.
We have a long and successful track record of investing in wireless technologies-from Russia to Romania to Latin America. We have continued that trend with an investment in Mio, a leading wireless voice and data service provider operating across in the Caribbean, and Public Mobile, a new wireless operator serving Ontario and Quebec.
Dislocations:
Our patient, long-term outlook permits us to capitalize on dislocations of all types.
Our team invested heavily in the disruptions following the Asian financial crisis of 1997, the Russian ruble devaluation in 1998, and the Argentine peso devaluation in 2002. We actively acquired quality, well-priced assets from stressed operators following the collapse of the "telecom bubble," and financed a new airline in a difficult market that followed the tragedies of September 11, 2001.
We have assisted families through generational transitions, and management teams through succession crises.
Throughout all of these times and conditions, we have sought to stay focused on the genuine creators of value.