What was the Emerging Market Growth Fund?
It’s something IFC created 20 years ago. It’s something few mainstream investors took it seriously at first. But it’s certainly taken seriously now — especially since it’s worth $13 billion.
Portfolio investors now put unprecedented levels of capital into emerging market equities each year. By the Institute of International Finance’s estimate, the total for 2005 was $61 billion, an amount that would have been unthinkable only a few years ago.
Historians give full credit for the origins of the boom to IFC, tracing things back to 1984, when we organized and co-underwrote the first emerging market country fund, a $60 million vehicle for Korean equities. It was an innovative product that IFC’s Capital Markets Department team brought to market despite great skepticism on Wall Street, then followed with a smaller one for Thailand.
Two years later, Antoine van Agtmael, David Gill, and their team decided to scale up the concept. Working with a respected asset management company, the Los Angeles-based Capital Group, they pieced together the first global fund for securities from the developing world, as always putting IFC’s own money at risk along other with that of other investors. A few pension funds and insurance companies expressed interest, and, voila, a globally diversified $50 million vehicle had been created:
The Emerging Market Growth Fund (EMGF), whose size today is $13.3 billion.
IFC’s initial steps in the mid-1980s gave rise to a new industry, one that 20 years later would see mainstream investors pouring billions into stocks and bonds from developing countries, thus helping local capital markets mature do more and more to finance job creation and facilitate savings growth around the world.
From the beginning, the EMGF had one premise: long-term capital appreciation opportunities abounded in shares of large, successful companies from countries whose economies were not seen as large or successful at the time. Diversification was always part of the premise, with no one country allowed to represent more than 35 percent of the portfolio.
The track record of the US-domiciled open-ended fund speaks for itself: a 15-year cumulative return of 14 percent, and 38 percent in the last year, or well above the Morgan Stanley Capital International global benchmark. The fund’s top three holdings today are Samsung Electronics of Korea, Mexican cellular giant America Movil, and South African oil company Sasol. It is one of the largest in its asset class of global emerging market investment funds.
IFC has long since exited from the fund, having both profited and made an impact. For in addition to targeting the big emerging markets that are now on every investor’s radar screen, the fund has also served as a vehicle to bring institutional capital into companies from the likes of Colombia, Croatia, Kazakhstan, Oman, and Vietnam.
If you have an idea for a “postcard from the past,” please email Celeste Diaz Ferraro at cdiazferraro@ifc.org.
