January 2, 2020

Expanding Profit Pools in Emerging Markets: Emerging Internet & Niche Financials

Kora’s investment universe focuses on large and growing profit pools across emerging markets – areas where we believe the broadest and deepest set of opportunities will be in the coming decade (and beyond). We further divide our universe into investment clusters, with the aim of helping us develop focused expertise that spans geographies.

Below is a snapshot of how our research universe, the list of companies that at any given point we could research and invest behind, has evolved by cluster in the years since Kora’s inception:

Over the past five years, profit growth in our research universe has been disproportionately driven by two of our clusters - Emerging Internet and Niche Financials. Together, they now represent close to half of our research universe by number but over two-thirds by aggregate dollar profits:

Profits by Cluster - 2014 vs 2019

Market capitalization in our universe has shown a similar trend of concentration, with Emerging Internet and Niche Financials representing 69% of the aggregate market capitalization of our research universe today, an increase from 48% at the end of 2014.

Market Cap by Cluster - 2014 vs 2019

Below we provide further details of how market capitalization has evolved since 2014, grouping Emerging Internet and Niche Financials clusters together and the remaining clusters into Other. For each group, we show how “organic” growth (i.e., the growth in market capitalization for our original 2014 universe) and “inorganic” growth (i.e., market capitalization changes that resulted from adding and removing companies over time) reflect similar trends.

In both organic and inorganic terms, market capitalization for companies in our Emerging Internet and Niche Financials clusters have grown substantially over this period, while the market capitalization for companies in other clusters is unchanged in aggregate. Observing this trend in recent years, we have actively managed our research universe accordingly, adding businesses to these clusters as our research identified adjacent profit pools (and also as companies came public) and removing them as we continually narrowed our focus to companies we feel we can research in depth and come to know well.

Market Cap Growth 2014 to 2019 (Organic/Inorganic)

Our two anchor clusters have grown meaningfully in size and diversity but valuations have remained attractive, as profit growth has been faster than market capitalization growth in Emerging Internet and in line with market capitalization growth in Niche Financials.* We believe this dynamic of value accretion (profits) keeping pace with price appreciation (market capitalization) will sustain our ability to find attractive, and attractively-valued, businesses in these two clusters over the long term.

Valuation Multiples - 2014 vs 2019

Increasingly, we are spending our time on these two large profit pools, working to deepen our understanding of the sub-clusters within them (e.g., asset management in Niche Financials, marketplace e-commerce in Emerging Internet) and how they develop in different regional contexts. This serial specialization allows us to identify commonalities, differences, and even convergence between these two dynamic clusters. Given the size of the opportunities and pace of growth in Emerging Internet and Niche Financials, we believe that time invested today will bear fruit tomorrow, and for many years to come.

Footnotes

(*) Valuation multiples are calculated as total dollars of market capitalization in each cluster divided by total dollars of profits in the cluster.

Annual Report Disclosures

Disclosures

The information presented in the above post is provided for informational purposes and is intended to provide an update concerning Kora Management LP (together with its affiliates, “Kora”) and the funds and accounts managed by Kora (collectively, the “Funds”), and does not constitute an offer to sell or the solicitation of an offer to purchase any securities, including those of the Funds. The information presented in the above post is confidential and may not be reproduced in its entirety or in part, or redistributed to any party in any form, without the prior written consent of Kora, and does not constitute legal, tax, investment, or other advice, or a recommendation to purchase or sell any particular security. The information contained in the above post is current only as of the date specified, irrespective of the time of posting or of any investment, and does not purport to present a complete picture of Kora or the Funds. Past performance is not indicative of, and not a guarantee of, future results. Notwithstanding the information presented in the above post, investors should understand that Kora is not limited with respect to the types of investment strategies it may employ or the markets or instruments in which it may invest, subject to the terms set forth in the Funds’ offering and governing documents. The information included in the above post has been obtained from sources Kora believes to be reliable; however, these sources cannot be guaranteed as to their accuracy or completeness. The above post contains certain “forward-looking statements,” all of which are subject to various factors, any or all of which could cause actual results to differ materially from projected results. Nothing contained herein is designed to constitute an offer of new or additional investment advisory services.