Treading carefully in China and other emerging markets, par Gordon Pitts
The Globe and Mail
March 8, 2010
When the World Bank needed someone to run its emerging markets infrastructure fund, it turned to a little-known Montreal firm called Cordiant Capital. Winning the World Bank deal last year was a huge coup for the team headed by David Creighton, a former Canadian investment banker in London who travels the world looking for projects to back. After 10 years of encountering skepticism, even derision, about his emerging market focus, Mr. Creighton, 51, feels the world is finally marching toward Cordiant. Here is his insider’s look on the rising players, with insights into China, Africa and Brazil.
David Creighton on why Canadian businesses are at an advantage
Download (.mp3) How has the economic crisis affected you? It’s been a great opportunity for the public to realize, “Look, this emerging market stuff is real.” These countries came out of [the crisis] so fast – led by China, but all the other countries that are not necessarily beholden to trade with the United States. There is a lot of domestic growth happening. India, for example, is this domestic machine with all these people moving from one class up to the next. What do you think about investing in China? Investors talk of getting exposure to emerging markets and they find the China story so compelling – 1.3 billion people and all that growth. My response is that, based on our 160 investments in 55 emerging countries around the world, eight are in China and seven of those are giving us a headache. We’ve never lost any money in China, but we’re having to deal with issues.
David Creighton on China
Download (.mp3) People ask, “But what about Russia?” – and we’ve never lost a cent there. Russia is just fine. You can engage with Russia. If you sit down with a Russian partner, or a Ghanaian partner or a Nigerian partner, and you engage with them, you can come to an agreement and you are partners. But not in China? In China, you sit down and you say, “We’re partners.” They say, “absolutely.” You write a cheque and the partnership is over. They go off and do whatever they want. We have covenants, contracts and all these things, but in China, if you want to take a contract to a local court, your chances of coming out with anything are very slim. So when these things happen in China, they just require a lot of cajoling and trying to just breathe some sense into them. What we’re doing in many cases is just trying to accelerate the loans and get out. Is it a matter of the Chinese having their own agenda? It’s all about themselves. They are first-generation capitalists, unlike in India, where there are multi-generational businesses. In China, they are coming out of the gates and these guys are naturally aggressive. They’re enchanting, the stories are wonderful, and I’ve had a lot of success working as an investment banker in China. But making investments is something you have to be really careful about. A lot of people are investing in Chinese companies and going through regulatory authorities. Well, the regulatory authorities are not the same as the SEC or other Western groups. Perhaps, what you expect to happen in Canada is not necessarily transferred to what is happening there. It’s a really great story but tread carefully. Are you still a bull on Brazil? I was on some panel two years ago and asked what country I would choose, and I said Brazil. [Brazilian President Luiz Inacio Lula da Silva] did two terrific things: He reassured the international community he would make good on his debt and he really started to get people at the bottom of the pyramid working themselves up.