Adventure capitalist quantitative investing - Asha Mehta, Global Delta Capital

In this episode of the INSEAD Emerging Markets Podcast, we speak with Asha Mehta, Managing Partner at Global Delta Capital, about her impactful career in finance, focusing on emerging and frontier markets through a lens of sustainability and responsible investing.

Asha founded Global Delta Capital after working as an investment banker at Goldman Sachs and Lead Portfolio Manager and Director of Responsible Investing at Acadian Asset Management.  Asha has been recognized as a "brilliant quant" by Forbes Magazine and ranked as one of the top 10 women in asset management by Money Management Executive.
Asha received her BA in Biological Sciences and Anthropology from Stanford and her MBA from Wharton, during which she made use of the INSEAD-Wharton Exchange.

Our discussion covers the societal impact of investing in emerging markets, the role of data science in global market analysis, and the value of on-the-ground experiences in diverse cultures plays in evaluating countries and businesses to invest in.

Asha's book, The Power of Capital, is a thrilling memoir of her personal journeys through emerging markets which delivers equal doses of business discussion and geopolitical insight.

Subscribe and follow the INSEAD Emerging Markets Podcast on Spotify,  Apple, or Google.

Transcript

00:00:00 NICK LALL
to the INSEAD Emerging Markets Podcast. I'm happy to be back again in 2024 and I'm thrilled to be joined today by Asha Mehta. Asha is Managing Partner at Global Delta Capital, an employee-owned quantitative investment firm with a thematic focus on emerging and frontier markets and sustainability investing. In prior roles, Asha was Lead Portfolio Manager and Director of Responsible Investing at Acadian Asset Management, as well as an investment banker at Goldman Sachs. In college, she conducted microfinance lending in India, which inspired her to pursue finance as a career. Asha was named one of the top 10 women in asset management by Money Management Executive and was profiled as a brilliant quant by Forbes Magazine. She's a frequent speaker at industry conferences and her work has been featured in Pensions and Investments, the Financial Times, CNN, the Wall Street Journal, and several other publications. Asha holds an MBA with honors from the Wharton School at the University of Pennsylvania and a bachelor degree double major in biological sciences and anthropology from Stanford. Asha has traveled to over 80 countries and lived in six. She also recently published the book titled The Power of Capital. It's a very captivating read filled with interesting stories, and if you haven't read it yet, I highly recommend getting it. It's not overly technical at all, very accessible to anyone, no matter what your background is. Personally, I found it to be very reminiscent of Jim Rogers' Adventure Capitalist, but a much more modern take, also taking into consideration things like ESG and impact, which are really one of the major reasons to invest in these countries. Asha, it's an honor to have you here. Reading that intro, you're clearly someone who could have done anything and you seem to be very purposeful in your career. So I'd love to learn more about your origin and what made finance the path that you decided to pursue.

00:01:42 ASHA MEHTA
Nick, thank you so much. What an incredible, generous introduction. I really appreciate the kind words on my background and particularly on the book. Thank you so much for mentioning the book and your feedback on it. I was thrilled to receive Jim Rogers' endorsement, the original adventure capitalist, as I think of him. And again, it was a beautiful, generous background you gave. But the one critical piece you left out is that in my time at Wharton, I did do a summer program at INSEAD. So I am thrilled to be back in the INSEAD community and reconnecting with this really thriving group of like-minded individuals and thrilled that you're having me here on the podcast today. I'm happy to jump in and I appreciate the kind reflections around perhaps having had a purposeful career. One could argue quite the opposite, that I really fell into the world of finance. My background as a child was as a daughter of refugees. My father was born in pre-partition India, grew up as a refugee in India in extreme poverty, found his way through education and through medicine to the U.S. And my mom has quite a similar story. Her family's from Europe, but similarly, flood periods of time and events in history that were very traumatic for their family and exactly the same trajectory and that she was trained to explore education as a pathway to medicine, which would give a nice stable career. So the intention for me, from their minds, at least, was that I would become a doctor. I myself as a child was really enthralled by their stories, really intrigued by the history. I had such an international background. I know you do as well, Nick. And I really embraced that. Kind of having this multicultural background made looking at the world and world events so interesting. Nevertheless, I went to Stanford, as you said. I studied pre-med per my parents' direction. And for me, the critical shift in my career happened during a summer abroad. I went to India on a vaccine distribution program. And when I landed, this was around 1999, I learned very quickly that the funding for my vaccine distribution project had dried up and that there would be no project over the summer. This is before the internet age where it was so easy to just make flight arrangements on the fly and head back home. I saw myself needing to spend the summer in India and needing to figure out what to do with all of this time. I'd been to India many times before, but it was my first time in this state. I was in Uttar Pradesh, which is one of the poorest countries in India, staying with a family I didn't know. And so I felt pretty alone. And I was looking at the surroundings around me with really kind of fresh perspective. And as I looked around, I just had this overwhelming sensation that while I was here to distribute vaccines, when I looked at the poverty around me, I felt that what these people needed was not health as much as wealth. And it immediately struck me that, you know, if I had all this time in front of me, I wanted to figure out how I could use my time to help generate some type of impact within this community. Like I said, my background was entirely in academia and in medicine. I didn't know what to do, but I knew I wanted to do something in the financial sector. So I went to a phone book and I looked up bank. And in the phone book, I found the Bankers Institute of Rural Development. Turned out to be a microfinance organization. And when they found out that I knew how to use a computer, they instantly hired me for a volunteer internship that summer and I spent the summer just inputting loans into what we called then a database. It was just a very simple spreadsheet like an Excel file and I would put information there like $1 loans, $5 loans, $10 loans. I would put the individual's names. It was always a woman. They only loaned to women-based borrowing groups. And I would put the uses of these loans. It would be something as simple as a sewing machine or a cow. And as I was there in India, not even speaking the language, but just really perceiving so much around me, I could see that as we gave out these tiny micro loans to the women, we were enabling them to build their own financial independence, enabling them to support their families, enabling them to build up their local communities and economies,

00:06:20 ASHA MEHTA
the national economy of India. And we'll talk a lot more around the opportunities and emerging markets today. But needless to say that the economy in India has come a long way in the last couple of decades. And to see that from the ground level was really very profound right at the start of my career. That's what got me hooked. I went back to Stanford for my senior year, decided I would not be going to med school. I graduated the year 2000, the heart of the dot-com boom. It wasn't too easy to land a job in finance at that time because everyone wanted to be on the West Coast, but I was really excited about getting into infrastructure development. So I ended up getting my first job at Goldman and that's how I found my way into the environment. That sounds like such an amazing

00:07:02 NICK LALL
That sounds like such an amazing experience. I mean, even today going on the ground and living in a place like Uttar Pradesh in India, it's very eye-opening, but especially back then, it must have been a pretty adventurous and exciting experience as a college student, just going there and figuring out a new path on your own while you're there. So that's really impressive. And I definitely agree and see that bringing investment to these places can solve a lot of these other issues, whether it's medicine or infrastructure or other things. So it's cool that you had that insight. Digging a little bit deeper into your initial finance career, I saw that you mentioned that you became a quant without the typical background. I was wondering how you managed to do that, how you got up to speed on the job, and why it was your intention

00:07:46 ASHA MEHTA
to do that. Yeah, fascinating. So my background, as we just talked about, certainly not trained as a quant, studied biology, as I told you, a dutiful pre-med in college. And back then, the natural sciences were becoming pretty systematic in nature. So I actually used some coding methodologies in my time. I learned to code MATLAB as a bio major at Stanford. Goldman, certainly much more traditional, much more fundamental, more bottom up, learned financial statements. I made my way to Wharton for my MBA after Goldman and felt really drawn toward utilizing some incredible tools that have very robust use cases in the financial services. And again, you know, I didn't have this traditional finance background, so perhaps I wasn't drawn into the traditional finance curriculum at Wharton, but I was studying risk management and using tools like linear programming to help solve relatively complicated problems. What pulled me into quant ultimately, again, I kind of had this technical bent and was interested in using robust tools. But ultimately, I love the strategy. And I came across this idea of a quant shop, my former shop that you mentioned, Acadian, that was launching a frontier fund, the frontier fund would invest not in South Africa, but in Botswana, not in China, but in Vietnam. And I thought, well, that's really cool. I'm interested in emerging markets. Frontier markets have the potential to be the next generation of emerging markets. But how do you cover something like 50 countries across the globe, something like 20,000 securities across those countries. Very hard to cover so many companies in so many countries at scale with a reasonably sized team. And that's really where I learned the power of data science, that you can use quantitative tools to crunch data, whether that's valuation data, pricing data, financial statement data, across any company across the globe. Back then when I picked it up, it was 2007 when I entered Quant, there were robust data sets and it was possible to run statistical models to forecast what are drivers of return, alpha factors essentially. And it was well known by this point in developed markets that these types of tools could be applied. It was less well known at that time that they could be applied in emerging markets as well. It's a very inefficient asset class. And given the limited coverage, given the limited institutional participation in emerging markets, even if the data is wrong, even if your signals have some errors in them, in quantitative data science space, you're investing on the law of large numbers. You just need to be right something like more than half the time. And if you're investing with scale across a large number of stocks in a large number of countries, then you can actually post pretty good active returns. And so I thought that was fascinating to be able to cover the globe, to be able to consume so much data on companies. Intellectually, I found that really fascinating, both from a technical as well as an asset class perspective. And perhaps even more importantly, it was really rich and exciting to investors who were looking for returns. That's how I found my way into data science. And just one point I want to make before I drop the thought around the fact that data sets were fairly robust in 2007. Fast forward about 20 years from where we are now, I see virtually no difference in terms of data availability on emerging market companies versus developed market companies and even frontier market companies. The data vendors are pretty consistent in terms of the type of coverage they have and the quality and the timeliness of that And I think it speaks to the coverage. fact the data vendors are pretty companies, consistent in terms of the type of coverage they have and the quality and the timeliness of that coverage. And I think it speaks to the fact that we live in the big data era and being able to invest with technical power across markets really creates a tremendous opportunity. That's really interesting.

00:11:35 NICK LALL
opportunity. That's really interesting. I mean, from the little I know, I would expect that things would be more opaque in emerging markets and there wouldn't be as much information available, but that's super helpful and really interesting that there actually doesn't seem to be much difference. I was wondering if you could talk a little bit about what's the reason that your emerging market strategy generates more alpha than others?

00:11:58 ASHA MEHTA
Yeah, thanks. And I suppose I should caveat one of the sentences I made before because it does sound somewhat extreme as you read it back to me. Certain pieces of it are absolutely true. Access to liquidity data, access to valuation data, access to financial statement data, even, you know, a lot of governance data, I would say, is largely equivalent across emerging markets and developed markets. Of course, you know, there are a lot of very specialized data sets that exist today. And for those very, very specialized you contents, will And for today. those very specialized very, contents, you will see distinctions across developed markets and emerging markets. So it certainly depends on the data item itself. But for the most part, I think that core theme around there just been an explosion in data availability in emerging markets absolutely holds. So the strategy and how do we utilize that insight around data availability in emerging markets in the context of our strategy? My firm is called Global Delta Capital. We invest at the junction of big data, emerging markets, and new economy themes. And I suppose like a lot of managers, ultimately, we think of our strategy as a fundamental strategy. We want to invest in companies that have good management teams and good growth prospects. They're allocating their own CapEx into attractive business segments. I'd say some of the secret sauce around how we implement that insight is, of course, around utilizing quantitative tools to create objective measures and then how we weight those various objective measures. So ultimately, I think of this as a fundamental strategy that's systematically implemented. I think where it starts to look different from other managers is in two ways. One is because of that systematic implementation, we're literally covering every single country and every single stock that prices. So our coverage is fairly vast. And what is represented then in our portfolios tends to be an orientation to the small cap space. Small cap stocks are really fun and interesting to trade. A lot of interesting themes in the small cap space, you tend to see less financials and less commodities represented there, and many more consumer-based themes. And along those lines, I think one point that's fairly distinctive, even in that small cap space, where we find these interesting growth themes, we can find what I think of as unicorn companies in public equity space, unicorn companies, and that they look good on so many metrics, they look good on growth, and they can still look very, very attractive in value. So that's one aspect, the fact that it's systematically implemented is a unique application. But the other piece of it, and you spoke to this in the introductory remarks on my bio, is really investing in the context of intentionality. That we know as investors that investment capital has a dual purpose. One purpose of capital, of course, is to generate a return for investors. But that capital is truly funding businesses. And so we recognize that we have the power as institutional investors to fund the businesses that are going to build the ecosystems we want to live in. And so ultimately, we're leveraging, it sounds somewhat corny now that I have a book called Power of Capital, but we are leveraging the power of capital

00:15:10 NICK LALL
to build what we consider to be some benefit from also being on the ground in these places. And you're also looking to businesses that may have some form of impact. So I was curious if you could talk a little bit more about that. And I guess that's why your book felt so much like the Jim Rogers Adventure Capitalist, that you had all these interesting stories. Why is that necessary? And why do you feel the need to actually go visit these different places and learn more about the country as a whole, in addition just to the data that you're getting from your data

00:15:46 ASHA MEHTA
Yeah, thanks so much, Nick. I appreciate the question and the framing of it. I think that's exactly right. Quantitative tools are incredibly robust, and just utilizing data, given the inefficiency within the asset class, can be an alpha-generative approach. But when you apply fundamental insights, there's so much more alpha that can be extracted. Emerging markets are an inefficient asset class they're also a very volatile asset class and so it's a kind of asset class where you want to have the discipline that comes from quantitative tools but we all know that not everything can be modeled. There are idiosyncratic events that happen that can happen to the upside it can happen to the downside. A nationalization event is a very significant risk that investors need to be aware First of. and foremost, as investors, our primary responsibility is preservation of capital. If we're investing in companies that are going to be nationalized and the valuation literally goes to zero, we do need to have some fundamental insight, some handholding of the portfolio, some overriding of the quantitative strategy to not allow exposures into countries that are exhibiting this type of risk. It can happen to the upside as well. In the book, one of the themes I talk about is the liberalization of the Middle East over the last decade. I think this is an incredible story that a lot of people are not aware of. You follow the headlines around emerging markets, and they're pretty scary. I think when a lot of investors approach emerging markets as an asset class that's just overcome with mystery and fear. But the Middle East has undergone some of the most incredible liberalization events over the last decade. Just the generational change that's happened in a period of years has been profound. Understanding that these markets are opening up to the world. I got this insight when I was on the ground in Riyadh and seeing that they were bringing in expats to bring in external insights. And they were working very aggressively with institutional investors to bring capital into the country. That was an important insight for me. I was one of the early investors in the Saudi stock market. It turned out to be a very beneficial positioning as the country went through a series of upgrade events. So really why I wrote the book is to bring topics like this to life. It is absolutely true that across emerging markets, there's a lot of exposure to harrowing events that can occur. And I talk in the book about, you know, narrowly missing a terrorist event in Tunisia and bombs on trains and going up against the president of Argentina in a court case. You know, there's messy stuff that happens that aligns with that theme around mystery and fear. But there is just also incredible transformation coming. And I felt like this is a story that needs to be told at this time. You know, the reason why we're having such tensions in the US with China is because China has become a superpower. China is leading on technology. I mentioned the rise of the Middle East. Two of the three largest countries on earth right now, China and India, are emerging market countries. There is a changing global order. The growth that's occurring, the amount of wealth that's in these developing markets has just transformed. As I talked about with respect to data availability over the last 15 to 20 years, similarly, there has been a revolution in terms of the consumer profile, the consumer class, the middle class, the digitalization, the financial liberalization across these markets, and felt like this was a story that the world needed to know. Just

00:19:13 NICK LALL
world needed to know. Just as an aside, from what I hear, Saudi is just booming right now. So if you are an MBA student looking for a job, that might be a place to look. But yeah, you did mention, I guess you kind of answered this already, so we may not need to go into it. But part of the reason you wrote the book, it seems like was that there is this

00:19:22 SPEAKER_02
did mention,

00:19:31 NICK LALL
spread good governments or ESG goals to these countries through the power of capital. I was curious what your thoughts are on the BRICS currency or more countries moving away from the dollar, how does that impact ESG goals with these other countries having more of that, the power of their capital, and maybe not the same goals when they're investing in these emerging markets?

00:19:52 ASHA MEHTA
Yeah, fascinating. I mean, the power of capital is very real, again, both to the positive side and to the negative side. Nationalization events is one example, right? When you close off foreign capital, that can be so destructive to a market. And when you open to foreign capital, it not only provides funding, but it enables access to foreign know-how, to foreign governance systems. And it just really integrates markets in such a profound way. in such a profound way. And I think your question really addresses some of the complexities here around, you know, specifically the BRICS currency transition or the BRICS currency rise. You know, I think a lot of people approach this issue somewhat jokingly. The reality is that the U.S. is still the reserve currency of the globe. And in the near term, the complexities in changing to a new kind of global reserve currency are truly very, very high. It is truly a complex project. And I think in the nearest term, the U.S. dollar will remain the reserve currency of the world. But there is a changing world order, which we just spoke to. And I think when you see emerging market countries come out and say that they're going to achieve growth, and then they do, when they say geopolitical rise is what they're looking for, China announces they're going to take back Hong Kong, and then they do. I think when you see these announcements, it's important to provide some perspective that this could very well be a shift in the global landscape. And what are the implications there? Again, I don't see it happening in the nearest term, but could it happen in our careers? Quite possibly. When I think of a BRICS-based currency, there's a very significant component of that that's, of course, China-driven. And right now, China's struggling. The China market has not been a high-performing market. There's a lot of socio-political risks. There are a lot of governance risks. Trade has truly been a challenge for China, which was one of the intentions, of course, of the U.S. going more protectionist. But all of that occurred because China had become such a formidable competitor, not just in the technology space that I mentioned before, but even in this globalization space. I think the development of one belt, one road is often underappreciated. of one one road is often We often talk here in the belt, about reshoring, underappreciated. U.S. friend-shoring, that globalization has peaked and it's on the decline. And while that's true to some extent, much of the developing world is still very much going through its globalization cycle. And one belt, one Road is an example of

00:22:52 ASHA MEHTA
But what happens when China becomes a significant lender to countries across the globe? It's that theme around power of capital again. When you access international capital, yes, it gives you access to the money, but of course, the governance systems behind it. The governance systems in China are fundamentally different from those in the U.S. You mentioned my background as an ESG investor. When I've talked to people on the ground in China about, you know, what is the ESG nature of the business? Is the company ESG aligned? People in China will look at me, and I've heard it multiple times, you know, they'll say something like Americans will never understand. And it's a little bit haunting to hear that. But that's what I think about in the context of a China led currency, that as their currency becomes more valuable across the globe, ultimately, whose values will we be funding? And my response to that is, you know, the need for the U.S., of course, to remain very much a global partner and to remain part of global international flows.

00:23:53 NICK LALL
Yeah, super fascinating. Maybe just a follow on to that is, I think, kind of the, in the past, the U.S. philosophy was that financial liberalization would lead to political or social liberalization. And then, and I think over the past few years, it's been clear that that didn't happen with China. So I was curious if you have any thoughts on that at all, like, does one need to be there first for the other to develop? I mean, we mentioned Saudi earlier, and to some degree, there is social liberalization happening at the

00:24:24 SPEAKER_02
same

00:24:25 NICK LALL
But just curious if you have any thoughts on that and how bringing investment to countries could lead to more freedom in people's day-to-day lives.

00:24:38 ASHA MEHTA
I mean, it's an interesting question. What's the sequence? Do you have financial liberalization first or social liberalization? Does one beget the other? Couldn't agree more that the Middle East, again, having gone through generational change in a matter of years, is one example where both are happening in parallel. And I do talk about some of the social developments that are happening in the Middle East. Many of them are just so advanced, relative to you know my my southern roots here in the u.s um but but some can be quite arcane you know in terms of women's access to the same rights as men of course they're they're still a lag nevertheless the opening of the stock market the selling of what had always been considered sa Arabia's crown jewel, Saudi Aramco, all of that aligned with the liberalization of social standards, women being able to drive cars, NASCAR coming to the country. I remember my broker was excited when he came to visit once because they were going to bring Frozen to Saudi Arabia for his young girls were excited to watch it. So I do think that's a nice example of where the two come together. To your point, China's gone, you know, liberalized economically, but not socially. South Africa is the other way. In the 1990s, with their dismantling of apartheid, they started to liberalize socially. But from an economic perspective, it still remains a relatively challenging market to trade. I think, you know, what do you take away from this? The reality is that, again, perhaps related to this theme that we live in the big data era, news travels incredibly fast today, and where we see incredible investment opportunities is in countries that are liberalizing rapidly. Some interesting examples. Over the last decade, we know that the U.S. market, particularly the U.S. tech market, was the best performing market on Earth. You know, it's really hard to keep up with the types of returns they posted. But what a lot of people don't realize is that while emerging markets as an asset class did not keep up with the US, certain countries within the emerging markets asset class absolutely did. India is one example. Saudi is an example. Romania, Vietnam, all of these are countries where we have seen recent material, social and financial liberalization in parallel.

00:27:13 NICK LALL
to some of these countries like Vietnam or Indonesia you mentioned, it's super exciting what's happening, especially even looking at the tech scene in India, for example, it's amazing how quickly a huge country has come so quickly. But staying on the ESG theme a little bit, I was wondering how you diligence whether companies are truly meeting ESG standards or is it greenwashing? I think that's sort of a topic of conversations

00:27:46 ASHA MEHTA
I'm glad to hear you say it's a topic of conversation these days. I think you're right. I hope you're right. I'm not entirely sure. Sometimes I think ESG has become a four-letter word. And, you know, there's even the Wall Street Journal coming out saying that ESG is dead and responsible investing is back in. I do think ultimately a lot of this is just nomenclature. When I think of applications around ESG, I often think about what I was trained in business school at NCA and at Wharton, in terms of how do we evaluate businesses, that ultimately, yes, you want access to valuation data and pricing data. You need the financial statements. But there's so much more to that than evaluating how well positioned. There's so much more to evaluating a company's competitive positioning than just valuation and pricing data. You want to know what's their positioning relative to their customers, what's their positioning relative to suppliers, how are they positioned relative to their competitors. And I see ESG data as giving us access to structured data sets that answer those types of questions. Again, do you call it ESG, do you call it responsible, or do you simply call it just good business sense? Ultimately, I'm a strong believer in the notion around materiality, that not every issue that comes up in an ESG context will be financially material. It's important to identify a parsimonious set of signals or data items within this very broad E, S, and G space that are relevant in a sector context and financially material.

00:29:45 ASHA MEHTA
that companies that put resources to achieving good ESG scores actually will underperform if those are not material ESG themes. If they're doing it just to please investors and it's not actually going to improve their business prospects, that's a misallocation of valuable capital, and so it shouldn't be a surprise there. So we approach these types of ideas very fundamentally. Ultimately, we want to invest in companies that are well governed. And so we have a series of indicators that assess how well governed is this company. Similarly, we want to invest in companies that have strong relationships with their, you know, management teams have strong relationships with their labor forces. So we have measures that pick up what is the relationship, what does it look like. And when you start with that real fundamental logic and then start applying testing, I find that it's just best practice from a statistical perspective to find a factor that's likely to work in an out-of-sample context. But it's also best practice in terms of finding signals that will work. Like the best way to find efficacy is to know that it is true driver of financial return.

00:30:50 NICK LALL
That's really interesting information. Switching over to countries a little bit and how you evaluate them. In your book, you talked about how there are really attractive returns that can be made when countries are about to be upgraded on the MSCI index. I was curious, what factors do you evaluate to determine if a country is in that position? And also, maybe if you could just talk a little bit more about the returns and impact that can be made when a country is about to be upgraded from, like for example, from a frontier market to an emerging market.

00:31:34 ASHA MEHTA
Yes. Nick, if I can pause the script for a moment. I just wanted to say a couple more things

00:31:40 NICK LALL
more things

00:31:42 ASHA MEHTA
So is it okay if I just add a little bit on to what I said before, and then I'll answer this question as well?

00:31:52 ASHA MEHTA
we just talked about in terms of Porter's Five Forces and these types of notions around good governance practices or good management practices, I don't necessarily see that as a material shift in corporate analysis. The materiality there is simply the fact that we have access to data. But I would like to draw a distinction between ESG, or good management practices, and impact. And I think in the context of emerging markets where we're talking about the asset class we're talking about, it's valuable to recognize that this is an asset class that's inefficient in both respects. It's inefficient with respect to alpha, not a lot of institutional participation. So it's relatively more straightforward to separate the winners from the losers. But it's also relatively inefficient in terms of how capital has been utilized to drive impact, to drive themes around financial inclusion and the rising consumer class, the amount of infrastructure that needs to be built to support this consumer class, the rise of new energy infrastructure in particular. These are all themes that we find really interesting. So while we apply this very quantitative or statistical approach to evaluating ESG, I also just wanted to highlight that in the context of emerging markets, there is outsized relevance. We see this in the data itself, that if you invest on a governance factor, for example, in the developed markets, you'll tend to make money. If you invest on that same factor in the emerging markets, you'll make about twice as much. So I think that speaks to some of the dispersion, some of the vulnerabilities in emerging markets, and of course, some of the opportunity.

00:33:45 NICK LALL
Yeah, I think so.

00:33:46 ASHA MEHTA
Coming back to your question around, you know, what some of the drivers for countries.

00:33:54 ASHA MEHTA
jump right in. Absolutely. When countries are upgraded from frontier market status to emerging market status, that can be a huge return driving event. And this is one of those examples of why I believe a quantitative approach is really valuable in emerging markets, but you need some fundamental discretion as well. There actually have not been many countries that have been upgraded from frontier to emerging markets. It's not something that can be modeled, because there's been on the order of five to 10 countries that have been upgraded in history. The Emerging Markets Index has been around much longer than the Frontier Index, and the countries that are in the EM Index were essentially grandfathered in. But I saw this in my earliest days covering Saudi and covering other Gulf markets that went through their upgrade events, UAE in particular. From the time that MSCI announced the upgrade of the UAE to emerging markets to the time they implemented it, there was a one-year period for that implementation to occur. And the UAE market exploded by 99%. So if you were long UAE on the day that MSCI announced the event and you held it until the time that they implemented it, that 12-month period, you would have made a 99% stock return or 99% market return, which I think is really quite fascinating and similar themes for other significant market upgrade events in history. So Qatar, Saudi Arabia, Pakistan, Colombia, there are, like I say, a handful of examples that have gone through this. So I think understanding that when countries are upgraded, that can be a return generating event is really interesting in and of itself. It makes perfect sense. The pool of assets allocated to frontier markets is, of course, much lower than the pool of assets that are allocated to emerging markets. So when a country is upgraded, passive money alone, if passive money has to move from frontier to EM, that's going to be a significant driver of this flow of capital into the upgraded country. And the data shows that for every dollar of passive capital that moves in, there's $5 of active capital. So that's what's driving this, you know, wall of capital moving into countries as they're going through the upgrade events. So how do you find them? You know, to some extent, you follow the index, The major indices will signal when they are looking to upgrade a country. I think one of the most significant indicators they look at is liquidity. Effectively, I see liquidity as defining a frontier market versus an emerging market. It's not exactly true. Vietnam is a frontier market today and it has liquidity that's greater than some emerging markets. And so it's not a one to one, but, you know, it's a signal that Vietnam is very ripe for an upgrade to emerging markets. You look at modernization. We talked about modernization in Saudi Arabia. And you look at investor interest. I think, you know, following the beheading of Danny Pearl in Pakistan and the fact that no investors wanted to go to Pakistan to research companies after that occurred, it probably shouldn't be surprising that the emerging markets index providers, you know, in due course, downgraded the market from emerging markets to frontier markets. So investor interest is, of course, an important indicator as well.

00:37:29 NICK LALL
Yeah, definitely. I think maybe to just reiterate the point on the power of capital, I was wondering if you could talk a little bit more about why even in wealthy countries like Saudi, it is beneficial to get more FDI, like when there is this reclassification and more outside capital comes in. Why is it even still beneficial for a country like the UAE or Saudi that already is wealthy?

00:38:00 ASHA MEHTA
At the time that Qatar went through its upgrade events, became an emerging market country and received that incredible flow of capital. It was the wealthiest country on Earth. So it just kind of underscores your question that why would country that why would very wealthy countries need access to capital? And I think there are several reasons why. One, we touched on before, and China has been very deliberate about this. They've loved access to FBI there and quite transparent as well. You know, they impart their strategy around opening up or convergence or liberalization, which began in the 1980s under Deng Xiaoping, part of that was really to build what they call the imitation economy, you know, to learn best practices, bring in foreign capital and just learn what other products are being developed for consumers outside and learn how they do it. And of course, this continues today, which is why the trade war is very much in place. today, which is why the trade war is very much in place. But that transfer of technical know-how I mentioned before, the transfer of governance systems, all of this is one rationale for why foreigners look for international capital. Another reason is they're looking for capital deepening. So you mentioned Saudi in particular. Saudi was very quick to upgrade relative to their starting position. From the time that I started covering the market to the time that it actually occurred, and I mentioned I was a relatively early investor, I was on the order of a few years. So when I say that they deliberated for some time, it wasn't that much time. They were relatively quick movers. But one of the reasons why the deliberation occurred was they were concerned about the hot money effect. Do we want to open up to foreign capital that will just come into the country, you know, catch some of the returns, and then when, you know, things go wrong, when there is some sort of risk event, all that capital flows out. Do we want the volatility that comes from international capital? And how the Capital Market Authority ultimately came out on that issue was quite the opposite. That Saudi is very much a retail-driven market, and institutional capital can smooth volatility. And you and I talked before about what are the measures that institutional investors use. We're investing in good-governed companies. We want to reward companies with capital that are using capital in a productive and efficient manner. And so that was one reason why Saudi was looking to liberalize its market, to bring in foreign capital and smooth some of that local market volatility and really allow capital to be a tool to reward high performers and to support transparency, to support good governance practices. It's fascinating to me that the IMF will often insist on the development of equity markets in order to receive an IMF package because they see that public markets with the demands that are in place around quarterly or semi-annual reporting, it is a way to report sources and uses of capital. It's a way to stamp out bribery and corruption. So global flows have that effect as well. They can smooth volatility and be a tool for better governance. And then of course, you know, the symbolic nature of it. The geopolitical implications of being integrated just absolutely can't be overstated. Absolutely.

00:41:37 NICK LALL
I think,

00:41:38 ASHA MEHTA
me, can't be

00:41:38 NICK LALL
me, can't

00:41:46 NICK LALL
issue so not all right but um yeah absolutely i think that um that really just underscores the benefits of um investing internationally i think these days there

00:41:49 SPEAKER_02
um yeah

00:42:00 NICK LALL
are these questions about um should we be investing more at home or not. There are the criticisms of globalization, and as I mentioned before, issues with China and so on. But clearly, I think the more globalized and open countries are to foreign capital, the world just becomes a better place. Switching to the personal side, you've mentioned your husband and your children in your book and how you all have traveled to different countries together. Kind of selfishly, I'm interested just how you manage this because I am someone who's interested in living an international lifestyle, but then there's always that question of how do you manage the family aspect of that when you're at that stage? So I was curious what the challenges and benefits of raising children while you have such an international lifestyle are and how you've adapted to and managed this.

00:43:02 ASHA MEHTA
Fascinating, fascinating. Thanks. fascinating fascinating thanks um right i i mentioned that um i fell into the buy side space when i learned about you know a frontier fund that invests in the furthest corners of the world not as i said before south africa but atwana not china china but vietnam and i'll confess that one of the aspects that really intrigued me about using data science and quantitative tools to cover all these markets, I mean, I think even if you're living an international lifestyle, it's really hard to set foot in every country every year. And having data sets enable you to cover, as I said before, many more markets is really a benefit from a financial perspective. You know, it's costly to travel all over the world, benefit from an investment perspective, and that you can simply cover more companies and uncover, you know, turn over more rocks. And certainly from a family perspective as well, you know, to the extent you can do it from your laptop, it frees you up for other obligations. So that was not lost on me at the time that I took this on. I ended up becoming the lead portfolio manager on that Frontier fund while I was on maternity leave with my first child. So kind of an awkward time to be tasked with the opportunity to take on Frontier. When my manager at the time handed me the role, it came with a condition of visiting three regions and 10 countries in the next six months. And I said, well, how am I going to do this with a brand new baby? And here I am as a first time mom. brand new baby. And I'm here I am as a first time mom. Luckily, my husband also has a travel bug and loves to travel. He raised his hand. He said, first of all, this is a dream job. And when you get when a dream job comes your way, you don't say no. And he said, secondly, I'll be the nanny. I'll be the traveling nanny. So he came along. I filled my mandate of visiting all those regions and all those countries. And it worked out terrific. And actually, arguably, it gave me better insights to see the globe, not just through the lens of an investor who's staying at nice hotels and meeting bureaucrats and senior management teams, but also hanging out with children and going to the local playgrounds and seeing how families live, talking to taxi drivers and really getting a truer sense of, you know, of the drivers around the globe. Arguably, it was that much richer. Since he talked about the book at the start, I'll just say, you know, Jim Rogers, he wrote his book talking about traveling the globe on, I think one of the books was in his Mercedes and another one was on his motorcycle. I thought, well, maybe I should do mine traveling with my double stroller around the globe, two boys inside the stroller. Ended up not really catching on as a theme. But it's an interesting question with as we talked about applications both professionally and personally

00:46:08 NICK LALL
definitely on that topic you have a lot of touching stories in your book about the different people you've met in all these countries you visited and the effect of capital inflows on their lives i was wondering if you could talk a little bit more about that and just how the human component affects your investment approach if at all

00:46:31 ASHA MEHTA
thank you nick yeah very much very much and i think that's the most rewarding aspect of this business um you know financial services it's it's the power of capital it really sits at the heart of global ecosystems and you know as I built my own business one one of the most fascinating learnings for me is about how it's all about people all about people's my my team my investors the companies I invest in the management teams behind them, getting to know people, hearing their stories, learning their motivations, seeing their successes, how do they address challenges? That kind of more human component is what keeps me so inspired. It's what keeps me going. is what keeps me so inspired. It's what keeps me going. I had one epiphany when I was meeting management teams across Asia. I was struck out time and time again. You know, there was a moment in Vietnam where I met with Central Bank and then two of the largest companies and the CEOs and the ministries were led by women. So not particularly remarkable because it's actually not that rare across Asia. And on net, Asian companies do have more representation of women on management teams and boards than in the developed world. Nevertheless, kind of exciting to see. In the developed world, it's not that common to be sitting across the table from a female CEO or female CFO. But in Asia, when I saw this series of women who are leading some of the most interesting companies in the most interesting countries, that's where I say it brings inspiration. It brings, you know, some of that profound perspective. So I love the human component. It's what keeps me going. And I mentioned before, you know, my own multicultural background. And I know you and I share that. You know, when I travel the globe and I see people, you know, living, like I said before, their independent lives, their family lives, I see my own humanity in them and it's just a you know luck just a stroke of luck that i was born in the u.s could have easily have been born in ukraine or in pakistan so um you know that human component i think is actually very and i do think that

00:48:59 NICK LALL
i do think that that is one of the benefits to going and being in the ground in these places. It does remind you of the privilege and the purpose of what you're doing. So definitely have felt that myself as well. Maybe just one final question for any of the MBA students listening. Do you have any advice for them, especially if they're interested

00:49:34 ASHA MEHTA
You I'd Yeah. say mostly know, just follow your passion. I think the world needs more passion. And if you happen to be interested in emerging markets you know, I'm already sold on this concept, but, but I think there's a lot of opportunity. And if you really stick with that focus, the opportunity will be there. I've come across this notion around the relevance of being double dominant, that it's important to be passionate around a given theme. but to the extent you can demonstrate excellence or passion in multiple themes, having that kind of multidisciplinary background can be very unique and very, very valuable. Nick, I know you've heard me say before that, you know, I used to advise people beginning their careers to learn to code. I think with the advance of chat GPT, the availability of AI-based tools, the need to code is actually much lower than it once was. ChatGPT can do a lot of coding on behalf of an individual. But having kind of that programmatic or scientific mindset coupled with a passion for some of these more social development themes, I think having that, again, multidisciplinary or kind of combination background can just be an incredible asset for individuals who are beginning their career.

00:50:54 NICK LALL
Sure. Excellent advice. Well, thank you so much, Asha. This was extremely fascinating discussion. I really enjoyed talking to you. Loved your book. Thanks so much for joining us. Would love to keep