ResponsAbility Investments AG has ventured to stoke its returns. It’s investing in hazelnut production on the slopes of the world’s tallest mountain range, hoping to provide them to products such as Nutella.
In hazelnuts, “70 percent of production is in Turkey,” said Rochus Mommartz, chief executive officer of the Zurich-based fund. “But producers don’t want to depend on hazelnuts from Turkey.”
Mommartz, who has worked as an adviser in more than 40 developing countries, helping regulators and governments on the legal framework, is leading the $3.3 billion fund into some of the poorest areas of the globe, betting on companies the mainstream investor may not have heard of.
As markets across the developed world have seen returns trimmed by record low interest rates and reduced volatility, investors are increasingly buying passive products such as exchange-traded funds.
ResponsAbility is at the other end of the spectrum, investing in countries where there isn’t a benchmark and only limited markets. They buy private debt and equity in finance, agriculture and renewable energy, with about 80 percent invested in debt and 20 percent equity.
It’s not “philanthropy,” he said. “We’re looking for return. There’s a need — it’s a good investment. It’s an investment in the real economy. It’s not an investment in some instruments.”
Spread out over about 550 companies in almost 100 countries, its holdings also include investments in mobile payments in Egypt, microfinancing in Georgia and cashew nuts in Togo. The fund, whose biggest clients are Swiss pension funds, targets a net return of 15 percent to 18 percent on its agriculture private equity investments.
The asset manager is tapping demand for funds that take into account environmental and social concerns. They can also work as a hedge for institutional investors, given their low correlation with other asset classes, Mommartz said.
The “challenge” lies in exiting its investments, according to Mommartz.
In bigger markets such as India and Brazil, an initial public offering is an alternative, while elsewhere options may include selling to international banks targeting a new market or to global food brands seeking vertical integration.
“They need the commodity, there’s strategic interest from different parties,” he said. “We will see more of this, because securing the input goods is more and more important for companies.”
Majors risks are also political interference and macroeconomic stability, according to Mommartz, who hedges currency risk for the debt funds.
“There are certain countries we don’t do business,” such as Somalia, he said. “With a high political risk.”
And for those willing to bet on Bhutan and Togo, it pays not to watch the nuts grow.
“Patience is what it needs,” he said. “An investor that looks at monthly returns and monthly liquidity. We can’t do that.”