Emerging Market countries are defined periodically by MSCI and FTSE. As of September 30, 2018, these countries are Brazil, Chile, China, Columbia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Kuwait, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Russia, Qatar, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates.
We believe we are the only global emerging markets fund which takes an active ownership approach to investing. We are a concentrated, high conviction investor, typically holding between 15-25 positions at any one time. We are a strong believer in differentiating between the countries that comprise the Emerging Market indexes, whereas other funds may closely track the index weightings and may be invested in all Emerging Markets at once. While there are commonalities among Emerging Market countries, the investment opportunities, macro environments, regulations and investable universe within them can vary widely. As a result, our country allocation can vary significantly from the benchmark.
Cartica’s style of activism is different from US style activism as over 80% of listed companies in the Emerging Markets are majority controlled by a founder, family, group or a governmental entity (i.e., state-owned). When dealing with a majority-owner, we do not believe that proxy contests, shareholder coalitions or other public US-style activism tactics are likely to be successful in our markets.
Therefore, we attempt to privately persuade companies to make changes in their governance, capital structure and allocation, dividend policy, asset base and/or disclosure policies often times in an effort to increase liquidity, price discovery and to facilitate multiple expansion. As responsible stewards, we actively exercise the right of minority shareholders in the markets in which we operate including information rights, participation in shareholder meetings, share voting, approval of transactions reworking shareholder approval, etc. We take a long-term view to value creation, with an investment horizon generally measured in years, not months.
Corporate governance is the set of structures and processes by which companies are controlled and managed. As a result of improvements in these processes, value can be created through changes in capital structure and allocation, dividend policy, asset sale, disclosure and risk management policies. Improvements in Corporate Governance is an essential component of Cartica’s unique investment philosophy of Active Ownership in the Emerging Markets.
The Cartica ESG Methodology is hardwired into Cartica’s pre- and post-investment process and is a proprietary methodology we use to identify, evaluate, and implement potential value-adding changes in ESG practices. Key elements of this process include (1) a thorough understanding of the integrity of a company’s controlling shareholders, if any, and its management team, (2) a review of its governance structure and (3) an analysis of material environmental and social risks that may impact the company as well as recommendations to mitigate such risks.
Cartica funds are governed by a five-person Board of Directors, which includes three independent members.