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Swedish Hedge Fund Brummer to Set Up New Bangladesh Stocks Fund

Date: Wednesday, December 2, 2009
Author: Netty Ismail, Bloomberg

Brummer & Partners, the largest Scandinavian hedge-fund manager, plans to set up a fund to buy Bangladeshi stocks, betting the south Asian nation will attract investors seeking the world’s next low-cost labor hub.

The fund “should not be larger than $100 million” as only about a third of Bangladeshi companies’ outstanding shares are publicly traded, said Patrik Brummer, founder of the Stockholm- based firm, whose assets are at their peak of about $7 billion. The fund will be formed within the next three months, he said.

The nation of 162 million people, equivalent to about half of the population of the U.S., may join the ranks of the fastest-growing economies in the region as it benefits from its geographical proximity to India and China and low labor costs. The economy, which expanded 5.9 percent in the year to June, was shielded from the financial crisis because of its “limited integration” in the global economy, according to the World Bank.

“If you believe in labor arbitrage as a true trend, that will benefit Bangladesh,” Brummer, 60, said in an interview at the three-year-old Westin Dhaka hotel. “The predictability for this country is much higher than most countries that I know of; it is largely uncorrelated to the world economy.”

Bangladesh’s ready-made garment exports have shown resilience because of the so-called Wal-Mart effect, where consumers substitute more expensive products for cheaper ones such as those from the South Asian nation, the World Bank said in a September report. Buyers are also shifting production to Bangladesh, which may have become the world’s lowest-cost producer, from China, the Washington-based bank said.

Stock-Market Rally

Goldman Sachs Group Inc. in December 2005 included Bangladesh in a list of 11 developing countries that, according to its analysts, have the greatest potential to emulate the long-term economic success expected from China, India, Brazil and Russia. JPMorgan Chase & Co. named Bangladesh one of the “Frontier Five” markets worth investigating in an April 2007 note, along with Kazakhstan, Kenya, Nigeria and Vietnam.

“Bangladesh has a lot of raw potential and is full of opportunities for those ready to dig in,” said Douglas Clayton, Phnom Penh-based founder of Leopard Capital LP, which manages a Cambodia private-equity fund and is raising money to invest in Sri Lanka. “In time, we’ll probably launch a fund here.”

The Dhaka Stock Exchange General Index, which gained 21 percent this year, eclipsed its previous high reached in 1996 as shares of GrameenPhone Ltd., Bangladesh’s largest mobile-phone company, almost tripled on debut on Nov. 16. GrameenPhone, controlled by Norway’s Telenor ASA, raised 4.9 billion taka ($71 million) in Bangladesh’s biggest initial public offering.

The stock market’s daily turnover has grown to about $100 million over the last few months, from an average of $20 million a day in 2007, according to Brummer.

Bubble Danger

“One danger in this kind of an environment is that you get a bubble at one stage,” Brummer said. “If a lot of foreign investors take an interest in this market, being such a small market, then it can explode.”

The manager set up in July 2008 a Bangladesh hybrid fund to invest in stocks and private equity. About half of that fund’s $53 million will go into a private-equity fund, which the firm started this year. The International Finance Corp., part of the World Bank, has committed $10 million to the private-equity fund, which is set to attract more money from other investors, he said.

The private-equity fund, targeting returns of at least 20 percent, plans to hold minority stakes in “successful companies that have a bright future,” Brummer said. It has invested in the export business of Bangladesh’s largest automotive battery maker and a supermarket chain operator, both part of Dhaka-based Rahimafrooz Group.

Stockholm to Dhaka

“There has been a lot of change in the city of Dhaka, a lot of construction activity,” said Brummer, who first visited the capital city in 2005 and travels there four times a year.

The Stockholm-based manager is an investor in bracNet, a wireless broadband company in Bangladesh that Khalid Quadir, who runs Brummer & Partners’ unit in Dhaka, started in 2005. KDDI Corp., Japan’s second-largest mobile-phone operator, agreed to buy 50 percent of bracNet on Nov. 12.

Brummer started his hedge-fund business in 1996 after spending 22 years at Alfred Berg, the largest brokerage in the Nordic region. Alfred Berg was acquired by ABN Amro Holding NV in 1995.

Brummer & Partners attracted net inflows of $1.7 billion this year, he said.

The firm’s multistrategy fund, which invests in Brummer & Partners’ own strategies and accounts for more than a third of its total assets, “has become a very popular vehicle,” he said.

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net.