Sri Lanka’s capital market continues to be a lesser-known frontier market among foreign investors due to its long-running complex process of navigating local market access infrastructure, ACP Asset Management Chief Investment Officer Asanth Sebastian said, speaking to Ambeon Insights recently (5).
“The challenge that Sri Lanka has had in attracting foreign investment is because it is not an investment destination that a lot of people know about or think about daily. For example the regulatory and compliance of going through setting up a custody account plus a CDS account,” Sebastian said referring to the cross-market entry procedure and onboarding process.
“If you look at it, currently, for 1% of your portfolio as an institutional asset manager in Europe, you won’t go through the hassle of setting up a local custody account, local CDS account to invest into. You take that pain away from them and give them an easier vehicle to enter Sri Lanka,” he said, speaking of ACP’s recent launch of the Sri Lanka Opportunity Fund.
The country specific fund, according to Sebastian, was launched in alignment with EU regulatory compliance; under the Undertakings for Collective Investments in Transferable Securities (UCITS), which makes it a passported product that can be operated from within any of the EU nations.
“The Sri Lanka Opportunity Fund is the first time there’s been a country specific fund for Sri Lanka that is following the EU regulation under this UCITS framework. So it’s only focused on Sri Lanka and that’s a big differentiating factor. The fund will be the go-to for investors to get exposure to Sri Lanka.”
He further added that among frontier market investors, Sri Lanka can be promoted as a lower-cost alternative investment destination for those who had missed out on investing in the Indian market, and look forward to Sri Lanka’s future in which its growth is supported by the expected outcomes for India’s. “Our valuations from a capital markets perspective are say half of India’s and one of the cheapest markets in Asia.”
“What we always tell our investors is that Sri Lanka is ‘India lite’ to some extent. So they’re always surprised when they go to India and then they come to Sri Lanka and they’re like ah it’s so much less chaotic and easier to navigate and they love the country.”
“The challenge with India for a lot of these guys is some feel they’ve missed the boat and now it’s too expensive. And that potentially is a reason to look at Sri Lanka.”
“Although it’s a small part of their portfolio they feel that frontier markets can add alpha to an investor’s portfolio in Europe and gives diversification outside of other global or larger markets,” Sebastian said, referring to Sri Lanka’s relative stability gained in the past few years, which makes it a safe option within the region for investment.
Speaking on the Sri Lanka Opportunities Fund, under the regulatory compliance of UCITS, Sebastian said: “The idea for setting this up at the time through ACP Corum was basically we wanted to have a highly regulated vehicle to provide investors with exposure to Sri Lanka.”