Antoine van Agtmael, Emerging Markets Investors Corp.
Sometime after arriving in New York from Asia in 1979, Dutch
investment banker Antoine van Agtmael coined the term “emerging
markets” as a more desirable phrase than “third world” or
“developing countries.” At the IFC in the mid-1980s, he helped
channel IFC and private European money into the first-ever emerging
markets growth fund. Then, in 1987 he launched his own private
Emerging Markets Investors Corporation, which was in on some of the
first and most profitable equities buying opportunities in the
region.

What made you go into Latin equity markets back in
1987-1988?
The original idea was to go to places that were undiscovered,
showed potential for growth, were subject to dynamic policy change
and hence would kind of come out of the box. By the time we started
here in early 1988, we had seen the devastating drop of the US
market and we realized that there were really two areas of interest
at that time-Asia and Latin America.The better known Asia markets
were already starting to pickup and we realized fairly early on
that the true values-things that were truly undiscovered, cheap and
subject to big policy change-were to be found more in Latin
America. I guess the best strategic decision we made was that
instead of going for where there already was a record of success,
we went to some places where there was more potential for success.

And where did you go first?
First, we went into Mexico and the first stock I ever bought was
Telmex, which at that point couldn’t be bought on the Mexican stock
exchange. Telmex was a classic example of a company that people
were not willing to pay anything for but that had significant
potential in a changed policy environment. It was a typical example
of a deep-value stock at the time.

Why was Telmex such an important stock issue for the
region?
Telmex has got to be one of the most remarkable issues of the whole
period just because of the mere chutzpah of bringing to market that
company and making it a success. I think that part of that success
was due to the widely prevailing naivete about emerging markets at
the time, which went something like: “It seems that Mexico is
getting its house in order, so maybe it makes sense to buy
something here. But we just don’t know anything about Mexico.” So
what do you buy? Well, first of all you buy what’s being offered.
And it was probably a smart move to offer Telmex, because by this
time it was clear that any modern society needs a telephone company
and it was not dramatically expensive.Where else did you invest in
Latin America early on? Well, we went into other Mexican stocks and
then we branched out and went into Chile and Argentina. Mind you,
this was still the period of hyperinflation; and we went into
Brazil very early on. The environment we were looking at was
totally different than the environment we are looking at today. It
was an environment of hyperinflation, enormous policy failures,
very cheap prices, and hope for the future. In some cases, it was a
very dim hope.

What convinced you that a stock was a “deep value”?
We saw three things as necessary. One of our qualifiers was that
you needed some policy changes coming. You needed to see light at
the end of the tunnel. But just like you cannot invest purely on
the day’s results, you cannot invest just on the basis of seeing
light at the end of the tunnel. That is not a recipe for making
money. In addition to policy changes coming, there had to be some
changes in place. Then, finally, the stocks have to be awfully
cheap. And we had that combination in Latin America.

Where was there sufficient “light” to encourage you to
invest?
In Argentina at the time that Carlos Menem got elected, things were
still very bad, with the kidnapping problems and all. But it was
clear that in Argentina there were the driving forces necessary for
me to go in. One was that Menem was quite different from the way he
was portrayed. He was not a traditional demagogue; he was going to
actually bring about some change. The other thing was that I looked
at the balance sheets of leading companies at that point-Perez
Companc, Astra, Molinos, off the top of my head-if you looked at
the balance sheets of these companies, they had dollar cash on the
balance sheets that was worth more than the shares. So it was
cheap, there was some evidence of change and there was promise of
more change.

But what came first: policy decisions or capital
flows?
In the early history there was still hope from both sides-both from
investors that changes would be made, and from policymakers that
investment would follow. But there was still no evidence that
either would occur-it was all a jump in the dark for both sides.My
sense was that never when you talked to the key policymakers was
their main motivation to get the money. The main motivation was:
“What we’re doing here doesn’t work. We have to change it because
it just doesn’t work.”

So the policies were made for pragmatic reasons rather than for
ideological reasons?
What happened was that there came a group of younger policy makers
who understood that they had to try to bring about some change, and
then everybody else climbed on the bandwagon. In Mexico, you had
Pedro Aspe, who was not only very bright, but a terrific salesman.
I think people underestimate the importance of being a salesman for
a policy.Before that, there was Hernan Buchi in Chile, who was
incredibly important. And in addition to Aspe, there was Domingo
Cavallo and Fernando Henrique Cardoso. These were the founding
fathers of change in Latin America-without these four people, the
transformations might not have been possible.