Investment Diversification Techniques

I am very happy to share insights from my recent op-ed in the Financial Times. Emerging markets have often been viewed as risky, but new data from the Global Emerging Markets Risk Database Consortium paints a different picture. With comparable default rates and superior recovery rates, investing in emerging markets offers resilience and potential. The statistics, spanning 30 years of lending, show that the risks in emerging markets compare favorably with other asset classes. Additionally, the portfolio diversification they offer proves beneficial during global stress periods. As a co-founder and major contributor to GEMs, IFC is committed to providing crucial data to help investors make informed decisions about emerging markets. Reallocating just 1% of global assets each year could significantly impact growth and development in these countries. Read more: http://wrld.bg/PWRb50Ro0tq The World Bank IFC - International Finance Corporation

Emerging markets aren’t following the textbook. Why?   This month’s combination of a stronger dollar, risk-off, and geopolitical uncertainties should be bad news for emerging markets …At least, that’s the theory   But this time looks different. EM assets have held up better than expected   So what’s changed?   Three things stand out :   1️⃣ First, macro de-risking is real. Policy frameworks have improved, and domestic capital markets are deeper. That means less forced tightening and less disorderly capital flows. For investors, this translates to better credit ratings and positive outlooks.   2️⃣ Second, valuation gaps still matter. EM stocks trade on around 12x forward earnings versus about 19x for developed markets. At the same time, EM profits growth is expected to be nearly double this year. Plus EM FX remains undervalued versus the dollar.   That points to strong expected returns, and is hard for allocators to ignore   3️⃣ Third, index composition is helping. Tech heavy stock markets, like Korea and Taiwan are leading in 2026, supported by the AI memory super cycle. That’s added a lot of index points, and meant large outperformance - even versus the Mag7. At the same time, LatAm and EMEA commodity exposures add a defensive tilt   The effect is notable in fixed income too. The EM bond index now has lower volatility than non US govvies, like Gilts or JGBs.   ➡️ At the start of the year, EM benefitted from a weaker dollar and risk on regime. March has been different. Dollar strength and risk off are a real test   But the EM thesis held up; that’s an important signal EM can’t just be seen as a high beta play on global liquidity anymore. It’s structurally de-risking. And it deserves a larger role in portfolios than many investors currently allocate

In some markets, the exit strategy cannot wait until year three. It has to be designed from day zero. That was one of the strongest lessons from our Global Corporate Venturing Symposium London roundtable on corporate venturing in emerging markets. In mature venture markets, investors often start with the founder, the market, the product, the growth rate, and the size of the opportunity. That is essential. But in emerging markets, it is not sufficient. You also need to ask: 1️⃣ Who can buy this company? 2️⃣ Can the public market support this type of business? 3️⃣ Will secondaries be available? 4️⃣ Can a corporate strategic investor help create the exit pathway? 5️⃣ Is the company being financed in a way that makes future liquidity possible? This is especially important for deep tech, industrial, climate, mobility, agtech, and infrastructure-related startups. The company may be technically impressive. The founder may be excellent. The market need may be real. And still, the financing path may be fragile if nobody has designed the liquidity path. Rakan Goyal made a point that deserves to be repeated: “A multiple was derived by a model. A multiple should not drive a model.” That sentence captures something important. In hot markets, founders and investors can start pricing companies based on narratives, comparables (even to US...), and future market size. But for corporate investors, especially in emerging markets, valuation has to be grounded in risk-adjusted reality: company risk, country risk, FX risk, cost of capital, exit risk, integration risk, and strategic value. This does not mean being pessimistic. It means being disciplined. The best investors are not those who ignore risk. They are the ones who price risk clearly enough that great companies can still be financed, supported, and scaled. For me, the broader lesson is simple: Capital discipline is not the enemy of ambition. It is what gives ambition enough oxygen to survive the full journey. My question: In emerging markets, should investors optimize first for maximum valuation, or for the highest probability of eventual liquidity?

𝗛𝗲𝗿𝗲’𝘀 𝗺𝘆 𝗼𝘂𝘁𝗹𝗼𝗼𝗸 𝗮𝘀 𝗮 𝗰𝗹𝗶𝗺𝗮𝘁𝗲 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝗹𝗲𝗮𝗱𝗲𝗿 𝗼𝗻 𝗘𝗠𝗗𝗘 𝘁𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝗶𝗻 𝟮𝟬𝟮𝟲: 𝗥𝗲𝘀𝗶𝗹𝗶𝗲𝗻𝘁 𝗯𝘂𝘁 𝗖𝗵𝗮𝗹𝗹𝗲𝗻𝗴𝗲𝗱 If you follow the headlines, you would be forgiven for thinking the energy transition in emerging markets is stalling. • US public climate finance has pulled back sharply. • Geopolitics is fragmenting capital flows. • Climate impacts are becoming more disruptive. But that story misses what is actually happening on the ground. 𝗛𝗲𝗿𝗲 𝗶𝘀 𝘄𝗵𝗮𝘁 𝘁𝗵𝗲 𝗱𝗮𝘁𝗮 𝘀𝗵𝗼𝘄. • Global energy transition investment still grew by 10%+ year-on-year, despite political headwinds. • Clean technology costs continue to plummet, driven by manufacturing scale. Changes are in where the funding comes from, how risk is measured, and which regions are benefiting. 𝗣𝘂𝗯𝗹𝗶𝗰 𝗮𝗻𝗱 𝗰𝗼𝗻𝗰𝗲𝘀𝘀𝗶𝗼𝗻𝗮𝗹 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝘂𝘀𝗲𝗱 𝘁𝗼 𝗱𝗼 𝘁𝗵𝗿𝗲𝗲 𝗾𝘂𝗶𝗲𝘁 𝗯𝘂𝘁 𝗰𝗿𝗶𝘁𝗶𝗰𝗮𝗹 𝗷𝗼𝗯𝘀 𝗶𝗻 𝗲𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁𝘀: – fund early project development – take first-loss positions – anchor blended finance structures As that layer retreats, projects may fail not because they are uneconomic, but because they are unfinanceable under current risk frameworks. 𝗔𝘁 𝘁𝗵𝗲 𝘀𝗮𝗺𝗲 𝘁𝗶𝗺𝗲, 𝗖𝗵𝗶𝗻𝗮 𝗮𝗻𝗱 𝗽𝗮𝗿𝘁𝘀 𝗼𝗳 𝗦𝗼𝘂𝘁𝗵𝗲𝗮𝘀𝘁 𝗔����𝗶𝗮 𝗮𝗿𝗲 𝗲𝘅𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝘁𝗵𝗲 𝘁𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻 𝗮𝘁 𝘀𝗰𝗮𝗹𝗲. Clean tech is cheaper than ever. In many emerging markets, renewables are now the cheapest form of new power generation, full stop. But cheaper technology does not automatically mean affordable finance. 𝗟𝗲𝘀𝘀 𝘁𝗵𝗮𝗻 𝟮𝟱% 𝗼𝗳 𝗴𝗹𝗼𝗯𝗮𝗹 𝘁𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻 𝗳𝗶𝗻𝗮𝗻𝗰𝗲 𝗿𝗲𝗮𝗰𝗵𝗲𝘀 𝗲𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁𝘀 𝗼𝘂𝘁𝘀𝗶𝗱𝗲 𝗖𝗵𝗶𝗻𝗮. In some cases, financing costs are hundreds of basis points higher than for identical projects in developed economies. This is why national transition plans and domestic policy frameworks matter more than ever. Not as signaling devices, but as coordination tools that steer local banks, pension funds, and development institutions toward real investment pipelines. 𝗘𝗺𝗲𝗿𝗴𝗶𝗻𝗴 𝗺𝗮𝗿𝗸𝗲𝘁𝘀 𝗼𝘂𝘁𝘀𝗶𝗱𝗲 𝗖𝗵𝗶𝗻𝗮 𝗻𝗲𝗲𝗱 $𝟮–𝟯 𝘁𝗿𝗶𝗹𝗹𝗶𝗼𝗻 𝗯𝘆 𝟮𝟬𝟯𝟬 𝗳𝗼𝗿 𝘁𝗵𝗲 𝘁𝗿𝗮𝗻𝘀𝗶𝘁𝗶𝗼𝗻.  That will not be mobilized through ambition alone. The next phase of the transition will reward those who understand systems, not just capital flows. That is where the real work now lies. 𝗚𝗲𝘁 𝘁𝗵𝗲 𝗳𝘂𝗹𝗹 𝗮𝗻𝗮𝗹𝘆𝘀𝗶𝘀 𝗶𝗻 𝗺𝘆 𝘄𝗲𝗲𝗸𝗹𝘆 𝗻𝗲𝘄𝘀𝗹𝗲𝘁𝘁𝗲𝗿 (𝗶𝗻 𝗺𝘆 𝗯𝗶𝗼 𝗮𝗻𝗱 𝗯𝗲𝗹𝗼𝘄) How are you seeing transition finance changing in 2026? #climatefinance #transitionfinance #emde #emergingmarkets #investors #capital #decarbonization #renewables #cleanenergy

The Achilles’ heel of traditional portfolios are energy-driven price shocks. As the table shows, elevated energy prices can lead to higher inflation, subsequent rate hikes, and slower growth, which cause both equities and bonds to fall together. These episodes are typically triggered by geopolitical catalysts that disrupt energy supply—such as the oil shock of 1979, the Gulf War in 1990, and the Russia-Ukraine war in 2022. These events led to deeper and more prolonged losses, marking the breakdown of the traditional stock/bond mix. But the takeaway isn’t to abandon traditional portfolios—it’s to diversify around them. Adding commodities has historically helped limit drawdowns without dragging on overall risk-adjusted returns. With geopolitics contributing to energy price risks and AI driving increased demand for energy and infrastructure, diversification is becoming even more important.

Private equity's hottest product right now has a conflict of interest baked into its structure, and almost nobody says it out loud. Continuation funds. Single-asset ones alone did $34B in H1 2026 — over half of all GP-led secondary volume. Here's how it works: a GP wants to hold its best asset longer instead of selling it. So it moves that one asset into a new vehicle, sets the NAV itself, and gives existing LPs a choice — cash out at that price, or roll in at a reset fee clock. The GP is the seller. The GP prices the asset. Often the GP negotiates the buyer's terms too. They'll always pick their best asset to extend — rational, and exactly what a good GP should do. But it means LPs who don't roll are left holding whatever wasn't good enough to keep. Everyone calls this "just how continuation vehicles work." It's a structural conflict wearing a liquidity-solution costume. The LPs actually protecting themselves aren't asking "what's the NAV." They're asking who priced it, who else bid, and what's left behind. If your fund is old enough to be a CV candidate — have you asked those questions, or just trusted the deck?

Impact investing in emerging markets is full of opportunity—but most investors get it wrong. They assume capital alone will drive scale. They mistake mission for a business model. They expect VC-style hypergrowth in markets that don’t operate on those timelines. The result? Billions lost in misaligned investments. But the best investors? They take a different approach. 3 Investment Strategies That Win 1️⃣ Founder-First Capital Investment success isn’t about finding the right idea—it’s about backing the right operator. Markets shift, conditions change, and execution is everything. 📊 80% of successful impact investments prioritize founder resilience over just business models. (GIIN Report) 2️⃣ Scalability-Driven Investing An impact-driven business without a clear path to scale is just a local initiative with a short shelf life. The best investors fund businesses that can expand beyond their first market—or they don’t fund them at all. 3️⃣ Ecosystem Investing Capital alone doesn’t build industries. The best investors engineer access—to supply chains, regulatory inroads, talent pipelines, and strategic partnerships. The highest returns don’t come from funding companies—they come from shaping industries. 2 Strategies That Fail ❌ Mission-First, Revenue-Later Investing A great mission doesn’t pay salaries, fuel expansion, or create resilience. If impact isn’t tied to a scalable revenue model, it’s not an investment—it’s a grant in disguise. 📊 Over 60% of impact startups that fail cite a lack of sustainable revenue as the primary reason. (Stanford Social Innovation Review) ❌ Short-Term, High-Expectation Investing Emerging markets don’t operate on a Silicon Valley timeline. Investors expecting hypergrowth without accounting for market complexities end up making premature exits or forcing founders into unsustainable scaling. Key Takeaway here: The difference between real impact and wasted capital isn’t just the business model—it’s the investment strategy behind it. 📌 What’s the biggest mistake you see in emerging markets? Let’s discuss. ♻️ Share this with someone who deserves to hear it.  👉 Follow Ben Botes for more insights on Leadership, Scale-ups and Impact Investment.

Why Alternatives, and Why Now? Markets shift, cycles turn, and investors ask the same question: How will alternatives hold up when the tide changes? We’ve run the numbers, mapped out the scenarios, and here’s the takeaway: Alternatives remain relevant across bull, bear, and base cases—but how you allocate matters. 🔴 Bear Case: Market Disruption Recession, geopolitical risk, and tighter liquidity? Equity markets struggle, defaults rise, and risk tolerance fades. • Private Equity: Distressed buyouts gain traction as secondary markets pick up bargains. • Macro Hedge Funds: A bright spot—volatility creates opportunities in FX and rates. • Private Credit: Defaults climb, but high-quality credit holds steady. • Infrastructure: Defensive assets like utilities and essential services remain resilient. ⚪ Base Case: Stabilization & Modest Growth Rates stabilize, inflation stays in check, and markets tread water. • Private Equity: Mid-market buyouts and secondaries thrive, while defensive sectors like healthcare attract capital. • Macro Hedge Funds: Systematic strategies benefit from macro trends. • Private Credit: Direct lending remains a steady performer. • Infrastructure: ESG and sustainability-linked projects attract capital. 🔵 Bull Case: Accelerated Growth Global expansion, rate cuts, and rising optimism fuel risk-taking. • Private Equity: Tech, AI, and healthcare see surging valuations. • Macro Hedge Funds: Trend-following strategies ride the market wave. • Private Credit: Yield-seeking investors move into structured financing. • Infrastructure: Capital floods into renewable energy and transport projects. My Take? The case for alternatives isn’t binary—it’s about resilience, flexibility, and knowing where to lean in. When equity beta wobbles, alternatives offer a playbook for every market regime. As Howard Marks put it: “You can’t predict. You can prepare.” Are you positioned for what’s next? #Investing #Alternatives #Markets #PrivateEquity #MacroHedgeFunds #PrivateCredit #Infrastructure

🌎 Emerging Markets Are Leading the Global Music Revolution — And It’s Time to Invest While mature markets like the U.S., Japan, and Canada show signs of stagnation, emerging markets are experiencing explosive growth — and they hold the key to the future of the music business. 🚀 Brazil is the fastest-growing Top 10 market, expanding 21.7% last year alone. 💥 Latin America overall surged 22.5%. 🔥 MENA (+22.8%) and Sub-Saharan Africa (+22.6%) are booming. Streaming dominates, accounting for nearly 88% of recorded music revenue. But here’s where it gets even more interesting: ✅ Emerging markets aren’t just growing — they’re exporting. Examples: Colombian and Mexican artists produce music at lower costs, yet their songs flood the U.S. market, home to 60M+ Spanish speakers, where pay-per-stream is much higher. * Moroccan artists chart in France, taking advantage of cultural proximity and stronger royalty rates. * Nigerian Afrobeats artists dominate playlists globally, especially in the UK, U.S., and France, while production costs remain low in Nigeria. * Egyptian and Lebanese artists are expanding into European markets, leveraging diaspora audiences. * Turkish artists are increasingly breaking into Germany’s market, supported by a large Turkish community and higher streaming payouts. 🌍 The strategy is clear: produce high-quality music affordably in emerging markets — distribute globally — and capture revenue from premium, mature markets. 🚨 For investors: Pay close attention. This is not a trend; it’s a structural shift. The three major record labels (Universal, Sony, Warner) have already understood this and are actively investing in companies and talent across Latin America, Africa, and MENA. Now is the perfect moment to invest in music companies, labels, and tech platforms based in these regions — before valuations skyrocket. Those who move fast will be positioned to lead the next era of the global music industry. #MusicIndustry #EmergingMarkets #LatinAmerica #Africa #MENA #Turkey #Streaming #MusicBusiness #GlobalMusic #InvestmentOpportunity #Afrobeats #Reggaeton #ArabicMusic #SpanishMusic #VC #PrivateEquity #MusicTech

🤔 Will alternative investments including hedge funds and real estate really DISAPPEAR from the portfolios of pension funds and endowments over the next 10-20 years? That's what investment consultant Richard Ennis thinks. Already in 2020 he wrote "Alternatives a ‘loser’s game’" (https://lnkd.in/eafShkdx). Ennis says that since the Global Financial Crisis, hedge funds have failed to add value for institutional investors, and referenced to the HFR Fund-Weighted Composite Index's annualized return. However, this comparison misses several critical points: 1. The index itself is flawed as a measurement tool as the HFR Fund-Weighted Composite isn't investable. It suffers from selection bias, survivorship bias, and backfill bias. Many of the best-performing funds aren't even included as they're closed to new investment. 2. Risk-adjusted returns tell a different story. The cited period includes unprecedented market conditions, including ultra-low interest rates and massive central bank intervention that artificially supported traditional assets. Yet hedge funds delivered these returns with significantly lower volatility and drawdowns—precisely what institutional investors seek. 3. Top-quartile managers consistently outperform. The dispersion of returns in alternative investments is much wider than in traditional asset classes. Sophisticated institutions with access to premier managers have achieved returns substantially above the index. 4. Diversification benefits remain compelling. Hedge funds' true value proposition isn't just absolute returns but rather portfolio efficiency through low correlation to traditional assets. During the COVID market crash, many hedge fund strategies provided critical downside protection. 5. The landscape has evolved. Fee structures have become more investor-friendly since the GFC, with reduced management fees, hurdle rates, and performance crystallization terms that better align manager and investor interests. 6. A working paper by Barth et al. (2023) indicates that a newly emergent subset of hedge funds—ones not included in vendor databases—has produced better returns than those that do participate in the databases. Indeed, while #multistrategy firms' dominance has made it harder for under-the-radar names to compete, investors still look for and invest in up-and-coming managers, e.g. Blackstone and the Teacher Retirement System of Texas seeded new funds and sought out emerging managers. Institutional allocators invest in hedge funds not to replace equities but to enhance overall portfolio construction through differentiated return streams. When properly selected and incorporated into a sophisticated investment program, #hedgefunds continue to serve an essential role in institutional portfolios. In private banking, appetite for alternative assets is growing: https://lnkd.in/emxTUd7D What's your view?