[Editor’s note: This email was written by Peter K, a former McKinsey consultant and securities analyst who now leads the private investment division at Sovereign Man.]
Simon Black sent me to the former Soviet republic of Georgia to spend some time on the ground conducting due diligence on some potential private investments.
Yarra Square Partners returned 19.5% net in 2020, outperforming its benchmark, the S&P 500, which returned 18.4% throughout the year. According to a copy of the firm's fourth-quarter and full-year letter to investors, which ValueWalk has been able to review, 2020 was a year of two halves for the investment manager. Q1 2021 hedge fund Read More
Georgia is a fantastic country that Simon has been to several times, and the opportunities here are simply amazing.
It’s not that Georgia has more opportunities than Europe, the US, and the rest of the world. Investment opportunities are everywhere.
The difference here is that Georgia is totally off the radar of most investors.
It’s a tiny country of 4 million people with a GDP of roughly $36 billion. That’s about half the size of the economy of New Hampshire.
And the total stock market capitalization is just a fraction of Uber’s most recent market value.
This means that it’s very difficult for large, institutional investors to put money to work in this country.
They need big scale… economies where they can easily deploy billions of dollars. There simply aren’t enough of those supersized opportunities here.
That’s why you won’t see a bunch of hedge fund managers on CNBC talking about their investment positions in the Republic of Georgia. It’s too small for them.
But for individual investors, Georgia is ripe with opportunity.
Since Georgia is a growing economy devoid of any significant investor base, there’s a significant shortage of capital here… which means rates are quite high.
Businesses are borrowing money (in US dollars) at 10% interest or more… and they consider that a good deal because the interest rates in local currency are even higher.
Simon recommended a safe, conservative, well-capitalized local bank to his premium subscribers a few years ago, and many of those readers are still earning over 7% on their US dollar deposits.
I’ve spent the last week looking at a number of private investment opportunities across multiple sectors– agriculture, technology, healthcare, and more.
It was shocking. The contacts that Simon Black put me in touch with here opened more doors than I could have possibly imagined.
I’ve met with a number of high-growth, profitable businesses seeking investment capital to expand.
I have very strict investment criteria; but even after substantial scrutiny, I’ve concluded that nearly every one of these businesses is a potential home run investment.
Yet I was the ONLY investor who came out here to meet with any of them.
I love being the only fish in the pond.
If this were Silicon Valley, any 16-year old kid with an idea to build an app that makes fart sounds would have investors lining up around the block to shower him with cash.
That’s very much the case in most developed economies, especially these days.
There’s intense competition among investors who are bidding against each other trying to buy into the next Facebook or Google.
But not in Georgia. There’s some incredible talent here and a multitude of great businesses. Yet almost no one is looking.
I was also pleased to see how easy it is to do business here.
Georgia has a very simple tax regime; instead of a tax code that goes on for thousands of pages, the corporate tax rate is a flat 15%, and the individual tax rate is 20%.
(It’s interesting to note that when the Georgian government abolished its previous Byzantine tax code and adopted a simple, low, flat tax model, government tax doubled.)
It’s also incredibly easy to start a business in Georgia.
You can register a local company in a couple of hours for less than $100, and as a foreigner, there are very few investment prohibitions.
Permitting and licensing is also much faster and more straightforward than in most advanced economies.
And corruption is minimal.
Police and public officials don’t take bribes, and I found the government workers to be surprisingly professional and efficient.
This combination of high interest rates, incredible local talent, business friendly laws, and a complete lack of foreign investor interest means that a nimble individual investor can do very well in Georgia.
Georgia is a fantastic example of what Simon routinely discusses: it’s a big world out there.
And if you expand your thinking beyond your own borders, you’ll find some extraordinary opportunities and pockets of incredible value out there.