The Liquidity and Sustainability Facility (LSF) announced a research partnership with Africa-focused asset manager Qantara Asset Management (Qantara AM) to deliver specialized commentaries, insights, market intelligence, and comprehensive analysis on African Sovereign Eurobonds.
James Kuate, CEO and founder of Qantara AM, explained to Finadium that the Africa bond risk premium underpins the asset manager’s investment thesis, which is that the disparity between market perception of Africa risk and the reality of it presents an excellent arbitrage opportunity.
Comparing to US high yield, or other sovereign nationals in Latin America and Asia, African bonds outperform because the premia are high, while defaults are low. Kuate points to data showing that African sovereign Eurobonds have better historical performances than any bond asset class in USD terms across 1–10-year timeframes.
Statistics over the past 40 years show that Africa has a default rate three times lower than Latin America. During this period, African Eurobonds experienced only six credit events, with half having no impact on bond prices. In addition, the continent’s average recovery rate of 70% substantially exceeds historical averages for both sovereign and corporate issuers globally.
Commentators and experts often raise ideas such as the need for a bespoke rating agency, however, Kuate argues that those premiums are an investment opportunity. “This asset class is just terribly mispriced,” he said.
With its first fund dedicated to African Eurobonds, Qantara AM seeks to promote this overlooked asset class while actively contributing to financing the continent. The bulk of investors are from the US, UK and Nordic countries, and pension funds are prominent along with emerging markets funds across the buy-side.
David Escoffier, CEO of the LSF Secretariat, said in a statement: “We’re delighted to cooperate with Qantara AM, we both share the same vision of thriving, liquid African capital markets. Their deep understanding of sovereign dynamics across the continent is very complimentary with our technical focus on building liquidity for the asset class.”
“With the LSF, we share the same values, principles, and ultimate goal,” Kuate said in a statement. “Together, we aim to shine a new light on this promising asset class while actively financing Africa’s future. This partnership is a natural evolution for both organizations as we seek to showcase the tremendous untapped potential of African Eurobonds.”