Interview: opportunism keeps Cube leader on upward course

Myanmar has seemingly swung from being a martial communist state to a semi-democratic capitalist darling, with foreign investors scrambling for a foothold, in the blink of an eye.

But is the southeast Asian state ready for perhaps the most bourgeois of sports, golf?

That is the hope of Cube Capital, a London and Hong Kong-based boutique with a history of taking counter-intuitive bets, and which claims to have been the first western house to have entered Myanmar after sanctions were lifted in 2012.

Cube is financing a golf villa development, having already made 20 per cent-plus returns from a more traditional 15-home villa park and a head office development.

“There is no equity or bond market [in Myanmar],” says Francois Buclez, chief executive and chief investment officer of Cube. “There is public equity traded in Singapore, around three or four stocks, but their valuation is seven times book because that is all there is and everyone wants to buy them.

“You can do private equity, but there is no proven or tested management team in Myanmar, or real estate [where] you don’t need a management team, you just need a construction team. And in this market whatever you build will be taken out.”

Cube provides first lien finance for the developments, and Mr Buclez, a former Crédit Agricole and Credit Suisse First Boston banker, is critical of those who only view emerging markets through the prism of equity investing.

“In emerging markets people dream about equity, they always want to make five, seven, 10 times their money, but they end up making 10 per cent. They forget that in these markets you can get a 20 per cent return with a protected asset class.”

To Mr Buclez, the real estate route also avoids arousing the ire of the local populace, unlike some sectors of the economy.

“We tend to avoid natural resources in emerging markets. Typically a local will resent a foreigner milking the natural resources that are there. And [natural resource investors] never really get their money back. We leave that for the oligarchs.”

Mr Buclez says Cube has a “nice pipeline” of further property investments in Myanmar, but accepts that it will inevitably become too crowded a trade as others jump on the bandwagon. “A bubble is probably one or two years away,” he says.

The Myanmar developments are housed in Cube’s $350m Real Assets platform, which also has holdings in Vietnam and Mongolia, as well as what it describes as “distressed hospitality” in the US.

“We bought six or seven hotels in the US for a song. The timing [September 2009] was very good,” says Mr Buclez. “It’s about a five to six-year cycle. We buy property that is badly positioned, do the refurbishment etc and sell it on.”

This is typical of Cube’s opportunistic and contrarian approach, best exemplified in Global Opportunities, its $130m event-driven hedge fund. Whereas many event-driven funds focus on announced takeover bids, Cube’s version targets “dislocated” asset classes or securities, “unloved assets with no natural buyer due to perceived unacceptable risk”. It invested in oil rigs after the Deepwater Horizon disaster in 2010, Japanese developers (on price/earnings ratios of around three) after the 2011 earthquake and tsunami and the tier one paper of European banks following the implementation of the Basel III accord. “It could be [that we buy] after an allegation of fraud. We do quite a lot of due diligence,” says Mr Buclez. “We are also looking for a catalyst for the security to revalue, otherwise it’s a value trap.”

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