Prior to this drawdown, the manager had been consistent in writing quarterly investment letters as its primary means of client communication, which is standard practice across investment managers and already provided key information; it since added semi-annual investor calls, in which the partners discuss the firm and portfolio to provide greater transparency into names of interest (or concern) and answer specific client questions, improving overall communication. Fast forward two years and the manager has maintained this structure, underscoring its consistency and reliability while strengthening its rapport with clients, who are now able to obtain more immediate and up- to-date information through the semi-annual calls relative to the pre-crisis arrangement.

In its initial calls, the manager reflected on lessons learned from this investment; it had underestimated the degree to which the country in question would be sanctioned—these sanctions themselves were unprecedented, driving stock prices down for all domestic companies; in retrospect, the manager should have exited the position in the early stages of rising political tension. Furthermore, it decided to no longer make investments in countries where geopolitical risk can materially affect the investment thesis, regardless of the strength of the underlying business fundamentals. These lessons have in turn strengthened its overall risk-management process while cultivating more open and honest client relationships. An expectation and demonstration of such trust and honestly is key to building and maintaining conviction among managers and their investors.

Performance has since improved following the drawdown period and the forward-looking IRRs are now notably compelling. Regarding the investment in question, the manager decided to hold it after renewed research to avoiding a ‘panic-selling’ situation during heightened macroeconomic tensions; this investment ended up being one of the strongest contributors to performance the following year, after which the manager reduced it to less than 1% of NAV, demonstrating both its patience and continued discipline.

The manager exhibited investment competence and instilled confidence through its deep due diligence, open communication, and patience in the face of powerful volatility, as well as the ability to act fast when needed— all of which serves as the backbone of long-term performance. Emerging markets are often shunned by mainstream investors for various reasons, and it takes significant research, conviction, and even bravery to venture into what can be considered obscure territories. But with the right balance of patience and agility, the rewards for this type of risk-taking can be immense.