Conversation About Mongolia With Hedge Fund Manager Harris Kupperman

Apr.10.12 | About: Mongolia Growth (MNGGF)

Last week we talked about investment opportunities in Mongolia. To follow up on that topic I recently did an interview with hedge fund manager Harris Kupperman.

He is the Chairman and Chief Executive Officer of the Mongolia Growth Group (ticker symbol YAK in Canada or OTCPK:MNGGF in the US), a real estate and financial services conglomerate focusing on operations in the rapidly growing economy of Mongolia.

Robert: Most funds and foreign companies in Mongolia are investing in mining and natural resources, but your fund focuses on real estate and insurance. Is there any particular reason you chose this niche?

Harris: Mining is a tough business and most investors do not make money in that industry. There is a boom in Mongolia right now and real estate and insurance do well in an expanding economy. Those two sectors should offer the most leverage to the growth of the economy.

Robert: Your fund is traded on the Canadian National Stock Exchange and on the pink sheet in the U.S. Do you have any plans to list in other markets?

Harris: We are currently exploring having our company listed on the Mongolian Stock Exchange (MSE). Naturally, this is a detailed process and there are lots of considerations needed. A MSE listing would of course be a long-term goal of ours.

Robert: The MSE has been one of the best performing stock markets in the world. It's up about 300% since 2010. However, I have heard about problems of liquidity and investors having difficulty of getting orders filled.

Harris: The MSE still has some problems with liquidity but volumes have been rising. The MSE is also based on outdated trading technology, but it is in the process of being modernized.

Robert: There are currently a little over 300 companies traded on the MSE. Do you know about any new IPOs?

Harris: The economy here in Mongolia is booming, and I know about at least four companies that plan on launching an IPO this year.

Robert: The Mongolian Currency was up almost 6% against the U.S. dollar last year, and I heard that you can get double digit interest rates on bank deposits.

Harris: You can get more than that. I currently get 18% interest on my money in addition to currency appreciation. The Mongolian tugrik is an attractive alternative to the depreciating US dollar and the Euro.

Robert: Can a non-Mongolian that is outside of Mongolia open a bank account?

Harris: I didn't have a problem opening an account. It was a simple process. I would recommend anyone interested in opening an account just to call (a) bank.

Robert: You had a nice presentation on your website where you compared Mongolia to where Kazakhstan was a few years ago. What kind of growth do you expect from Mongolia over the next couple of years, and do you expect that Mongolia will do as well as Kazakhstan has?

Harris: I certainly think so, that is the reason why we are here. The stock market in Kazakhstan was up 2600% between 2002 and 2008 and real estate and wages were up several times as well. I think Mongolia will eventually catch up to places like Qatar and Kuwait.

Robert: The mining sector has been the engine of growth, but how is the rest of the economy performing?

Harris: The country is growing rapidly and the standard of living is increasing across the board. Mongolians will need all kinds of services that previously haven't been available. I see opportunities all around me and this is a perfect place for an ambitious entrepreneur.

Robert: I have heard that Ulaanbaatar have become very crowded as more and more people move into the city. Is the city expanding outwards in capacity?

Harris: The city is located in a valley so the expansion is vertical. It will probably look something like Hong Kong and Singapore in the future or other similar cities with limited geography.

Robert: What type of government do they have in Mongolia?

Harris: Mongolia is a Democracy with an open and free media.

Robert: Is it easy to do business in Mongolia or are there a lot of bureaucracy and red tape?

Harris: Mongolia has an open free market and despite what you may hear in the media it is very easy to do business here. I wish that the US would adopt some of these practices. There is a little bit of bureaucracy left from the former soviet-rule but the government understands that growth will make the country successful.

Robert: The crisis of 2008 hit the whole world and Mongolia was no exception. Is the Mongolian economy more insulated than other countries or is it dependent on growth from the rest of the world?

Harris: If there is another economic crisis, commodity countries like Brazil and Australia are going to get hit pretty bad. Mongolia will be affected but I believe that it will hold up better than other countries. The rest of the world, China especially, needs what Mongolia produces. A crisis may slow them down but it will not hold back the long term growth trend that I see in Mongolia. I look at the Macro picture and I believe that Mongolia will be among the fastest growing countries in the next 10 to 20 years.

Robert: Do you see any niche opportunities developing?

Harris: There are plenty of business opportunities. MGG primarily focuses on real estate and insurance but there are lots of other opportunities for entrepreneurs and businessmen in Mongolia.

Robert: Thanks for taking the time to share your knowledge on Mongolia today.

(The Mongolian Growth Group was launched in 2010 and it is up over 400% since its inception. It is traded under symbol YAK in Canada, and MNGGF in the US.)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.