Managing Frontier Market Portfolios Nick Padgett Managing Director

Managing Frontier Market Portfolios Nick Padgett, Managing Director, Frontaura Capital CFA Institute Investing in Africa Traveling Conference Series February 2013 Frontaura Capital LLC 180 North Stetson Avenue, Suite 1935 Chicago, Illinois 60601 USA Tel: +1 312 777 1500 Fax: +1 312 268 5004 info@frontauracapital. com www. frontauracapital. com FRONTAURA CAPITAL LLC FRONTAURA GLOBAL FRONTIER FUND OFFSHORE LIMITED © 2007 - 2013 Frontaura Capital LLC

Most of the world’s stock exchanges are frontier Frontier markets are stock markets, categorized by country, that leading index providers typically do not classify as either “developed markets” or “emerging markets” MSCI World Countries MSCI Emerging Countries MSCI Frontier Countries Other countries with stock exchange Countries with no stock exchange 70% of countries with stock exchanges are not represented in the MSCI All-Country World Index 2

Frontier = 30% of world’s population; 13% of world’s GDP, but <3% of global market cap World Population (6. 9 billion total) World GDP ($83 trillion total, PPP) 5% 13% 6% World Market Capitalization ($50 trillion total) 1% 1%1% 6% 14% 23% 12% 46% 41% 75% 56% Frontier Potential MSCI Developed Countries MSCI Frontier Countries MSCI Emerging Countries Other Countries w/ Stock Exchanges Countries w/ No Stock Exchanges Source: IMF World Economic Outlook October 2012 for 2012 population and GDP estimates. Market capitalization data through 11 October 2012 if present on Bloomberg. World Bank World Development Indicators database 2011 used to supplement Bloomberg. Market cap shown is the total market cap for all of the countries in each group, not just the total market cap for the companies within the MSCI index. 3

Why invest in frontier markets? § Participate in the world’s fastest growing economies ü 23 of 25 fastest growing countries over next 5 years are frontier § Capture additional returns by exploiting market inefficiencies ü Volatility and inefficiency allow for favorable entry and exit points § Benefit from favorable return characteristics ü Dividend yields are high ü Low PEs are plentiful as there is a wide dispersion in valuations between and within countries ü High Return on Invested Capital companies with favorable earnings growth exist § Complement existing developed and emerging market positions ü Frontier countries comprise 30% of the world’s population, 13% of the world’s GDP, but <3% of the world’s market capitalization Today’s frontier markets are tomorrow’s emerging markets 4

The fastest growing economies are frontier countries The end of the Cold War, a step change in communications infrastructure, and significant cost advantages are allowing the least developed countries to grow the fastest Real GDP Growth and Trends 10% 8% 6% 4% 2% 0% -2% -4% 82 19 84 19 86 19 88 19 90 19 92 19 94 19 96 19 98 20 00 20 02 20 04 20 06 20 08 20 10 20 12 20 14 20 16 19 19 80 -6% Advanced economies Emerging and developing economies Of the 25 countries with local stock markets that are projected to grow fastest in 2012 - 2017, the MSCI All-Country World Index only captures 2 Source: International Monetary Fund October 2012 25 Fastest Growing Economies 2012 - 2017 Libya Mongolia Bhutan Iraq Sierra Leone China Papua New Guinea Laos Niger Mozambique Ghana Zambia Côte d'Ivoire Rwanda Cambodia Burkina Faso Tanzania Panama Nigeria Bangladesh Sri Lanka Indonesia Vietnam Myanmar Uzbekistan 0% 5% 10% 15% 20% 25% MSCI Emerging Countries MSCI Frontier Countries Other countries with stock exchanges 5

Frontier markets are inefficient. Limited information coupled with limited liquidity drive major price / valuation swings. Monthly Returns 40. 0% 30. 0% 20. 0% Ghana 10. 0% Croatia Vietnam 0. 0% Bangladesh -10. 0% S&P 500 Index -20. 0% -30. 0% Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct 04 04 05 05 06 06 07 07 08 08 Source: Bloomberg Volatility presents favorable entry and exit opportunities 6

Frontier markets have favorable return components Stock market returns are attributed to capital appreciation due to earnings growth and change in valuation multiples, plus dividend yield Total Return = ∆ Earnings + ∆ P/E + Dividend Yield Return Component Frontier Market Attributes ∆ Earnings ü High GDP growth ü Growing middle class and integration of informal economy can provide market growth > GDP growth for listed companies ∆ P/E ü Inefficient security pricing provides excellent entry and exit opportunities ü High risk-free rates limit P/E ratios, but over time these rates will decline and P/E ratios will rise Dividend Yield ü Frontier markets feature high dividend yields ü Frontier market companies often have high ROIC/ROE, allowing for both high earnings growth AND good dividend yields Frontier Markets offer potential for outsized returns 7

0 MSCI Frontier MSCI Emerging Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 Frontier PEs often lower than emerging, developed Trailing Price to Earnings 30 25 20 15 10 5 MSCI World (Developed) Source: MSCI data on Bloomberg 8

0. 0 MSCI Frontier MSCI Emerging Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 Frontier price/book ratios also lower Trailing Price to Book 3. 0 2. 5 2. 0 1. 5 1. 0 0. 5 MSCI World (Developed) Source: MSCI data on Bloomberg 9

0 MSCI Frontier MSCI Emerging Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 % Jul-08 Frontier companies pay much higher dividends Trailing Dividend Yield 9 8 7 6 5 4 3 2 1 MSCI World (Developed) Source: MSCI data on Bloomberg 10

0 MSCI Frontier MSCI Emerging Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 Highest ROEs in emerging, frontier Trailing Return on Equity 20 18 16 14 12 10 8 6 4 2 MSCI World (Developed) Source: MSCI data on Bloomberg 11

Frontier markets total return 2. 4 x since 2003 MSCI FM, EM, and Developed Returns (Monthly, USD, Total Return Net Dividend) 600 500 400 300 200 MSCI Frontier Source: MSCI Emerging Jan-13 Sep-12 May-12 Jan-12 Sep-11 May-11 Jan-11 Sep-10 May-10 Jan-10 Sep-09 May-09 Jan-09 Sep-08 May-08 Jan-08 Sep-07 May-07 Jan-07 Sep-06 May-06 Jan-06 Sep-05 May-05 Jan-05 Sep-04 May-04 Jan-04 Sep-03 May-03 0 Jan-03 100 MSCI World (Developed) 12

Frontier markets underperforming since GFC MSCI FM, EM, and Developed Returns (Monthly, USD, Total Return Net Dividend) 120 100 80 60 40 MSCI Frontier Source: MSCI Emerging Jan-13 Nov-12 Sep-12 Jul-12 May-12 Mar-12 Jan-12 Nov-11 Sep-11 Jul-11 May-11 Mar-11 Jan-11 Nov-10 Sep-10 Jul-10 May-10 Mar-10 Jan-10 Nov-09 Sep-09 Jul-09 May-09 Mar-09 Jan-09 Nov-08 Sep-08 Jul-08 May-08 Mar-08 Nov-07 0 Jan-08 20 MSCI World (Developed) 13

Current environment may provide additional benefits Developed world macro events will continue to impact frontier markets, but frontier markets have some structural advantages: Developed Markets Frontier Markets Corporate Deleveraging Low corporate leverage § Reduced ROE as capital structures are normalized § Drag on GDP growth as banks normalize balance sheets § ROEs are high due to competitive advantage, not unsustainable leverage § Banks in many frontier countries are well capitalized and conservatively run Consumer retrenchment Emergence of consumers § Falling asset values, economic fears, and reduced credit likely lead to a thrift mindset § Growing middle class becoming first time consumers § Consumer credit is in its infancy Increased government role in private sector Privatization & growth of free enterprise § Increased government ownership in the financial services industry coupled with fiscal policy could reduce innovation and productivity § In most frontier markets, governments are adopting free market policies and privatizing state-owned companies 14

How do we think about and manage risk? We aim to invest in countries that are stable or improving; however, country diversification is ultimately the main tool to manage general market risk. The two specific risks we actively manage are sudden currency devaluation and incorrect securities valuation. Risk Mitigating Action Currency devaluation § Country Score of macroeconomic indicators helps identify high-risk countries § Company valuation models account for projected devaluations based on inflation differentials Incorrect securities valuation § We select only securities trading at a discount to intrinsic value, providing a margin of safety § We strongly prefer relatively simple businesses that we are confident in valuing 15

Investors have these common concerns… Concern Factors to consider Corruption, political, and macro risks § We monitor a number of indices that quantify macro risks. Generally, the risk metrics for frontier markets are similar to, not worse than, emerging markets. Financial information quality; fraud § Many countries have adopted or are in the process of adopting the IFRS standard for financial reporting. § Most of the publicly traded firms we invest in are audited by the Big 4. Counterparty risk § Most of our securities are held through our global custodian or local subsidiaries of leading global banks. We do not use a prime broker, and thus do not have prime broker counterparty risk. Taxation and capital controls § Frontier markets are similar to, but perhaps slightly better than, emerging markets in this area. Frontier markets typically do not have capital controls or levy taxes on capital gains. Many frontier countries have no dividend withholding taxes, but if dividend taxes are withheld, rates tend to be 10% – 15%. Risks and investor issues faced in frontier markets are generally no worse than emerging markets 16

Frontier investors must choose a fund type… Larger Funds Pros § Brand name manager; safe choice § No performance fee § Frequent fund liquidity § Often available without high minimum Boutiques Cons § Unless you know manager personally, you probably have not heard of them § High fee § Lockups § May have high minimum § Business continuity of manager less certain Cons § The trade off for large fund size, superior liquidity terms are investing liquidity constraints that eliminate many countries and shrink universe to a few hundred stocks § The most-liquid stocks often trade at higher PEs § Manager may need to buy what they can instead of what they want § Personnel not always exclusive to fund Pros § Investable universe is a few thousand stocks Conclusion § Larger frontier funds may behave similar to frontier index, for better or for worse Conclusion § Boutique frontier funds can perform significantly different from an index, for better or for worse § Outperformance necessary to overcome high 17 fees § A broad range of valuations is available within universe § Best values and opportunities more likely to be investable § Managers live and breathe frontier markets

Frontier markets are illiquid; a potential source of return Recent Ibbotson research shows: § § § Illiquid stocks outperform liquid stocks significantly (see table) This liquidity effect is present in every size quartile and every value quartile (not shown) The liquidity effect appears stronger than the well-known small-cap effect The liquidity effect exists globally (US, UK, Europe, and Japan) Not only do illiquid stocks outperform, they do so with less volatility Quartile Geometric Mean Standard Deviation 1 – Illiquid 15. 46% 19. 81% 2 13. 57% 20. 08% 3 11. 66% 22. 91% 7. 11% 27. 32% 4 – Liquid US data from 1972 -2008. Source: Zhiwu Chen and Roger G. Ibbotson, Zebra Capital Management, LLC. All rights reserved. www. zebracapm. com. Cited in Ibbotson SBBI 2009 Classic Yearbook, Chapter 9. Liquidity Investing. Chicago: Morningstar, 2009. We experience this liquidity effect firsthand in frontier markets and it can work for us or against us. Double-digit percentage discounts or premiums are common when no one else is willing buy or sell. 18

Example of an actively managed frontier portfolio Industry Holding Country Holding Banks 32% Vietnam 13% Qatar 3% Consumer Staples 17% Nigeria 13% Lebanon 3% Industrials 15% USA (cash only) 8% Rwanda 2% Consumer Discretionary 12% Tanzania 7% Romania 2% Cash 9% Zimbabwe 5% Kazakhstan 2% Telecommunication Services 6% Iraq 5% Cote d’Ivoire 1% Specialty Finance 3% Ukraine 5% Ghana 1% Materials 2% Serbia 4% Oman 1% Energy 2% United Arab Emirates 4% Laos 1% Diversified 1% Pakistan 4% Papua New Guinea 1% Cambodia 4% Montenegro 1% Estonia 3% Cyprus 1% Botswana 3% Zambia <1% Senegal 3% Kenya <1% Country Holding Portfolio Statistics Portfolio Price to Earnings 6. 2 Portfolio Price to Book 1. 1 Portfolio Dividend Yield 5. 1% Return on Ending Equity 21. 7% Market, portfolio, and most recent 12 months of reported fundamental data as of January 31, 2013. Portfolio PE and PB are the harmonic means of all positions, weighted by position size. Portfolio dividend yield and return on ending equity (ROEE) are the means of all positions, weighted by position size. The yield on Frontaura Global Frontier Fund is less than our portfolio dividend yield due to cash held, withholding taxes, management fees, and operating expenses. At present, we retain all income, rather than distribute it. 19

Characteristics of companies we invest in § Intelligent capital allocation – High return on invested capital – Track record of using free cash flow wisely § Reasonable growth prospects – Ample expansion opportunities – Product or service that benefits from growing middle class § Franchise characteristics – High market share or growing market share in fragmented market – Low competition and low threat of new entrants – Reasonable pricing power over customers § Low risk – Positive free cash flow, often in excess of net income – Predictable business model that can be forecasted easily – Margin of safety: valuation at a discount of our estimate of intrinsic value 20

Past Investment Example: Millat Tractors MTL PA Price and Dividend Chart Exit 800 700 600 8 400 3 : 2 PS D : 3 PS D 500 4 Partial Sale D Buy 6 : 1 PS 200 : 2 PS D 300 3 0 : 1 PS D 100 D • In 2008, relatively unknown. No research on the company; local brokers had never met management. • Management buyout during privatization • Favorable cash cycle; 100% upfront cash payment required when order placed. • At time of initial purchase: - LTM P/E: 8. 2 - Dividend Yield: 8. 8% - 5 -year ROE: 25% 900 Pakistani Rupees Thesis: Leading tractor assembler in Pakistan, selling Massey Ferguson brand. Ja n. Ap 08 r. Ju 08 l. O 08 ct Ja -08 n. Ap 09 r. Ju 09 l. O 09 ct Ja -09 n M -10 ay Au -10 g N -10 ov Fe -10 b M -11 ay Au -11 g D -11 ec -1 1 Business Description: Source: Bloomberg MTL PA price and running sum of dividends received MTL PA price 21

Past Investment Example: Kingdom Hotels • Unlike many real estate investments: - Low debt - Book stated at cost - Portfolio largely complete and generating revenue • Stock oversold in 2008 due to misperceived exposure to Dubai real estate due to HQ location. Over 90% of operations actually outside Dubai. • At low, traded at $1. 00 (0. 15 book) • Acquired at $5. 00 10 9 8 7 US Dollars Thesis: KHI LI Price Chart* Owns and operates luxury hotels in primarily emerging and frontier markets. Acquisition and delisting 6 Frontaura accumulates position 5 4 3 2 Weighted avg. purchase price 1 0 Ju Se l-07 p N -07 ov Ja -07 n M -08 a M r-08 ay Ju 08 Se l-08 p N -08 ov Ja -08 n Ap -09 r Ju -09 n Au -09 g O -09 c D t-09 ec Fe -09 b Ap -10 r-1 0 Business Description: Source: Bloomberg *Kingdom Hotels was listed in Dubai as KHI DU and also in London as KHI LI. 22

Current Investment Example: Swissport Tanzania LTM P/E: 8. 4 Price / Book: 6. 3 Dividend Yield 9. 4% ROE: 74. 6% Debt / Equity: 35% Frontaura accumulates position : PS 900 62 5 : 5 3 : 4 PS 0 D : 5 PS D 40 : PS 400 D • Global carriers gradually increasing flights to Tanzania. • High returns on capital and oversight of multinational parent. 1400 PS D Investment Thesis: 1900 Ju N l-07 ov M -07 ar Ju 08 N l-08 DP ov S: 40 0 Ap 8 D r-0 P Au 9 S : 3 g 3 D -09 ec Ap -09 r Au -10 g Ja -10 n M -11 ay Se -11 p Ja -11 n M -12 ay O -12 ct -1 2 $39 million Tanzanian Schillings Market Cap: 2400 68 2, 821 TZS 95 Intrinsic Value: : PS 1, 740 TZS : PS Price: 2900 D Valuation SWISSPOR TZ Price and Dividend Chart D Leading airport baggage and air cargo handling service in country of 47 million. D Business Description: Source: Bloomberg SWISSPOR TZ price and running sum of dividends received Market data current through 31 January 2013, and fundamental data current through 30 June 2012. SWISSPOR TZ price 23

Disclaimer This document is confidential and is for the exclusive use of the original recipient only. No portion of this document may be reproduced without the written permission of Frontaura Capital LLC. This document does not constitute an offer to sell, or a solicitation of an offer to buy the membership interests described herein. No such offer or solicitation will be made prior to the delivery of a definitive offering memorandum and other materials relating to the matters herein. Before making an investment decision with respect to the LLC, potential investors are advised to read carefully the offering memorandum, the LLC operating agreement and the related subscription documents, and to consult with their tax, legal, and financial advisors. This document contains a preliminary summary of the purpose and principal business terms of the LLC; this summary does not purport to be complete and is qualified in its entirety by reference to the more detailed discussion contained in the private offering memorandum and the actual text of the LLC operating agreement. The LLC managing member has the ability in its sole discretion to change the strategy described herein. This document is being provided to you on a confidential basis solely to assist you in deciding whether or not to proceed with a further investigation of an investment in Frontaura Global Frontier Fund LLC. Accordingly, this document may not be reproduced in whole or in part, and may not be delivered to any person without prior written consent of Frontaura Capital LLC. FRONTAURA CAPITAL LLC FRONTAURA GLOBAL FRONTIER FUND LLC © 2007 -2013 Frontaura Capital LLC 24