(May 22, 2011) — Within the frontier market universe, Africa and Russia may provide some of the most robust investment opportunities for funds.

“To me, frontier markets will be the next wave of interest,” Danske Bank Chief Analyst Lars Christensen said during a panel debate at the Pension Fund Forum in Copenhagen, according to Global Pensions. “There is a lot of interest in Africa and I believe that will continue. It will be the most interesting emerging market story over the next decade.”

He added: “The problem at the moment is there’s no market. How do you invest in Uganda? Right now your best bet is to fly over there with a suitcase full of dollar bills, but for most us that’s not an option. There are opportunities coming through however. Africa is still risky but makes for an extremely interesting growth story.”

Consultants have been strong supporters of embracing investment opportunities in the continent. Last year, Adam Tosh, managing director of investment solutions at Rogerscasey and the former chief investment officer of the Kentucky Retirement System, dubbed Africa “the next frontier,” noting that over the next five years, exposure to Africa should make up 1-2% of a total investment portfolio.

Despite instability, hunger, and widespread disease, Africa’s growing middle class has contributed to emerging institutional investment opportunities within the region, Tosh told aiCIO in October. He said his firm, which advises on more than $315 billion in assets, is recommending that emerging markets be at least 20% of any pension fund or total portfolio. “Africa is not the place that you see just on the headlines on the evening news — there’s a lot more to Africa and investors need to understand the regions within Africa, how the dynamics of those regions play out, and how those different economies offer investors diversification.”

Additional research on opportunities in frontier markets has been carried out by State Street Global Advisors’ (SSgA), which pointed out in a report issued in late March that institutional investors should look toward smaller emerging markets to boost returns. According to research carried out by SSgA’s Active Emerging Markets investment team since January 1997, BRIC countries (Brazil, Russia, India and China) have underperformed a group of smaller countries within the emerging world. As of March 2011, according to the firm, non-BRIC emerging market countries outperformed BRICs by 39%.

“Investors, while maintaining a core exposure to BRIC countries, should not close their eyes to other growth areas in the emerging world,” Chris Laine, portfolio manager for active emerging market equities at SSgA, said in the report. “Many of the smaller emerging and frontier economies have quietly been making investor-friendly reforms and deserve the attention of international investors,” he said, referring to the smaller markets of Columbia, Turkey, Chile, the Czech Republic, Egypt, Hungary, Israel, Peru, Poland, Thailand and the Philippines.

While highlighting the potential of smaller emerging markets for institutional investors, SSgA’s report stressed the imperativeness of diversification, especially following recent crisis in the Middle East. The report stressed that even with the allure of higher returns from smaller emerging and frontier economies, institutional investors should continually strive to spread their eggs over several baskets.