(June 27, 2012) — “Frontier markets” represent the best investment destination for institutional investors but they need to act quickly to secure the most robust returns, a new white paper from asset manager Silk Invest asserts.

A balanced investment approach to frontier markets—the 39 markets that Silk Invest calls “the next generation of Emerging Markets”—should yield strong returns, the paper argues, similar to that experienced by those who invested in the so-called “BRIC” markets in the 1990s.

“Opportunities in Frontier Markets exist in abundance across asset classes and investors can unlock the full potential of these markets if they follow a credible and active approach which is ‘in touch’ with local markets,” concludes Dr. Heinz Hockmann, chairman of Silk Invest. “The right timing is now. The ship is already sailing.”

The paper recommends investments in countries in the Middle East, like Oman and Bahrain, in Europe, like Ukraine and Bulgaria, and in Asia, such as Sri Lanka and Kazakhstan. It stresses the attractiveness of markets traditionally seen as frontiers, particularly those in Africa like Namibia, Botswana, and Zambia. Investments in markets in Central and South America are also encouraged.

While diversified fixed-income investments are lauded, the paper particularly stresses the opportunities offered by private equity investments. It points to the example of the IFC, an investment division of the World Bank, which enjoyed annualized returns of 22.2% on its private equity investments over the past 10 years. “The IFC has reaped the rewards of being an investment pioneer in new markets,” the paper contends.

Yet questions about the inherent risk of frontier markets remain for institutional investors. At the Pension Fund Forum in Copenhagen last year, Danske Bank Chief Analyst Lars Christensen summarized the conflicted thinking of investors torn between the prospect of dazzling returns and disheartening risk with frontier market investments: “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.”

Last summer, aiCIO asked (only half-jokingly) whether the United States, with its financial difficulties and political turmoil, should be considered by institutional investors as a frontier market: “Is America, in spite of its collection of faults—or, perhaps, because of them—the next great frontier opportunity?” To read “American Frontier,” click here.

To read the Silk Invest paper in full, click here.