Though emerging markets remain a small part of the private credit universe, investor appetite for this space is growing. A recent survey by Gemcorp Capital showed that 42% of investors plan to increase their exposure over the next two years.
Gemcorp has been investing in these markets since 2014, deploying more than $9bn across 25 countries. It has developed a particularly deep presence in Africa and is now setting its sights on Latin America. Earlier this year, former Oaktree managing director Brad McKee joined to lead private credit and build out the business there.
9fin sat down with McKee to discuss Gemcorp’s Latin American expansion, how the firm structures around EM risk, where it sees opportunities across its markets, and what happens when more money starts knocking at the door of a relatively specialist corner of private credit.
1. You joined Gemcorp from Oaktree. What attracted you to the firm and what have you been brought in to build?
Gemcorp is one of a small number of platforms with a genuinely dedicated, longstanding presence in emerging markets private credit. My background spans the asset class across global emerging markets, with a particular focus on Latin America, and I've joined to lead the private credit team and drive Gemcorp's growth in the region.
What sets the firm apart is hands-on access to the real economy through our sister company, Imbono. Imbono brings together real assets, engineering and commodity trading under one roof and — uniquely for an asset manager — adds a servicing capability on top: the ability to deploy capital directly into these assets and stay operationally close to them, rather than relying on third parties. That combination gives us a level of control and insight into asset performance that very few managers in emerging markets can claim to match.
Our leadership position today is strongest in Africa and the Middle East. We are building out a global coverage model region by region, and from that base our ambition is to extend the same approach into Europe, Latin America and the Gulf.
2. Gemcorp’s private credit strategy spans everything from corporate lending to infrastructure and ABF. What makes a Gemcorp deal?
Our deals are generally infrastructure-focused: power, oil and gas, metals and mining. What defines a Gemcorp deal is the combination of real assets, real cash flows, and structural intensity. We avoid asset-light situations because they don't give us the collateral or visibility we need.
A typical example is an oil company in an emerging market in Africa, potentially state-owned, exporting crude or refined products. Rather than lending against the balance sheet alone, we provide a prepay facility structured directly against those anticipated export flows.
That structural intensity is really the distinction between emerging and developed market credit. In many ways, we can structure far more tightly than the covenant-lite norms that dominate much of the developed market, since the depth of structuring is what makes the deal, not just the sector.
3. Gemcorp has said that developed market private credit is becoming increasingly crowded, with tighter spreads and weaker lender protections. How do emerging markets compare?
It comes back to the fact that there are fewer private credit providers here. We don't see the same flood of capital that you get in the US and Europe; the market is still more nascent than the developed world. As a result, the transactions we look at rarely face much competition, which allows us to structure deals that are compelling both on the downside and on returns.
Every jurisdiction demands a different approach. Our teams are genuine local experts, and depending on the country, we focus on either the sectors or the structures that make the most sense. Take Turkey, for example, where the currency is quite volatile. We avoid situations where we are taking local currency risk. But there are exporters who took on debt when rates were lower and now find it very expensive to service. Because they have export proceeds coming in, we structure around capturing those proceeds.
In short, every market is different, and that is precisely what allows us to build structures that work within them.
4. Where are you seeing the most interesting opportunities to deploy capital today?
One theme we are dedicating considerable time to is the critical minerals space, which we see playing out across many developed market economies. The United States in particular is making a significant push: Washington has realigned considerable government focus and is looking to provide capital, both for itself and for private partners, to create structures that allow those minerals to flow more towards the US. I believe this is in response to the last two decades, during which Chinese engagement in these markets has been far more aggressive in securing supply. As a result, we are seeing inbound interest both from government authorities who seek our expertise to facilitate access and from local partners.
Beyond minerals, power and infrastructure represent an opportunity across the market more broadly. Take flare gas, for example: when oil is produced, there are byproducts that are flared because there is no means of capturing them. This is bad for the environment and the local community, and it wastes energy that could otherwise be captured. There is a real opportunity to build power turbines that feed that energy into the network and improve the environmental impact.
That same infrastructure theme extends into Latin America, where we are seeing opportunities in airports and other transport infrastructure, in markets undergoing significant expansion. The investment climate across parts of the region has also become more constructive in recent years, with a number of governments placing greater emphasis on infrastructure and growth.
5. Investors often associate emerging markets with greater political, currency and legal risk.How far can structure actually compensate for those risks, and where can’t it?
Structure can mitigate a great deal. We use a few different structures built around offshore flows. One example: when we are lending into a given country, the borrower will often have an offshore holding structure, say in the Netherlands, Ireland, Cayman or the BVI. In those cases, we typically take the collateral onshore, usually into a guarantee trust structure that creates a moat, while also holding the shares offshore to improve downside protection.
We pair this with a debt service reserve account, where three months of debt service is pre-funded and collected upfront as part of the transaction. Holding three months of interest in reserve at all times means we know well in advance if any credit issues are emerging, giving us an early warning system that structure alone cannot provide.
Private credit is often sponsor-backed in developed markets, but in emerging markets there is considerably less of that activity; it is mostly family-owned or private businesses, which are invariably multigenerational and hold significant wealth outside the business. In those cases, structure alone cannot substitute for that kind of backing, so we sometimes take non-correlated collateral as well, often in the form of real estate, to compensate for what structure cannot fully address.
6. If the risk-adjusted returns and lender protections are so compelling, why does emerging market private credit still account for such a small share of institutional portfolios?
One reason is scale. Large asset managers typically want to write cheques of $250m and up. Our sweet spot sits at $50m to $250m, and being able to operate in that space means we see a far greater number of transactions.
Another factor is the dispersion of jurisdictions. The US is one vast market: a telecoms or power specialist can find a wide range of opportunities within a single jurisdiction. In emerging markets, real expertise means understanding the Mexican market, the Brazilian market, Turkey and Angola individually. The politics differ, the people differ, the legal frameworks differ, and that dispersion makes the asset class considerably harder to scale. However, a platform such as Gemcorp, with considerable local knowledge, can scale the entire market.
7. You’ve spent much of your career investing in LatAm, while Gemcorp has historically been strong across CEEMEA. Are there credit opportunities you find in LatAm that simply don’t exist in Gemcorp’s existing markets?
From my experience, and this is a generalisation, the CEEMEA region has less high-yield corporate credit than Latin America and typically more sovereign or DFI-related activity.
CEEMEA historically included the Middle East, Africa and Central Europe, and these markets are all very different culturally, geographically and geopolitically. What is interesting right now is that, with the volatility in the Middle East and the sustained US focus on Latin America, LatAm has become more attractive due to its perceived stability and demand from the US.
Looking at the numbers in Latin America, the largest economies are Brazil and Mexico. Two other historically important countries have always been Argentina and Venezuela. Venezuela has effectively been off the map for the last 25 years, and its re-emergence is generating considerable interest, while Argentina, as the region’s third-largest economy, adds real depth to the region overall when it is in play.
8. As more institutional capital moves into emerging market private credit, is there a danger that some of the advantages you’re describing eventually get competed away?
The answer is yes, though I believe we remain a considerable distance from that point. The barriers to entry are genuinely high; the local expertise this requires takes years to build and cannot simply be bought in. This same difficulty is exactly what keeps out the scale of institutional capital that would otherwise compress our returns.
That barrier is what creates the moat: managers who can genuinely navigate these markets can do what others cannot. Contrast that with the US, where there are many private credit managers competing for the same deals, precisely because the barriers to entry there remain relatively low.
9. If you could extend the work trip anywhere in Latin America for 48 hours, where would you go and what would you do?
Brazil, without question. I have travelled there many times, especially to São Paulo, but I have never explored beyond the major cities. The culture further inland is something I would love to experience. I speak Spanish and have lived in several Spanish-speaking countries, including Mexico and Argentina, though not Portuguese. Even so, the sheer scale of the country makes it the obvious pick.
