David Mullings Jamaica as an Overlooked Market and How Diversity is Critical for Diversification

1st September, 2021

Episode 16 Show Notes

With the US markets having enjoyed a strong run, investors are looking for investments that still can compound at attractive rates.  We have a timely discussion with David Mullings of Blue Mahoe Capital.  David has a deep background in investing, and specializes in the Jamaican market.  In this episode, David discusses public and private investment opportunities in Jamaica, and why that market has produced spectacular investment returns.  He also weighs in on some important ESG topics, and the role diversity can play in portfolio diversification.

Key Points in This Episode

  • David’s investing background in the U.S. and how he came to found Blue Mahoe Capital
  • Key characteristics that make Jamaica an attractive and overlooked investment opportunity
  • What characteristics David looks for when searching for promising investments
  • Composition of the Jamaican stock market and key stocks and industries
  • Public versus Private investments and the best way to get exposure to Jamaica
  • How he approaches ESG and impact investing
  • How portfolio diversification can be achieved via diversity

[INTERVIEW]  

{01:05} Andrew  

Hi, this is Andrew from pitchboard. I spoke with David Mullings of Blue Mahoe capital. He explained why he thinks Jamaica is a great investment opportunity and why investors should consider diversity when selecting portfolio managers. I think you will enjoy the conversation that follows.  

Today I have the pleasure of speaking with David Mullings, CEO, and founder of Blue Mahoe Capital. Mahoe offers access to the emerging economies and markets of the Caribbean. David is a serial entrepreneur, a published author, and sits on advisory boards. Both the United States and Jamaica.  

David, welcome to the podcast. It is great to have you on. I gave a very brief bio there, but they just skim the surface. Can you tell our audience more about yourself and how Blue Mahoe came to be?  

{01:46} David  

Well, thank you very much for having me, Andrew, I am excited to share with your pitchboard audience, and I am glad that you did share a short bio. We can get overly caught up with a very long biography designed to impress people. I have never heard of a bio that was not designed to impress, and hopefully, that ends as I share an experience or what really will resonate.  

So, in my case, born and raised in Jamaica went to university at the University of Miami in the US. Did my MBA there as well, and I have worked in the finance space for a number of years. I started as a tech entrepreneur after my MBA program with my brother-in-law, this was back in 2001—2002. In the Junior MBA program when I was taught by our largest investor, an Angel investor, a family friend, he said you have a 99% chance of failing at the startup, but you can use its experience to understand the levels required to scale a business.

And he recommended that I should study private equity and especially study Warren Buffett on this and investing, and so that’s what I did. I used the classes, and I use the experience for the startup costs on this and possibly buying, and what this person said was; “in reality It is easier to raise capital to buy an existing profitable business a startup”, and that stuck in my head.

Ever since I was 21, work in finance in Jamaica worked with the largest building society in the Caribbean marriages mortgage provider. I Worked on their product development team, marketing team, so I used to design products, investment products, savings products, mortgages, and then that same individual who had invested pulled me to work in private equity low middle-market private equity in the Southeast USA. Predominantly focused on minority-owned businesses, supplying Fortune 500 firms. And so that was our first exposure to working on private equity deals. This PE deals both under capital raising side, but in the deal, structure inside and negotiating with these FONDAS.  

In most cases taking a majority stake in that business. So that was interesting, and I then got to go off and start my own investment firm. This individual provided some capital, so that was a test run, and then I decided I wanted to work in hedge funds.  

I wanted to understand the other side. The public traded, publicly traded side of the investment world and then decide where do I want to sit? Or can I go across what we would consider an asset pass?  

While working at Edgewood, and they were investing here in the US, a long mass fund focused on a concentrated portfolio, and I tried to get them to look at investing in Jamaica at the time Jamaica had a Stock Exchange that was doing well. It ended up having the best-performing Stock Exchange in the whole world between 2013 and 2018.  

And he gave a simple answer. He said, “well, I’m not from Jamaica, and I have 6000 securities to look at here in the US. Why should I look at investing in a place where I don’t know the companies? I don’t know the culture. You know the companies under culture you should go, and launch based on your expertise”, and so that’s what I decided to do.  

I spoke to a number of people, a couple of advisors of mine included Jamaican Canadian billionaire Michael Lee-Chin, and everybody pushed me to launch it. They felt that there’s no vehicle to give us easy access. Retail investors in North America. Easy access to the Jamaican and the wider Caribbean and then secondly. I definitely would have the integrity to run this, and I was willing to look at creating a publicly traded vehicle. Most people shy away from doing that. It means everything is exposed.  

The regulations they don’t play in terms of what regulators look, funding, regulations you must follow, but I felt it was important. And as a Jamaican overseas, I’ve grown accustomed to just basically opening an app. In less than 15 minutes to start purchasing stock, and we can’t do that, it’s really painful to open an account in the Caribbean and five pieces of paperwork. Two letters of reference.  

We joke that we have to give our whole ancestry in order to open their code. Let’s provide something simpler, and with three million plus Jamaicans living outside the country and under 3,000,000 inside, there’s a tremendous amount of us who want to invest back down there, and then if you expand, why do you think about ESG? People looking for social. That tends to be overlooked.  

You’re looking for the E, environmental, or the Caribbean. It is Ground Zero for climate change so that you could have east on the impact side. On the east side of these are predominantly companies owned by minorities. These there are black people everywhere. We joke that if you trust trial mango in the cab, you hit that black person. So, you get to support a group that’s typically overlooked and marginalized, and then, of course, emerging markets are where the yield is.  

I mean, if you are in Canada, the USA, UK or Europe. Or Japan in a zero-rate environment or an extremely low yield environment. You have to be investing in emerging markets, but you don’t have to run to China. You don’t have to run the South-east Asia. You can come to a market that has the third largest naturally speaking English population with a British legal system and investment loan there. Why wouldn’t you invest in a region that you already know? And I don’t think I’ve met a single person who would complain about visiting the Caribbean for business.  

{06:57} Andrew  

No, it seems like a pretty good place to have to you know. OH shoot, I just got a conference there. What, uh, what a hardship, right?  

{07:03} David  

Yeah, I need to check out My Portfolio!

{07:08} Andrew  

So right now. If an investor in the states wants access to the Caribbean or Jamaica specifically, what are their options?

{07:17} David  

It is pretty much one option. You need to fly down to Jamaica and open an account domain investment account with a Social Security number and fill out all the paperwork at the two letters of reference. You’d have had to get those notarized here in the US or someone in Jamaica at an Adjustable, Peace, or police officer. I mean, that’s the kind of stuff that they must go through to open it. And then you need to figure out which companies you want to invest in. So, if you don’t know the companies, you need to do a little research.  

Are you entering a new market? You’re probably going to listen a lot more, and I’m not close to the investment advisor that gets assigned to you, but that’s what you’d have to do. You get to wire the money into the account. It goes through a U.S. bank, thankfully, so you’re not just wiring straight to Jamaica.  

But it is not that complicated. Convert and then start building up your portfolio. Stay on top of the news if you’re going to actively manage that portfolio though.

{08:06} Andrew  

You have thought of a fund management company, you have. To make it to yourself as a mostly as the US. And is that fair that is fair, right?  

{08:16} David  

That’s the way we think of it. We like it that way. When investing in a region or an industry, we look for three things that get us excited. And this comes from Michael Lee-Chin, who’s been working with us on our investment strategy. Number one, we look for a difference between perception and reality.  

So, the perception is that the region is very small. There’s not much money to be made because the population is not as much opportunity, but that’s not true. The reality is billions of dollars are flowing through the region, so there’s opportunity multi- national are based there, so that’s one number. Number two, inefficiencies must be present. Well, it’s the Caribbean. It’s no different from Latin America or any other emerging market region. Very inefficient, there must be some interest in obviously improving efficiency, though we don’t want to invest in a perfect market or perfect region because you pay for perfection.  

There’s very little that we can do. Capture in terms of value creation. But lastly, and most importantly, the one that resonates for us is that there needs to be a lack of equity capital flowing in. So, if I was to do PD is here in the US, we’re looking at probably in 20 or 18X Ebola, just because there’s so much capital chasing those deals you look at.  

Same thing happening with specs. We have so many spikes chasing so few deals in the Caribbean. There’s a lack of equity capital flowing in. We have debt capital flowing in, but people are soaring on that debt, and so it means on the private equity side, even public equity, not as much capital, it’s chasing those deals so that two things happen. In that case, prices are low, which is good. We get a better margin of safety and, secondly one that a lot of people don’t think hard enough about because they’ve ever been an entrepreneur; the management, every dollar that you can put into a business, buy equity as an outside investor Is loved!

They appreciate that equity, capital risk capital they treated so. Differently and so we think that’s important. It gives us complete alignment with management, and we get to choose which deals we want to do versus chasing after deals and having three, four other people bidding.  

{10:21} Andrew   

Yeah, I know it’s interesting, and even I remember we had guests on here a month or two ago that work in the smaller private equity they’re in the states, but one of the things he mentioned was that there are just fewer people competing for the same deal.  

So, what you’re describing is that, but, uh, a much bigger magnitude, right? That there’s you just don’t. We have people who are, as it’s there’s not the yield starvation. Those investors are faced within the states.  

{10:48} David  

Like exactly, and so I think it’s always good to find, you know, when we talk about Blue Ocean strategy. That’s a book that I loved. I think that’s exactly what it is. Where can you take your skills into some new territory and then have an edge you don’t have to compete over the same pie? You can just take the same skills and go and eat a new pie; and you don’t need a whole pie. You just need a small piece of it so.  

There is an additional benefit in our case, though if every dollar has an impact, every dollar already has an impact. People just don’t measure. Typically measure that impact. In our case, we wait to measure that, but every dollar we invest in the Caribbean is directly contributed to GDP. Growth is directly contributed to job creation, and it’s a good thing. It feels great to Invest in a region where we are doing good and doing well at the same time.  

Yeah, and that’s pretty much what most LPs are looking for in this day and age; they care about impact investing as much as that is still not really defined. They care about that, though, and they want to see it. OK, I’m going to get a good return. I want a risk-adjusted return, but is there anything else also happening, and so really, we’ve sold it to a number of people by saying “imagine going on vacation In Jamaica, Cayman, Barbados, Bahamas, elsewhere places that you’re used to going and being able to leave your hotel and walk by a factory or visit a farm and know that your dollars directly contributed to this business. Scaling up to this person, having jobs and meeting them, and seeing the difference is actually made while you generate. A good return.”  

{12:21} Andrew  

Let’s be personal for you too. Because you’re from Jamaica and you have the ability to use your skillset. That to make your home country better.  

{12:30} David  

No, it is extremely personal for me. Yes, I would have looked at other markets even if I was in Jamaica, and I would be considering the region based on the timing and that being paid down.  

But it’s personal for me. Having been raised there, having worked there, I went back after college. I went back after my MBA, so I have gone back and worked in Jamaica and leaving the United States now I.  

Take near-certain opportunities available so to me for what I want to do from a business standpoint, but I didn’t just run away and leave. The Jamaican diaspora has learned from whether it’s the Indian diaspora or you look at what the Jewish people have done to build Israel. I think there are very similar approaches we can learn a lot from them, and it’s important that we recognize that.

 Investing capital down there. Is a bit different when we do it, we think of ourselves more as diaspora direct investment, not just for indirect investment? If you look back at Asia or the Asian financial crisis, the minute newer than issue their foreign direct investors pull their money; versus the people who are more familiar with the culture aren’t going to pull it right. And we’re not going to pull our dollars, just because there’s a hurricane headed to Jamaica or to Barbados, we’re used to this. We know that we can hang on for a bit longer, and so we are long-term. We’re more patient capital which ultimately, in my opinion, is, is what you’re you need to do when your investment. You should really be patient.  

As an investor, we’re inherently patient because we’re used to them—also, the politics and so on. And then, of course. And lastly, we get to open new doors, and so we’re bringing our knowledge or expertise. So that’s governance. We get to sometimes sit on boards, meet with management, and we can open new doors here in the United States or the UK or Canada from a distribution standpoint. So, we can help companies to scale. As well, and I think that is going to be important, and that’s where the G comes in. The governance helping these companies to become more globally competitive is a good thing.  

{14:22} Andrew  

When potential investors ask you. From an investment standpoint, why Jamaica? How do you? How do you answer that question?  

{14:30} David  

I love that one, so I was on Bloomberg last year. I said it. I said that you should think of Jamaica, Singapore of the Western Hemisphere, and I go through a simple exercise. I did this.  

I remember our family office if it three months ago and represented and said, you tell me which country am I talking about Jamaica or Singapore? Yes, sure, I said this. This country got independent from Britain in the mid-1960s. It has multiple languages, but English is a predominant language. Which has a British-based legal system and one of the largest naturally protected harbors in the world and is also next door to a very large market.  

Which country – Jamaica or Singapore – and of course everybody in the room said Singapore. And I said Well, actually it’s both it is a trick question. Both countries, Jamaica has the 7th largest naturally protected harbor next door to the Panama Canal major transshipment port in Singapore has near St and they are going to be right by China. So, both of them got independence from Britain. Both countries had less than 3,000,000 in terms of population in the 60s when they got independence.  

And then the difference is that Singapore spends a lot more time on foreign direct investment in attracting multinationals who invested a lot more in education and then ensured that there was very little corruption within their politics. So, so those are the three differences that they actually implemented much earlier. But it is never too late, right?  

We have. Learned from our love for countries that have developed Costa Rica, Israel, Colombia, Botswana. Why not bring that back to the region? But I said Jamaica is in the same time zone as the East Coast of the United States and English is our first language.  

In fact, it is the third-largest population that’s naturally English speaking in the Western Hemisphere. Is it the US, Canada, and Jamaica? So, if you close your eyes when you come onto the Panama Canal, you run aground in Jamaica. We are fairly highly educated, somewhere in the 88% range for literacy, most of us know Jamaican doctors. Nurses, our teachers are recruited constantly, so clearly, there is something about our work ethic as well. Those are beneficial.

And then of course, there’s a cost-benefit in the sense of Jamaica and the cost to the business down there in terms of what they pay people. There’s some reasonable but cost is not the same as the USA or Canada so that you can nearshore some work.  

I won’t say offshore, but nearshore, there are massive opportunities there and there within a four-hour flight. Jamaica is a market of 500 million people who think about that, so those are our key reasons, in my opinion.

The last one is something that only materialized in the last five years, and this is when Jamaica and Greece had economic issues at the same time. Both went to the IMF to get bailed out, and Jamaica had a much higher primary surplus. So, we went from 147% bit to GDP ratio and down to 98% and then passed a fiscal responsibility law that forces the government to pay down the debt to 60% within five years, interest rates went from 22% in the single digit, 7,6,5 percent, which is amazing.  

As you can imagine, the lowest interest rates I’ve ever seen in my entire life. That’s positive for any economy or reducing that debt overhang and imagine that COVID hit in 2020 so heavily dependent on tourism. And 81 or so countries had to go to the IMF to raise money to survive. Jamaica didn’t. In fact, Jamaica was able to pay out money from our surplus fund to all the tourism workers who lost their jobs! It is incredible for an emerging market country, a small country, to not need the IMF to continue paying down debt. And it didn’t matter which political party was in power! One party was in power. Hey, really did. They lost, the next party came in. They continued doing it.

And that last part is political stability. When you invest in a region or country, you need to care about political stability. You know, many of us learn about SWOT analysis.  

Right. Strengths, weaknesses, opportunities, and threats. But we tend to forget about a PEST analysis. So, we’re looking at political, economic, social, technology. The political climate methods so Jamaica has never had a military dictatorship, but we’ve never had issues with the transfer of power after elections.  

That’s hard to say for most emerging markets, and you think about Latin America, you can just come up with too many examples of formal military dictatorships or a lack of peaceful transfer of power. So, we think those are our major reasons to look at Jamaica as a hub.

And the last one and the final one; and I try to remind everyone; if you care about investing in Sub-Saharan Africa and Southeast Asia? Why not use the Caribbean as your R&D hub? British legal system, English? OH, in 20 minutes flight from Miami, the same problem that exists elsewhere exists in the Caribbean, so test it here first, where it’s easier to get set up, easier to connect with the government, and then go from there.  

You can expand beyond that. There’s one public company in Jamaica, last in 55 countries, right there in or one. Here in Ghana, as well as the UK, Canada, USA and more so learn from them it. It should be an R&D testing bed.  

{19:38} Andrew  

Every curiosity what company is that?  

{19:40} David  

Oh, Grace Kennedy, there are mixed so yeah, great candidate food and financial conglomerate.

{19:46} Andrew  

I’m based in Toronto. As you know, and they’re definitely in Canada.  

{19:47} David  

Oh yeah. Yeah, yeah, they are all over cattle and they also have Western Union. They own the Western Union franchise for the Caribbean so when we Jamaican send back 3.3 billion U.S. dollars per year and Grace Kennedy is getting a nice little chunk of that. Of course, our Fintech is going to make some changes to the fees, not necessarily a bad thing, more money into people buckets deployed. But yeah, huge opportunity.  

{20:14} Andrew  

That’s a good segue into my next question, which is for those who aren’t familiar with the Jamaican economy or Jamaican stock market. Can you give us a sense of what sectors dominate the economy and if someone was investing in the Jamaican public equity market? What kind of exposure are they getting?

{20:34} David  

Here’s a fun fact. There are no publicly traded tourism companies listed on the Jamaica Stock Exchange, so that’s one. Even though that represents upwards of 45% of the income in the economy, so we can’t actually buy-in on the public side in that one. So, it’s not represented, so let’s start with the fact that the Stock Exchange in America is not representative of the Jamaican economy and only the biggest in most cases and the strongest companies have been listed.  

They created that junior market. So similar to the TSX. Venture Exchange we have a junior stock market in Jamaica. For the first five years, the company pays no corporate taxes, so down from 25% to Zero and then second five years I have to prevail in rich, so we’ve had a number of family-owned businesses.  

No running list on there and giving us wider exposure. So, consumer staples, consumer discretionary shipping, and logistics. It’s public. We have some IT firms that are public as well, so it outsources services that no question financial services that are just like everywhere; both on the insurance side and the banking side, microfinance is also available for you to purchase their sub-media and in some real estate obviously properties. So those are the majority, and there’s one towards MV fluid. It is an attraction that is listed, is it not, or are there only 2 locations in Jamaica? That’s the only one that’s.  

That’s listed what those are. The areas that are typically covered we don’t have. Yes, we have a cement company. And then we have some interest in 2 interesting things that were listed. This is in the power space, renewable energy, and so they listed solar, and wind-related holding company.  

The fund is listed on the Stock Exchange, and then we also have the highway; the toll road in Jamaica is publicly traded. The government-owned it. They took it over from the French. In Chinese and enlisted, the entire thing listed 100% of it. And the government also listed 100% of the wind farm, one of the largest wind farms in the Caribbean. The government listed that as well, so the government has been divesting. We’re not selling off the foreigners. They’ve divested and sold to Jamaicans! That is fascinating. The key thing with the Jamaican equities market is that it’s not just Jamaican companies that are listed there.  

The Jamaica Stock Exchange is one of those across the cabinet. You have a barbarian Stock Exchange. You have true that they have Ghana. You’re probably not going into  Ghana. I believe it’s only open 3 hours. So, on a Wednesday, once a. Week, so that’s not really the market again.  

{22:57} Andrew  

What exactly is most liquidity is for you?  

{23:01} David  

Yeah, that that’s definitely not liquidity. And then you know, Barbados has exchange controls the same as Bahamas has exchange controls to convert the US dollars into U.S. dollars and in Trinidad has a liquidity issue to get U.S. dollars. So, we have had traded companies cross-list under Jamaica stock exchange.  

I’m sure we’ll see some barbarian ones. Look at that as well, and then you have companies or to St. Lucian elsewhere that are listed so Jamaica market is the deepest and most liquid in.  

We speak in the Caribbean. We also have no dividends tax, no capital gains tax. In Jamaica, there’s another plus, and then, of course, the last thing that I like to point out about our market down in the region is that because of our approach to getting more retail investors involved in this, financial literacy is by far the most active, and that’s what you want. You want to make the sale.  

Buying is easy, but if you can’t get back to the capital and get to another country, you have a problem. It doesn’t matter if you had a 50% gain if there’s nowhere to buy or is to simply traded, so to give an idea of size is roughly 13 and a half billion U.S. dollars is the market. These companies are ranging from 300 billion USD market cap all the way down to 20 billion USD in market cap. And so that’s roughly the size of 1/3 of Chipotle. That’s the way I explained to her one-third the size of Chipotle. That’s the size of the Jamaica Stock Exchange right now. 99 securities listed.  

{24:29} Andrew  

The exchange itself is a bit of a micro-cap in the world of global stock.  

{24:36} David  

In the world of global socks, it is a micro-cap. There are a few whales on there, obviously, but you have to be smart about how you pick it. It’s fairly transparent, and they post all the information. Companies are audited, those things matter. Governance is a big part of what they’re doing, and as I said, NASDAQ software powers the Jamaica Stock Exchange, so you can feel comfortable that the back end is run at a first-world standard.  

That’s something that is very important. So, then that helps the market to want to obviously get to where it is at this point in time. But I remind people at this well, for those who I guess I should say, remind, most people don’t know, but I remind my team there’s one company, for example, that’s listed in Jamaica that has a U.S. dollar stock. So, our exchange has U.S. dollar and Jamaican dollar stocks listed.  

There so you can actually buy in U.S. dollars for some. Shares are more thinly traded, but it exists, and so there’s one company, for example, headquartered in Jamaica. Primarily operates in South America and here in 33 countries there in Colombia, Peru, Bolivia, fuel and that the major airports in Colombia and you walk through the TSA essentially and those X-ray machines. Those machines are owned and operated by a Jamaican-based company.

Those are the kind of opportunities you get exposure to. It’s not just buying into Jamaica Stock Exchange to get exposure to Jamaica, you’re getting exposure to the Caribbean Basin, and that is something that is overlooked in most portfolios.  

{26:01} Andrew  

Would there be any Jamaican exposure in Emerging market ETFs that people own? 

{26:08} David  

So right now, no. That is actually the problem we wanted to solve, so we looked at launching a Jamaican ETF or a Caribbean ETF a year and a half. We work with the controls and the ETF development firm, and we have one problem. To do an ether, certainly in EU.  

S markets, you need to have a 40 at the custodian in 1940 investment back, so you have to have a 40. Custodian in order to do a 40 ACT fund ETF for a mutual fund. But there are no forty custodians at present for Jamaican stocks. So, you just cannot launch what nobody can launch a 48 fund for Jamaica. And if you have no 40 custodians, you can’t own the shares in your 40-act fund.  

So just there’s no way around that at this point in time. You have to go direct and right through your own portfolio, which is what we did on our balance sheet or in our fund. Somebody sets up, as you know, a hedge fund.  

{26:59} Andrew  

So right now, you invest in both the public equities but also private businesses, right?  

{27:04} David  

Oh yes.

{27:06} Andrew  

How do you see the opportunities in both those areas? How do they compare?  

{27:10} David  

Well, that’s an interesting question. When you think about it in the Caribbean context versus the United States. Obviously, when we look at public versus private, the first thing we say is that we are buying equities. So even when we are buying public equities, we go through a private equity lens.  

Ultimately, I feel that I’m a private equity person. I’m just applying the same lens—the public equities.  

Obviously, on the private side, we get more information. People tend to see that on the private side, they get less right because the public companies have all these disclosures. But let’s be honest, support public companies only give you the information that they were required to give you, and they do their best to make it look good for their stock to go up.  

Companies want to be a lion within far more information. Right with private companies, you get closer to management, so you can ensure there is management. Alignment obviously is not liquid, so there’s a discount. But that also means that we’re getting in and out at a lower multiple, so we think private equity presents more upside opportunity provided you understand the business and management is aligned with you guys, and so we see huge opportunities.  

We think that’s where the real growth is. They can pull more levers with private companies than with public companies. If you are, you know investors, fewer shareholders to deal with about scaling our business, making some changes, or having them, you know, use your capital a little bit differently. And possibly more efficiently if they come from the private equity or we consider it more efficient to use cheap debt and public companies don’t always do that, so definitely we see opportunity there.  

And of course, you can then take the private companies public, which then gives you additional upside when you do that, a private company that gives you that public companies are already public, they already have that liquidity premium baked in, so you would really have to contribute to growth if you come as a catalyst. Otherwise, they should have identified the catalyst and content management to benefit from that.  

So, we think private equity is a huge opportunity it covers. There are more industries on the private side, especially if you care about impact investing AKA sustainable investing, and there’s more opportunity on the private side to really make a difference. If you want to get observer rights instead of sitting on the board, you can do that.  

I can’t get observer rights for public company’s board. I can do that though with our private company, so I love private equity.  

{29:25} Andrew  

That’s really interesting that you that even when you buy on a Stock Exchange, you still think about yourself as a private equity investor. You do not just own a piece of paper; you’re owning.  

{29:34} David  

A business, yeah? I mean, Warren Buffett says you’re buying a piece of our business, so understand the business we do a serious deep dive, so we do bottom-up, and then we go in, and we do our best to talk. The management we don’t want to get nonpublic information, but we will do as much research as possible underground before buying into our company.  

Even ask questions like what books management has been reading. I want to understand how they think.  

I want to understand your decision-making frameworks because the world is changing, and it is going to change rapidly. Know that we are in this fourth industrial revolution. So, if management can be thinking 10 years 20 years down the line, well, why am I even buying this company at this point?  

So, we think that’s really, really important and it makes it easier. If you’ve been an operator in the past, if you’ve operated a business, you understand the importance of sales, and we’re marketing comes in and R&D. Hopefully, you understand the importance of information technology now after COVID came and brought that wrecking ball to all of us, and so you can actually help a business scale. Far more if you can reach into management, contact them or even share ideas is almost along the lines of activist investing if you did that on the public side and be like my entire icon.  

I don’t think that. Works in the Caribbean in the same way you’d have to make a different approach to get them to listen to you. I think that’s what you’d have to be careful of. Privately, it might work privately you can run around and lambaste these management teams and tell them that they have no sense, and you want three boards seats. 

{31:09} Andrew  

But presumably you, privately, you might have more impact. Then just someone else that doesn’t have a Jamaican background. Would they be more willing to listen to you? Because you’re part of the diaspora.  

{31:25} David  

Yeah, so I would say it’s just because I’m part of the diaspora doesn’t mean they’re more willing and in fact, they would be more likely to listen to an American who came and spoke to them because there’s a bit of a sense of “oh, because you moved away from Jamaica, Do you think you’re smarter than us all of a sudden, we went to the same school” so that does exist, the difference. In my specific case, is that I went back to Jamaica and worked in corporate Jamaica. I worked alongside many of these people who were.  

No Managing Director, CEO, or senior management, so they know that I’m not just coming at it from the US side. I know I read this in McKinsey.I read this in a Harvard Business case study, right? No, I worked in Jamaica. I saw this happen. I saw this work. I saw this didn’t work. So, when you can bring real-world experience in their context. And then give that framer reference.  They’re more likely to listen to you and we found that I’ve had a number of CEOs that that will calmly just even get feedback on some things they’re thinking of are working on and bounce ideas off of me.  

And sometimes, this is before we. Even own the company I was even before we created global capital. And so, it feels good to know that we get caught literally in our cities. Last night at midnight I was sleeping but one of the CEOs of a fairly large public company in Jamaica sent me a WhatsApp message. So, to me it is a bit wild that I have CEOs of public companies, You know half a million US dollars in assets or a billion, I mean these are the people reaching out to me to touch base and bounce ideas off our considered opportunities or get feedback?

Right, so it comes out the building credibility. I’d say anybody who’s a listener is not about your age. It’s about how you present information to someone and then getting them to understand where you see value being created for that business. They will completely overlook your age. You’re completely overlooking the background as long as you can give context to their operating environment.  

{33:23} Andrew  

You’re an impact investor. I mean, you’re obviously investing for a return, but you’re also investing for social good. How do you think about that? How do you weigh returns investing versus not to say that they’re opposing? But how do you weigh returns versus impact investing in your mind in your process?  

{33:42} David  

Right in our case, it is not hard to wait because we first look at deals that can generate a positive return. We’re looking for at least a 15% return per year, so we start with that after we’ve determined that this opportunity can do that, then we start to look at OK. Which of these 17 UN sustainable development goals?  

Those apply to this opportunity, and then we need to figure out how are we going to measure that going forward. Is it job creation? Is it access to finance? What exactly are we going to then track? So, for us, it starts with the returns. It doesn’t start with the pure impact.  

If we want to start with impact, then we would use the nonprofit that we set it up. Right?  

There we need to start with returns first, especially when they’re a pioneer where the first one going into this region, we better have a good track record. Otherwise, it makes it harder for anybody else then go into the region that we know that we’re going to have a positive impact, even if it’s a small one. So, let’s get in.  

Generate a good risk-adjusted return for investors. And then measure the impact and start saying, here’s what we did. Here’s the impact that we had. We can scale this up, but it’s better than nothing is better than not having any impact at all.  

{34:52} Andrew  

So, when you mentioned ESG before in the conversation when you think about how ESG is talked about and put into practice these days by most investors, what issues do you see with that?  

{35:05} David  

Well, let’s be honest, nobody is really focused on S&G. They are entirely focused on E and is environmental, and for the most part. Is stuck with decarbonizing economies or reducing the amount of CO2  that has been put into the atmosphere. So, I think that is very narrow, and for the most part, it’s just Greenwashing is really what it is.

The S matters. You look at the US here. Black lives matter. I mean I am a black person. That is the S. What are companies doing our own their supply chains and supply diversity, what are they doing? Their own? Their board representation? Senior management?  

I think that matters and energy is putting in place good governance to improve that. So, we have not as a people as a global population. We have not taken ESG seriously, we’ve taken the E part at a small part of E seriously, and that has to simply change if we expect to actually uplift more people, right?  

We need to say far more people coming out of poverty and moving into the middle class and it is going to require more S and more G without question. Those two things. Matter more to for moving people into the middle class and then the E side of things.  

{36:18} Andrew  

Have you noticed with Black Lives Matter? Have you noticed? And they’re in prominence that it’s. And have you noticed a shift in the willingness of people, particularly people who were not black to invest in minority-owned businesses either in the Caribbean or in  The United States?

{36:37} David  

You know it has no bearing on the camera. I can tell you that nobody is really breaking out a weirdo. Ones talking about the fact that. The African diaspora matters. Then you can start here in the Caribbean. In the US, though certainly there has been a shift in people talking about it, then they simply go back to the same things of all we want to invest in an emerging fund manager for example, we need a tracker color of three years, so it’s like, OK Well, how would I get the larger fund?

 If you guys were invited to check three years ago, so there has to be that. And it’s the same issue with investigating minority-owned businesses or women-owned businesses. Typically, they are what we call over, mentored, and underfunded.  

But actually, not even over mentored, we need to improve mentorship first. Because if you are going to go through your due diligence process, or we have a 66-page due diligence process or a 66-point due diligence process, for example, and most companies won’t have all of that information put together. So, unfortunately, it means that we most likely have to pass.  

They need to get trained first. We need to make sure they have the business everything in place and running properly. That is where we need to start that. Otherwise, they don’t have a pipeline problem. That’s like saying that you want to hire more. You know, black coders, but you don’t have enough. Go into school, or let’s hire more female coders. Well, if you don’t have them going into engineering school, you’re going to have a pipeline problem, so let’s get more in first.  

Get them trained, and then we’ll have a wider pool to invest, so the access. Is what needs to change.  I think that at some point, investors need to say, hey, I am going to put 20% of my assets with diverse fund managers and let them pick the underlying companies to go and invest in. But it’s public or private, right up here from the hedge fund, but you need to just bite the bullet and say I’m going to give them at least a shot, and the numbers have shown that women, and minority-run funds, Black-owned funds either do just as well or outperform the regular foods we’ve all been seed. So, it’s just given us a shot.  

I think that’s what everybody is asking. Put me and put me in the team coach and give me a shot.  

{38:40} Andrew  

Because people talk a lot about diversification when it comes to the assets they own, right? But they don’t think in terms, Usually, they don’t think in terms of a diversity of fund managers for their money.  

{38:53} David  

Well, exactly when. You it is. It’s so interesting to me. I said it to someone. Other days that if you. Want true diversification? Then you need to support diversity, and diversity of thought matters. Diversity of experience matters and can help you to identify opportunities that you may normally miss, and that is the whole point of diversification. Get some other people in the room, So I think diverse of true diversification requires supporting diversity.

{39:22} Andrew  

Do you think that there’s a fear of the unknown, not the unknown, but the unfamiliar there and that that? Also, one of the reasons why people don’t, are so hesitant, to invest in a frontier market like Jamaica. It’s even though logically if you sat down and you explained it well, some with this is an economy that could grow quite rapidly. They’re not familiar with it; it seems scary.

{40:03} David  

So, in the Jamaica sense, we don’t have that one where I don’t think it’s unfamiliar. Pretty much everybody has been exposed to Jamaican culture. Jamaican music.  

Yeah, everybody knows someone who got married in Jamaica vacation in Jamaica, so it’s more familiar than, say, Vietnam or Kazakhstan, which is getting capital. So, I don’t think we have a familiarity issue.  

What we have to do is better market the opportunity though that Jamaica presents when you ask me. What do I tell someone? And I say the Singapore of the Western Hemisphere is what it could become. That’s something nobody thinks about when they visit Jamaica, you visited the tourists, and you enjoy it, but you don’t think about the business opportunity.  

So, we. As a country, we as a people need to spend more time being ambassadors, but that specific approach to get investments. So, I would say that exists there.

 The unfamiliarity part though pops into when you decide that you want to invest with diverse fund managers.’ cause if you haven’t grown up around, those people are friends who are not exactly like you. You’re going to have an issue with familiarity, and that’s no different from a Chinese person wanting to invest here. Also want to invest in Chinese companies. We are unfamiliar with the culture and the companies, and the language. The ways of doing business. The Middle East. And so on.  

So, it presents a problem whenever something is unfamiliar. It’s not that is just one way. This is everywhere you’re going to have that unfamiliarity issue, and everyone has to spend time to overcome it. That is the two-way St; you spend time understanding cultures, maybe language barriers, companies, the country, and the people. There also have to spend. Sometimes as well, you have to extend the hand right; we need two hands to shake.  

{41:24} Andrew  

I guess when I say unfamiliar, I more mean I think if you asked someone in North America to name a Jamaican company or what are the other than tourism, what are the main sectors? Most people probably wouldn’t unless they’re from the diaspora, they probably wouldn’t have a good answer.  

{41:41} David  

Right? They definitely wouldn’t. For sure is that the fault of the person or the fault of the companies for not market into that. You would think that marketing Jamaican jerk sauce wouldn’t, you know? Wouldn’t only market to Jamaicans and ask for like everybody knows jerk chicken and jerk pork so, but why aren’t you marketed it to every single person? And get them to bite. It shouldn’t just be on the ethnic aisle. For example, in Walmart or Kroger.

So I don’t put the blame on the person I put the blame on the companies for not doing more to reach people. Did I put the blame on the country itself for not doing more beyond toys it right?  

Just silly tourism ads everywhere where the other ads that say common investment In Jamaica.  

{42:25} Andrew  

Is that changing? Do think? OK. You just change it.  

{42:27} David  

It is changing. Yes, it is changing, and I think. There’s a generational shift. Jamaica, like most emerging markets in India, is probably still the worst, extremely protective market, not really trying to get foreign companies to come into their markets, right?

 India is ahead of Jamaica.  From an economic growth standpoint, but they’re still fighting out Facebook and Amazon, and Walmart. So, they’ve come from these protective economies, and now globalization is real, and they tend to be afraid, and they’re protective so. They’re just now realizing that we must open up and be part of this supply chain link. We need to invite external capital. We cannot only depend on local capital to scale these businesses.  

That’s crazy. You will not be globally competitive, and the example I keep bringing up to Jamaicans Is that Switzerland has a population of fewer than 10 million people, right? Nine points something million people and nobody thinks of Nestle as a Sweets. As a Swiss company, these are multinational but if our country with less than 10 million people can spawn Nestle, why can’t we be spawning globally competitive companies?  

They don’t have to be as big as Nestle, but that’s the point, right? If you want to bring it up to today and you go back and look at Spotify, for example, or we want to go and look at Angry Birds, I don’t tell me size is zero problems. It’s how we think our mindset is our problem, which is interesting.

Since you know, Bob Marley quoted Marcus Garvey and said, you know “we need to emancipate ourselves from mental slavery.” I think that emerging markets tend to have this mental slavery that’s a holdover from colonialism, where “oh, these foreigners came invested and then took everything we don’t want them back”.  

Well, you need to do what Singapore did; we need to partner with the foreigners who have experience who have access to more capital, and then let’s leverage that. What would we consider broad-based economic growth?

A rising tide can lift all boats; provided we make sure that we don’t have corrupt hands managing them.  

{44:40} Andrew  

And let’s talk about the economic growth for a bit. Where on the trajectory that you see Jamaica right now, what is there sort of per capita GDP right now? And where is it going in 1020 years?  

{44:53} David  

So, I ignore the GDP numbers, to be honest, as much as I tried to get to what we believe is a real number. Some 40 plus percent of Jamaica’s economy is underground, so I don’t know if the GDP numbers, our GDP numbers, are ideal. What I look at is per capita income, so Jamaica is in that 6000 U.S. dollar per year range right now from a GDP Per capita standpoint that averages in Latin America is 14,400, so Jamaica is half of that.  

I think we can catch up quickly, and Barbados is a higher train that is higher Bahamas is higher, Cayman is higher, so it clearly can be done with even smaller populations than we have and is not entirely dependent on oil like Trinidad. So, I think we can grow that significantly.  

But we really must go back and look at what India did over the last 20 years. We must look at what Singapore has done since the 1970s, and we could realistically triple our GDP if we get some things in place.

Agriculture is a huge opportunity. Agra-processing food is important food security. We have tons of ours. Land, but we don’t have modern farming practices.  Farmers don’t have as much access to capital for equipment, so those are going to be huge opportunities that nobody invests just based on GDP growth, right? You invest based on the opportunity to grow faster than GDP. So, you identify the areas that will grow faster than GDP. And then he invested them, and it’s not complicated to know where to invest.  

You just go back and look at every emerging market country that has had growth, and then you can look at which areas they invested in and say, Great, I need to buy the same exact things and invest in companies in those industries and in essentially watching the group provided. Obviously, they should have good management when it was invested in every single company, but I think that there’s tremendous opportunity there.  

You look at global outsourced services, right? We’ve gone from call centers to now to be more back-office processing, you think about the fact that work from home means work from anywhere. I don’t think developed country employees have thought about that enough.  

Where if you’re an accountant, for example, or you read X-rays for a living in that can be done anywhere, so it could be done in the Caribbean. In Canada, there is a Canadian company, Gilder, right, publicly traded in Canada. Over 160 employees are based in Barbados.  The majority of their management team. This is not a call center. Most of the management team is based in Barbados. This is the marketing team and the finance and accounting. That’s where it is.  

That can be replicated in Jamaica for cheaper than Barbados and closer than Barbados. That presents an opportunity, and then, of course, the most overlooked one that I keep trying to bring up is entertainment. Jamaica’s largest export is its culture. That’s what Sean Paul’s manager, Steve Wilson, said when I sat with him late last year. Jamaica’s largest exported its culture, but we have not monetized that properly.  

And most of that money doesn’t come back; less than 25% comes back to Jamaica, so there must be opportunity around it. Yeah, Blue Mountain coffee. Most expensive coffee in the world. Sea Island Cotton, one of the most expensive cotton in the world. More expensive than Egyptian.  But we’re not spending money. We’re not deploying capital to scale these things up.  

Huge opportunity there and then we have Bob Marley. Well, what has happened since there’s a tremendous amount of music growing up, but where is the Jamaican regular record label? I can buy back, there’s none for me to buy shares in, and I find that insane, you know, acts just released a third kit that’s a Bob Marley addition. After Three Little Birds, and that is there. Theme song where are we?  

In terms of leveraging over culture and this outsized impact that Jamaica had. In the world, you look at what we just did in Olympics, and we have the fastest woman alive. 100-meter 200 meters. We won the four by 100 gold, and we did 1,2,3. Bolt is still alive. The fastest man alive. Why are not more people coming down to trade on the sports side in the Caribbean?  

Why NFL combine, and why wouldn’t you want to come to the Caribbean and spend some time in Jamaica and learn how to run faster? I don’t get that, so let’s see more opportunities scale up by then. Those could get interested.  

{49:12} Andrew  

You’re investing from the states. Are you competing with domestic Jamaican investors, you’ll see the investment landscape like? 

{49:21} David  

So yes, there will always be some competition, and all dollars compete in some sense when we make an investment, it means that somebody either didn’t get the chance to make the investment or turned it down. In most cases, I feel that they are turning it down on the private side, but also, we benefit from the standpoint of, we tend to be an investor of choice. People come to us. I do not have to seek out deals. Hey, bring deals to us. We go through them and then choose to do them or not do them. But they like our approach, which we tend to be more fun and friendly. We are thinking bigger, so we will bring more of our first world approach development now developed country approach to the way we look at the levers that can be pulled.  

We have access to cheaper capital than investors, typically in the region, and then, of course, we have access to more knowledge. Up here, we can bring you some US-based people who have experience here. And then lastly is the market access, we have the market knowledge and access here; we can open some doors to them as well, so we have things that give us a competitive advantage which then translates to the computers.  

But that’s good. The companies can hire more local staff and improve their local contingent. So, it’s not bad for the economy as a whole. And I think that if you have the smartest possible capital invested no near, then that’s a greater good, but what has been happening is that we’re now seeing more people wanted to look at doing joint ventures, or if we say we’re going to invest, they ask us in a little less than can they piggyback on what we’re doing.  

And then, of course, somebody wants me to join their board of directors and no more doors, and so that’s not a bad thing. When you get to Co- invest with individuals, I think that’s really where it’s going to have the best impact that they get to learn from us.  We get to leverage their additional. Contacts, but you know, in the public equities side, that can’t even say that we’re crowding out. We’re bringing new capital that’s going to be fairly long-term capital.  

We bring in U.S. dollars into our market, so it’s a net inflow, right? We’re not just buying and selling every day. We buy and then hold, so there’s the new money coming into the system that then stays there, it stayed In Jamaica and multiplying, we get a natural multiplier effect, which should be welcome with open arms. We’re not here for a year or six months or some high-frequency trading we’re buying and holding, and they’re bringing U.S. dollars into the market. That’s a net positive.  

{51:38} Andrew  

And hopefully. You’ll be able to, at some point, pair those U.S. dollars with a record with their, uh, Jamaican record label, as you mentioned.  

{51:48} David  

Yeah, well, hope is not a strategy; we have to make that happen. Yeah, we are actually; yeah, we have a senior manager for sports and the team, right? So, we need to find a way to support that that would be a great private. The liquid deal, and I think people would buy into that, and imagine being able to say, hey, you know this, I listened to this song on Spotify or iTunes, and I own shares in the label produced that time. That’s kind of awesome.  

{52:12} Andrew  

I was watching your Bloomberg interview. And you gave some amazing stats about the performance of the Jamaican stock market versus I think it was the S&P.500.  Can You just give us a sense?  

{52:27} David  

Well, so I mean this is 233% or third over five years. So, it blew the SNP or the Walker the whole team in the index in Vietnam was second, SMP was third, so that is a significant return and. And that’s even accounting for the foreign exchange depreciation. That’s the thing that I think most people don’t understand is that we’re factoring in the exchange rate shifted.  

Thankfully, Jamaica has had a fairly stable exchange rate for the last three years. There was one year where the dollar appreciated that that’s something I don’t remember seeing with the Jamaican dollar appreciated by something like 5%. I believe it was 2017 or so at the Central Bank. He’s very proud of that. Can example that I love bringing up is NCBNCB financial. Michael leached into a company. So, Michael goes into Jamaica from Canada in 2002 and buys a bank that failed. The government rescued it and If he had invested 100,000 U.S. dollars at the same time as Mac and had three options, he couldn’t put it into S&P 500 index fund.  You could put that same $100,000 into Berkshire Hathaway, Warren Buffett, or Guy. Or you could put it in the same bank in little Jamaica that he bought if he had held it in Berkshire. Up to June 30th of last year, I haven’t seen the numbers for this year, but on June 30, 2020, that money would be somewhere in the 300. Then yeah, 37,200 and $50,000 reach, so that’s a pretty good return from 2002 to 2020. Yeah, 100K is now 200 something 1000 dollars.  

Nobody should complain about that. If you had put in S&P 500 fund would be somewhere in the $400,000, I think 440 hours, $1000 return again really good. No headache, well that was $100,000 in 2002. Got into this risky place, right? Perception is different from reality, and he held it till June of last year. We were at 1.7 million. And US dollars.  

{54:19} Andrew  

I’m not a bad.  

{54:19} David  

Return yeah, not over. Not about return on something post.  

{54:22} Andrew  

I better return.  

{54:23} David  

But again, the idea is that he wanted by a few. You know, really good companies with good management in place and then and then hold on for the ride. The management has to be prudent, management capital, good return on equity. Arrow is really important, and I think too many investors. Overlook that part. They look they overlook, the return on equity. What is the company doing with the capital they are keeping? Hey, paid out as dividends. The money they borrowed the money that they have on their balance sheet and reinvest what’s the return they’re generated under that. If they can generate 10% or yeah, I think that’s always a really good company to pay attention to and dig deeper if it’s less than 10, need to think through because it means that they actually not doing a really good job of reinvesting with body, and you are an investor. So, you need to think about do you want to give them your money to then go and allocate?  

{55:13} Andrew  

David, this has been a lot of fun and I’m pretty sure we haven’t even talked about soccer. We both cheer for the same soccer team and we could talk for another hour if people want to learn more about Mahoe, how can they do that?  

{55:25} David  

Super easy www.bluemahoecapital.com  You can find us on Twitter. We are.  

LinkedIn, we are everywhere and then. I’m David Mullins D-A-V -I-D M-U-L-L-I-N-G-S; you can find me on Twitter at David Mullings. I will respond. I am not a standoffish person at all.  

I love sharing. I love learning as well. That’s what I’m here for. Is to learn and and share with the community and as long as you want to invest. I love talking to you.  

{55:59} Andrew  

OK, on that note David, Thanks so much and thank you as always to our pitch forward audience. We appreciate you listening, and we’ll be back here soon with another episode bye for now.  

{56:08} David  

Thank you for having me.  

{56:10} Jenny  

Thanks for joining us on this episode of The Pitch Podcast. Make sure you check us out online at thepitchfork.com.  

If you liked our podcast today, please make sure to subscribe to the Pitch podcast so you don’t miss an episode.  

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