Allan Gray's Frontier Play: Why East Africa Could Be the Next Big Bet

South Africa’s second-largest asset manager, Allan Gray, is quietly positioning itself to capitalize on a market most investors still overlook: East Africa. With its Frontier Markets Equity Fund delivering a 7.6% annualized return since 2017, Allan Gray is betting that countries like Kenya, Tanzania, and Uganda—regions often dismissed as too risky—could become the next engines of growth. But why now, and why East Africa? Let’s dig in.

The Untapped Potential of East Africa

East Africa’s economies are often overshadowed by more established markets in South Africa or Nigeria, but the numbers tell a compelling story. Countries like Kenya (with a GDP growth rate of 5.5% in 2023) and Tanzania (projected to grow at 6.2% by 2025) boast young, urbanizing populations and rising middle classes. Yet these markets remain vastly underweighted in global portfolios. The MSCI ACWI index, for instance, allocates just 1.2% of its weight to frontier markets, even though they represent 50% of the world’s population.

Allan Gray’s Playbook: Patience and Precision

Allan Gray’s strategy hinges on active management and a long-term view. Their Frontier Markets Fund avoids crowded trades, instead targeting undervalued companies in sectors like banking, telecoms, and renewable energy. For example, their investment in TBC Bank in Georgia—a frontier market analog—delivered 20%+ returns despite geopolitical headwinds. In East Africa, similar opportunities abound:

• Kenya’s tech ecosystem: Nairobi’s Silicon Savannah hosts startups like Cellulant (fintech) and Twiga Foods (agritech), backed by venture capital inflows.
• Tanzania’s infrastructure boom: The $10 billion Bagamoyo Port project and renewable energy initiatives could attract capital.
• Uganda’s mobile money dominance: With 85% of adults using mobile money, financial inclusion is a catalyst for growth.

Data Backs the Bet

Allan Gray’s Frontier Fund has already demonstrated its ability to navigate frontier risks. From 2017 to 2024, it outperformed its benchmark by 220 basis points annually, even during periods of currency volatility. While newer firms like Fairtree and Truffle dominate headlines in South Africa, Allan Gray’s focus on underfollowed markets gives it an edge.

Risks? Sure—but the Rewards Are Worth It

Critics will cite political instability, currency risks, and underdeveloped regulations. Fair points—but that’s exactly why valuations are so attractive. In Kenya, for instance, the stock market trades at just 10x earnings, versus 18x in South Africa. Allan Gray’s approach—diversifying across 20+ countries and sectors—mitigates single-market risks.

The Bottom Line: A Growth Engine Ignited

East Africa isn’t for the faint-hearted, but Allan Gray’s track record and patience make it the right player for this space. With a fund that’s already outperforming its benchmark and a strategy aligned with the region’s growth drivers, investors ignoring this could miss a multiyear opportunity.

Final Call: If you’re looking for the next big frontier, look east—Allan Gray is already there.