UK – Frontier markets require a "leap of faith" as well as a significant amount of research prior to investment, the head of strategy at UK pension provider RPMI has said.

Ciarán Barr, who joined the investment manager for the UK railway industry in 2010 from Deutsche Bank, also discussed the benefits of emerging market (EM) investment and said that, despite the higher fees involved, such portfolios needed active manager oversight.

Speaking at the National Association of Pension Funds Investment Conference in Edinburgh yesterday, he said the ongoing financial crisis had dispelled the myth that EM was "de-coupled" from developed economies, but that their faster recovery still made them worthwhile investments.

Asked about the current view of EM as a homogeneous asset class, Barr acknowledged it was an important issue to consider and that PPMI was taking a "thematic" approach – for example, investing in companies benefitting from the increasing affluence of the emerging middle classes.

He added that local valuations were increasingly being consulted, something that would not have been considered even five years ago.

Barr also said that RPMI was building exposure to frontier markets through a manager based in Western Africa.

"It is something we'd like to look more at, but it's partially a time issue, actually," he said.

"It requires quite a bit of research and is a bit of a leap of faith, both in terms of markets – they are frontier markets for a reason – but also in terms of finding the appropriate manager and the appropriate method of access."

He said exposure to the region would "build over time", growing alongside EM private equity exposure.

"We do have some exposure to private equity in emerging markets, and again, over time, I expect that to grow, but once more it comes down to how you access it," he said.

"You've got to have a really good manager and trust with that manager – what you don't want to do is just rush in."

Speaking at the same seminar, Aon Hewitt's global head of asset allocation Tapan Datta also spoke favourably of private equity in emerging markets, as well as infrastructure projects.

"Private equity and infrastructure are very much on the horizon, but really the regulatory uncertainty of […] what goes on in many emerging markets is still an obstacle," he said.

"It may be more psychological than real – but it's still an issue in terms of getting that comfort level for essentially very risk-averse UK pension funds to take that kind of emerging market local, environmental risk."

Barr also discussed why RPMI had invested in Russia, and said there was a simple reason for its investment in the country.

"We do actually make a small allocation to Russia, a deliberate allocation to Russia, which is very brave of us, purely on valuation grounds – it just looks very, very cheap," he said.

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