With the developed economies being lately characterised by news of slow growth, mass layoffs and even deflation, investors are increasingly turning towards markets with more positive out-looks. The biggest and most attractive of these markets (like China and the rest of the BRICS countries) have become to be known as emerging markets. However, investors who are always looking for new opportunities have turned their sight even further: to the so-called frontier mar-kets. This phenomenon is of course part of the bigger globalisation that has been in the centre of discussion already for years. Since the 1960s global capital flows have increased in significant numbers be it in terms of equity, direct investment, bonds or currency. Naturally also gov-ernments have become increasingly interested in attracting more of this capital, to the point where they have started to adapt economic policies to interest foreign investors. This has translated into a situation where the poorest economies in the world are the most dependent on foreign capital flows. (World Bank, 2015b) Thus it has become more and more important to understand the real drivers behind international investments. Usually foreign investment is classified into two types: foreign direct investment and foreign portfolio investment. Even though both involve the transfer of some kind of assets cross borders the difference lies, among other things, in the level of control attained after the investment. These two types of foreign investment have received different amounts of attention in academic litera-ture: FDI has been in the focus of mainly international business research whereas FPI has been left for finance literature. However, researchers have in fact suggested that these two types of invest-ment should be looked at through the same theoretical lens. Essentially both are a type of cross border investment but why are their determinants perceived to be so different? I set out to answer two research questions using a case study methodology: What characteristics developed market mutual fund managers look for when making the location decision for foreign equity portfolio investment into emerging and frontier markets? and What is the role of host country institutions in the aforementioned location decision? The case studies were conducted through empirical interviews with five Finnish mutual fund managers with the support of other publicly available documents and information. From the empirical interviews I found that characteristics that developed market fund managers look for when making the location decision include a stable currency, a positive political situation (could have varying meanings), large, liquid and undervalued stock markets, demographic drivers of structural growth and economic growth and development. Furthermore, the interviewees showed strong support for the role of political and economic institutions as influencing the lo-cation decision. In addition the case studies brought to light a new perspective on the importance of personal visits and partnerships in reducing information asymmetries and thus influencing the location decision.
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