In January 2008, as the worst global financial crisis in almost 80 years took hold, investors pulled $18.7 billion from emerging-markets equities. Nearly all of the countries represented in the MSCI Emerging Markets index were down. But for one U.S.-based financier, the crash spelled an opportunity for a new kind of investment in the developing world.
In late 2008 Jonathan Starr set out to found the Abaarso School. Based in the autonomous state of Somaliland, in northwestern Somalia, this coed boarding school now enrolls some of the countrys brightest and most motivated students. Its goal: to create ethical, effective leaders who will build a progressive society in a chronically war-torn state.
Before venturing 7,000 miles from home, Starr had served as portfolio manager at Cambridge, Massachusettsbased Flagg Street Capital. This deep-value hedge fund firm, which he founded in 2004, peaked at $170 million in assets. [In 2008] we had bets against mortgage paper that made tremendous returns, but we also had equity ownership in what we thought were the best mortgage issuers, Starr recalls. The businesses behind those equity positions got wiped out along with all the other companies in the industry and took Flagg Streets short-side gains with them, he adds.
A major redemption later in the year prompted Starr to put the whole fund into an orderly wind-down. I am an obsessive person, and I had long thought I should take some time to obsess about something else, he says. Abaarso School became that new passion. Starr was inspired by his mother, Susan, a lifelong educator, and his uncle, who took him to the latters native Somaliland in 2007. I wanted to have a positive impact and do something really amazing, he says. This seemed possible to pull off.
The Abaarso School, named for the village where its located, has piqued the interest of several major financial players, but securing funding was a struggle at first. As the crisis rocked Wall Street, few investors were willing to bet on an educational venture founded by someone with no background in the field, in a place they believed to be swarming with profiteers and terrorists. Starr donated $500,000 of his own savings to non-profit school. It wasnt until classes began in 2009 and he started seeing results that investors trickled in.
It seemed like a pretty herculean task to go to a different country, to a place where Jon had never been, and I was reluctant to support something I thought would eventually fail, even though his head and heart were in the right place, says Anand Desai, founder and CEO of New York hedge fund firm Darsana Capital Partners. It wasnt until 2011 that Desai, who worked with Starr at hedge fund outfit SAB Capital Management in the early 2000s before becoming senior managing director and a founding partner of Eton Park Capital Management, got involved. He now chairs the board of the Horn of Africa Education Development Fund (HED), the U.S.-based nonprofit that supports the Abaarso School.
We find that the finance community is attracted to our efficiency and obvious quantifiable success, Starr says. People on Wall Street bring a critical eye to everything they do, notes Desai, and they want their energy and money to make the biggest possible impact. Donating to Abaarso takes the same analysis that managers apply to potential investments or companies.
The Abaarso School is the only facility in Somaliland offering science, technology, engineering and mathematics (STEM) courses, which are taught mainly by American teachers to Somalis in grades seven to 12. For investors looking to make a difference, its returns on capital are impressive. Abaarsos overhead is tiny; teachers typically earn $3,000 annually for logging 70-hour weeks (the school covers their expenses); as headmaster, Starr receives no salary; and it costs only $1,800 to put a student through a year of schooling.
So far, 40 Abaarso students have received scholarships to attend some of the best U.S. preparatory schools, including Choate Rosemary Hall in Connecticut and Worcester Academy in Massachusetts, and colleges such as Carnegie Mellon University, Georgetown University and Harvard University, which tend to cost upwards of $60,000 a year. They were the first Somalis without U.S. citizenship in more than 30 years to earn U.S. scholarships, it is believed.
The school, which operates under heavy security because of threats from al-Shabaab and other terrorist groups, has the potential to foster a generation of educated leaders in Somaliland, only half of whose estimated 4 million residents have attended primary school. Theres this unharnessed energy, and brain power, thats just languishing and needs a little bit of help, says Darsanas Desai. Last year 450 students took the school entrance exam to fill just 45 spots.
Abaarso is also working to open the country to a new group of Somali workers traditionally expected to remain in the home: women. One of the most important lessons I learned from Abaarso School is having a sense of responsibility to my country, says Fadumo Abdullahi, 20, a native of the capital Hargeisa, who rejects the fear of a brain drain from Somalia to other countries. After majoring in biology and double minoring in epidemiology and health behavior and society at the University of Rochester in New York State, she plans to teach at Abaarso before earning a graduate degree.
Somaliland lacks primary health care for families. This is just one of the many problems I am planning to solve, Abdullahi says. I dont know how, but getting educated is the only way I can move toward that goal.
Financiers such as Somalia native Mustafa Jama of the Morgan Stanley Alternative Investment Partners hedge fund group, Peter Collery of New Yorks SC Fundamental Value and Seth Klarman of Bostons Baupost Group have made significant contributions to HED. Institutions including the Leon and Toby Cooperman Family Foundation, the Mindich Family Trust and Rockefeller Philanthropy Advisors have also backed the school. Beyond tuition and faculty salaries, donations cover student visas, passports and flights to the U.S. They also fund food, electricity and materials, and help maintain the premises.
Last December, in a coup for Abaarso, the U.S. Agency for International Developments Office of American Schools and Hospitals Abroad (ASHA) granted it $291,000 through HED. The funds are earmarked to help expand the school from 185 students and 18 faculty members to 250 and about 25, respectively, and to add classrooms, dormitories, computer labs and staff housing.
I try to tell people that right away, Abaarso donor Steven Kuhn, partner and co-CIO at Pine River Capital Management, a Minnetonka, Minnesotabased hedge fund firm with $11.4 billion in assets, says of the ASHA infusion. This has passed the due diligence of some of the toughest people in the world to get by.
Kuhn has also been a key player in marketing Abaarso since he became involved in early 2014. My thought is that if I can help the school gain awareness in the financial community, other supporters will come out of the woodwork, he says.
The alumni of Abaarso School offer an investment opportunity down the road too. Starr is considering creating a fund that would help seed the businesses that many of them will look to open after university, in return for a stake in those companies. The students represent a diverse group of interests and future professions, from journalism and film to engineering, economics, medicine and political science. If you were to guess who the next president [of Somalia] will be in 20 years, he must come from our school, he contends.
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