US based Logan Rockefeller Global or LR Global which entered the island earlier this week says Sri Lankan equities are twice as expensive as other comparable frontier markets the fund has invested.

"We will probably avoid the listed security market right that doesn't meet our valuation standards," LaGuardia told LBR.

"Considering we can invest in any frontier market we see better opportunities at that level elsewhere."

The Sri Lankan economy is emerging from a 37 year civil war after the government forces defeated the LTTE in 2009.

Sri Lankan stocks are experiencing exponential growth over the past year on the back of local retail and institutional investors.

The market year to date rose over 44 percent, while last year skyrocketed 125 percent.

State controlled funds like EPF, ETF, Bank of Ceylon, Sri Lanka Insurance and Nations Savings Bank have are the big investors now.

State funds are now amongst the largest shareholders of blue chip stocks like John Keells Holdings, Hatton National Bank, Seylan Bank, Commercial Bank, National Development Bank and DFCC Bank.

Despite rock solid confidences by local investors, foreign investors are less optimistic in general have taken LaGuardia's stance and opted to stay out.

Year to date the foreign investors have pulled out over 300 million US dollars.

Sri Lankan Entry

LR Global is entering the Sri Lankan market cautiously with a 20 million dollar initial investment from its New York fund.

The New York based investment company invests in frontier markets that are on the verge of converting to capitalist economies and offer high returns to its investors.

Don LaGuardia, managing partner of LR Global said the present political stability, growth potential and prevailing low interest rates were amongst the main reason he decided to invest in Sri Lanka.

The firm is biased towards the energy sector, from roots of its former parent Rockefeller & Company, owned by former US oil magnate John D Rockefeller, who founded the Standard Oil Company, the largest oil refiner in the world till 1911.

Central Asia, in particularly Kazakhstan, rich with natural resources like oil and gas has given LR Global the best returns.

LR Global will not invest in any oil exploration projects in Sri Lanka, LaGuardia answering to a question posted by LBR said.

Sri Lanka offered international oil companies to explore for oil in the Gulf of Mannar, in Sri Lanka's north-western coast through open auction.

Cairn India is already conduction 3-D seismic surveys, while Gazprom of Russia has expressed interest to prospect for oil.

He said Sri Lanka's relatively weak infrastructure will open new opportunities for construction companies.

"The policies of this country will be geared towards infrastructure so we are going to look at construction companies, power is a big issue here so we are looking at the power sector and also consumer companies as GDP (gross domestic product) grows and consumer effects kicks in," LaGuardia said.

LaGuardia a founding member of LR Global has been with the firm since its inception in 1997.

Its local unit, LR Global Lanka Asset Management Company is headed by Channa De Silva, the former director general of Securities and Exchange Commission (SEC).

LaGuardia said LR Global will only be investing on pre-IPO's (initial public offering), private placements and private equity as listed equity is 'overvalued.'

Investment Portfolio

His firm looks at stocks exchanges that offer a trailing P/E (price to earnings) ratio of about eight to nine, while the benchmark Colombo Stock Exchange (CSE) at present is hovering at 20 times earnings.

"The overall portfolio from New York has about eight to nine trailing P/E with companies generating about 30 percent returns, low leverage, nice growth and a price to book (value) maybe 2.5," Don LaGuardia said.

"If you look at the frontier market index the P/E is about twice that now maybe 17, 18 times now and return on equity of less than 15 percent.

"Our overall portfolio is a little bit different than frontier market index and if you look at the valuation of Sri Lanka it's at the frontier market or maybe a little bit above it so it needs a little bit of a correction before we start attacking it."

Private Equity

He said the LR Global would expect a further discount on private equity. Some of Sri Lanka's largest companies like apparel heavyweights MAS, Brandix and Hydramani are not listed.

"From a private perspective you need a further discount just because it’s a private security to public so it’s a liquidity discount," LaGuardia said.

"IOf the market is trading at 22 (P/E ratio) if we could find a good private company we'll be looking to get into 10 to 12 times earnings, rather than the 22 the markets at."

The first tranche of LR Global investments to Sri Lanka are scheduled to come in a fortnight.

The investment company has a strong presence in south-east Asia with offices in Singapore, Bangladesh, Myanmar, Vietnam, Cambodia and Thailand.

The firm also has spread its tentacles in south-east Asia, Africa, eastern Europe and the middle-east.

LaGuardia said LR Global liquidated its investments in south America.