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Speaker 1: Hello, and welcome to The Credit Edge, a weekly markets podcast.

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Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg.

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Speaker 1: This week, we're very pleased to welcome Robert Koenigsberger, founder

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Speaker 1: of Grammercy Funds Management. How are you, Robert doing well?

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Speaker 2: Thank you so much for having me today.

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Speaker 1: Great to have you on the show. We're very excited

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Speaker 1: to hear your credit market views. And I'm also delighted

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Speaker 1: to welcome back co host Tolu Alamutu from Bloomberg Intelligence.

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Speaker 1: Hello Tolu, Hello James.

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Speaker 3: Great to be here as all ways.

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Speaker 1: So this week we introduce things a little bit differently. First,

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Speaker 1: I want to point out that we Bloomberg love feedback,

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Speaker 1: whatever it is good or bad. We learn a lot

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Speaker 1: from both. We did a show last year with Pimco

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Speaker 1: on public versus private credit markets. They didn't see enough

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Speaker 1: value in private to justify the extra risk. Can find

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Speaker 1: it on the Bloomberg terminal that episode at bpodg or online.

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Speaker 1: I think it was out in October, and the feedback

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Speaker 1: from today's guests was a strongly worded I could not

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Speaker 1: disagree more. So, we are very pleased that Robert has

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Speaker 1: finally agreed to join us, and we are going to

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Speaker 1: dig into that whole public versus private debate a little

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Speaker 1: later in the show. In addition, we don't often get

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Speaker 1: to talk about emerging markets on Credit Edge, but I

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Speaker 1: did spend about half my career, roughly fifteen years, covering it.

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Speaker 1: It is truly fascinating. Some great stories out there, really

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Speaker 1: wild stuff, larger than life characters, and I spent a

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Speaker 1: lot of time on the road visiting some amazing places,

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Speaker 1: talking to some very interesting people while I was covering it.

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Speaker 1: So for that reason too, I'm very happy we have

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Speaker 1: got Robert, a real veteran, on the show. But emerging

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Speaker 1: markets have been out of favor for years. They've never

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Speaker 1: quite recovered the Brick era luster of say, fifteen or

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Speaker 1: twenty years ago, and the return of Donald Trump to

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Speaker 1: the White House only makes it trickier for investors to

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Speaker 1: go outside the US, even though it may seem a

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Speaker 1: lot cheaper, the returns may look larger, and the long

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Speaker 1: term benefits of geographical diversification are appealing. So let's start there.

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Speaker 1: Why emerging markets? Why emerging markets?

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Speaker 2: Credit?

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Speaker 1: Right now, Robert, surely there's way too much risk not

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Speaker 1: to mention all the complexity, the different currencies, political regimes,

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Speaker 1: economic policies, legal systems, languages. It makes my head spin.

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Speaker 1: Why do we need all the bother? Isn't there enough

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Speaker 1: to worry about?

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Speaker 2: Robert?

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Speaker 1: Why why should we care about em? Right now?

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Speaker 2: Great, great question, James.

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Speaker 4: And you know, as I hear you ask that question,

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Speaker 4: and you know, some of the experiences that you talked

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Speaker 4: about that investments have had and the challenges that emerging

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Speaker 4: markets have had, i'd start the discussion by saying, you know,

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Speaker 4: there's been a big disconnect between the returns that have

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Speaker 4: been present in emerging markets and the returns that many

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Speaker 4: emerging market investors have captured from emerging markets. And that

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Speaker 4: disconnect comes from and totally you know this as well

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Speaker 4: in terms of you know, if you look at the

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Speaker 4: fundamentals of M versus DM, if you look at the

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Speaker 4: YEM versus DM, and if you look at the actual

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Speaker 4: returns over a long period of.

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Speaker 2: Time, they've been compelling.

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Speaker 4: Yet when you talk to investors, they have talked about

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Speaker 4: all the challenges they've had, and so I think that

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Speaker 4: disconnect comes from the mistakes that investors have made in

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Speaker 4: terms of the acid class itself. Oftentimes, first of all,

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Speaker 4: emerging markets is not this homogeneous acid class at the

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Speaker 4: Brick label or anyone else allows us to believe it is.

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Speaker 2: You know, when you have China and Sri Lanka and

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Speaker 2: the same asset class, it's hardly an acid class. But

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Speaker 2: I think the mistakes that people have made is one

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Speaker 2: they've typically gone.

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Speaker 4: Into equity, and equity and emerging markets for a long

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Speaker 4: period time has been quite challenging. And a big reason

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Speaker 4: for that is you've had emerging market currency risk in

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Speaker 4: your face the entire time, but you also have issues

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Speaker 4: like minority governance issues and illiquidity and what have you.

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Speaker 4: Some have been brave enough to go into private equity,

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Speaker 4: and private equity has all the equity risk, but then

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Speaker 4: you also have the monestization issue. You've got to line

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Speaker 4: up all the stars and be able to get the

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Speaker 4: IPO or whatever it may be. Well, let's go into

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Speaker 4: our world's emerging market's debt. And I think you know,

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Speaker 4: the markets had this love affair, this dance with emerging markets,

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Speaker 4: which is yes or no, and it's usually fear or

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Speaker 4: fear of missing out, and that's been the challenge.

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Speaker 2: So where's the fear come from?

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Speaker 4: We've had twelve major dislocations in emerging markets in the

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Speaker 4: past twenty five years, they all look about the same.

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Speaker 4: The peak to trough. The market's dropped about twenty percent

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Speaker 4: in five months. That's the bad news. The good news

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Speaker 4: is twelve to twenty four months later, the market's up

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Speaker 4: thirty to fifty percent. It's almost like you think a

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Speaker 4: monkey can trade this market, but everyone's ripped around. And

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Speaker 4: that's because when it drops into a dislocation, everybody capitulates

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Speaker 4: to be polayed, and then they sit out, and then

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Speaker 4: it runs thirty to fifty percent.

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Speaker 2: And then they get the FOMO. So one of the

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Speaker 2: challenges is just the approach they've taken.

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Speaker 4: Yes or no, I'll call it beta as opposed to

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Speaker 4: beta agnostic. The other one is the index. Right, so

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Speaker 4: I've been allowed I've been around in emerging markets. You

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Speaker 4: were polite to say veteran. I've been around in emerging

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Speaker 4: markets since before the emerging markets dead index was created, right,

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Speaker 4: So it used to be an asset class that was

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Speaker 4: into full a bunch of loans became a bond, and

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Speaker 4: then on the other side of the bond, JP Organ's like, whoa,

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Speaker 4: We've got to create an index. Well, if you look

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Speaker 4: at the index that they created when we started grammar

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Speaker 4: seeing nineteen ninety nine or ninety eight, Argentina was eighteen

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Speaker 4: percent of that index. Somehow that's safe, but you could

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Speaker 4: say that was a long time ago. Well, in twenty

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Speaker 4: twenty two, that same index made you by Russia and

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Speaker 4: made you by Ukraine.

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Speaker 2: So this index based in investing.

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Speaker 4: In emerging markets, if you look at the last three years,

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Speaker 4: the dispersion of that index is minus ninety for some

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Speaker 4: assets and over one hundred percent for other assets. So

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Speaker 4: all sorts of reasons why people have had a bad experience,

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Speaker 4: the approach, the dance, the passive versus active.

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Speaker 2: I think passive index investment basing has killed.

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Speaker 4: More emerging market investors than any idiocy graph that I've

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Speaker 4: seen in twenty five plus years.

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Speaker 3: If I could just jump in, Robert, if you don't mind,

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Speaker 3: I think we will definitely have to come back and

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Speaker 3: discuss the index and benchmarking issue a lot more later

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Speaker 3: on this podcast. But one of the issues that even

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Speaker 3: I have been sort of grappling with, someone who is

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Speaker 3: a huge fan of emerging markets, is the fact that

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Speaker 3: prior to the current situation, let's say, if we look

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Speaker 3: back two years or so ago, you had literally trillions

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Speaker 3: of dollars of negative yielding or very low yielding assets

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Speaker 3: in the developed world. And so the positive or the

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Speaker 3: story for emerging markets was, hey, you know, you can

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Speaker 3: get much much better yields here. You're not getting anything

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Speaker 3: in the developed world, So come join us in the

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Speaker 3: emerging market party. Now, obviously we know what US treasuries

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Speaker 3: are yielding. Our EM strategist was noting, for instance, that

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Speaker 3: AUM in some emerging market funds, some emerging market funds

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Speaker 3: has declined over the last couple of years. So how

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Speaker 3: does one position EM now that treasuries DM yields are

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Speaker 3: not that bad? When people might maybe come to you

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Speaker 3: and say, well, look, I don't even know this place

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Speaker 3: on the map. Why don't I just put my money

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Speaker 3: in the US that I know and I'm safe there, right, and.

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Speaker 4: A lot to unpack there, And in that question is

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Speaker 4: almost the trap that most investors have fallen into an

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Speaker 4: emerging markets right, because they typically come to EM when

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Speaker 4: all the juice has been squeezed out of every other market.

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Speaker 2: And you're right, you know, rates have gone from the extraordinary.

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Speaker 4: Part what you talked about was for a short period

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Speaker 4: of time, rates were extraordinarily low. But for most of

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Speaker 4: the time that I've been in the SASSA class, rates

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Speaker 4: have been here or even higher in terms of treasure rates.

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Speaker 4: But I think the and that question is is a

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Speaker 4: I think there's almost a public credit bias to that question, right,

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Speaker 4: So I could buy US treasuries, I could buy liquid

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Speaker 4: public debt and US treasuries corporates ideal and when there's

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Speaker 4: nothing left there, then I'll go to em I remember

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Speaker 4: that's when they do the phone wo trade and they

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Speaker 4: missed everything else. So I think the right way to

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Speaker 4: think about it is the same way that people are

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Speaker 4: handling that problem in develop markets. You know, yields went

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Speaker 4: very low in developed markets, and what's developed is private credit,

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Speaker 4: direct lending.

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Speaker 2: And if I look at you.

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Speaker 4: Know what people have hoped to get out of emerging

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Speaker 4: markets over the past twenty twenty five years, typical pension fund,

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Speaker 4: what have you like? You know what we'd like to

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Speaker 4: get maybe seven percent we turn out of emerging markets.

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Speaker 2: Well, we go to direct lending. In emerging markets, we're probably.

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Speaker 4: Two times at close to two times at U levered

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Speaker 4: basis collateral, uncorrelated collateral and what have you. So James

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Speaker 4: I know we want to talk about this later, but

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Speaker 4: my statement about I couldn't disagree more about private credit.

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Speaker 4: You forgot the word emerging markets private credit because I

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Speaker 4: would agree with developed.

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Speaker 2: Market private credit. EM is fifteen.

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Speaker 4: Years by develop markets and totally you can find those

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Speaker 4: high natural yields twelve thirteen, fourteen, fifteen percent good collateral,

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Speaker 4: good uncorrelated collateral, and you can you can take emerging

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Speaker 4: markets exposure without taking emerging markets.

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Speaker 3: THETA I mean that actually leads to the second point

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Speaker 3: I was going to ask about, which is obviously EM

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Speaker 3: private credit. We know that you've been a huge proponent

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Speaker 3: of this for a long time, but what and the

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Speaker 3: market has certainly grown. Even here at Bloomberg we have

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Speaker 3: invested quite a lot in the private market related functions

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Speaker 3: on determinal broadly, not just obviously for EM. But I

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Speaker 3: guess one concern that people may have, despite the fact that,

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Speaker 3: as you said, you might be able to double your returns,

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Speaker 3: is the liquidity. So one of the first stories I

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Speaker 3: heard about EM was, you know, it's called emerging because

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Speaker 3: how quickly can you emerge with your money from the market.

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Speaker 3: So when it comes to private credit in emerging markets,

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Speaker 3: is that not a concern that people may not be

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Speaker 3: able to get out as quickly as they want or

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Speaker 3: at the level that they would like. Is that something

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Speaker 3: people should be concerned about.

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Speaker 4: Well, what I'd say first of all that that that

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Speaker 4: phenomenon is no different than the decision people are making

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Speaker 4: the develop arguments to give up some liquidity to get

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Speaker 4: a different return characteristic.

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Speaker 2: But as I think about all of the mistakes that

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Speaker 2: you and I have seen.

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Speaker 4: Investors make historically in emerging markets, is somehow they have

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Speaker 4: associated the appearance of liquidity with safety, and I say.

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Speaker 2: The appearance of liquidity because every time they come.

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Speaker 4: To get liquidity, they found that it wasn't there, and

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Speaker 4: that's what created the dislocation to begin with. So I

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Speaker 4: would much rather focus on credit risk and ensure that

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Speaker 4: we have good credit and good collateral, and I'm willing

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Speaker 4: to explicitly give up some liquidity for that trade off.

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Speaker 4: Whereas in public markets, where I think the mistake is

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Speaker 4: in made is I'm going to take lower returns no collateral,

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Speaker 4: I'm going to have to deal with a bond trustee

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Speaker 4: and a collective action clause, which means if I ever

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Speaker 4: get trouble, I don't control my own destiny and all

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Speaker 4: in exchange for liquidity that's proven not to be there

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Speaker 4: whenever I want.

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Speaker 3: It's going on with the liquidity argument, and so and

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Speaker 3: that angle of things in emerging market is another issue

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Speaker 3: I guess that some people have is about size and

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Speaker 3: scaling things up. So, even on the public side, sometimes

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Speaker 3: the bonds that we see issued in emerging markets aren't

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Speaker 3: your typical benchmark size, right, So on the private side,

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Speaker 3: I guess some of those transactions may sometimes be a

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Speaker 3: bit small. So how do you get over the scale issue,

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Speaker 3: especially as a fund your size, how do you make

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Speaker 3: sure that whatever you're investing in makes a difference to

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Speaker 3: the returns of your fund, makes it worthwhile?

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Speaker 2: So, I mean there's two ways to answer that.

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Speaker 4: One is in a dedicated context for private credit, what's

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Speaker 4: the scale, what's the size? And so you know, for us,

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Speaker 4: if we're running a billion or billion and a half

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Speaker 4: dollar fund at any given time in private credit, and

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Speaker 4: to think about, you know, a thirty million dollar position,

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Speaker 4: I understand that doesn't move the needle for black Rock,

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Speaker 4: but that's meaningful for our vestors to say, you know,

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Speaker 4: we got a three percent waiting in a highly cloorized

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Speaker 4: transaction and you name the you name the country. So

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Speaker 4: in a dedicated portfolio, we can build a diversified portfolio

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Speaker 4: of thirty fifty million dollar names all day long. In

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Speaker 4: a multi asset portfolio where private credits may be only

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Speaker 4: twenty five thirty percent of the portfolio, it's you know,

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Speaker 4: go back to our market, which it's like, we're getting

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Speaker 4: a much more you know, optimal portfolio by bringing the

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Speaker 4: private in, the higher return, the last collateral, and.

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Speaker 2: We're getting getting enough scale. But you'd be surprised that,

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Speaker 2: you know, if you look at like what.

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Speaker 4: We've done in pemics, you know, you can get a

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Speaker 4: lot of scale public markets and pems you get no collabal,

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Speaker 4: you get no you know, no seniority, so to speak.

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Speaker 4: We are lending to pemics suppliers probably in one thousand

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Speaker 4: basis points more yield.

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Speaker 2: We get pemics receivable as are correlated collateral, and then

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Speaker 2: we get uncorrelated pledges of real estate. We've done four

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Speaker 2: and a half billion of that in the last five years.

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Speaker 2: That's enough. That's meaningful scale for us. Now.

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Speaker 4: It may not move the needle for large traditional asset managers,

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Speaker 4: put for us in our clients it's very meaningful.

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Speaker 3: So that brings us another issue in the asset management industry,

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Speaker 3: which is mn A. Right, So there are some, as

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Speaker 3: you said, that have been getting bigger and bigger over

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Speaker 3: the years, acquiring niche players and not so niche businesses

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Speaker 3: and even some moderately sized asset managers that are merging

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Speaker 3: and so on. What's your view on that for Grammarcy then, like,

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Speaker 3: do you think that staying your the size that you

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Speaker 3: are roughly growing a little bit and being nimble is

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Speaker 3: more important than gaining size or gaining share.

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Speaker 4: I mean, we would never want size just for the

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Speaker 4: for the sake of size, And you know, I think

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Speaker 4: what's been important for us is that we're perceived as

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Speaker 4: a perpetuity, that our clients and our.

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Speaker 2: Employees know that we're here for the long hold.

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Speaker 4: And sometimes that's associated with size just because you have

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Speaker 4: X billions of dollars or what have you.

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Speaker 2: But I really think it's the way that the firm

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Speaker 2: the firm is organized.

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Speaker 4: You know, we disaggregated from a founder led firm to

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Speaker 4: a CIO classic PM. All of our employees are aligned

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Speaker 4: with the profitability of their phones and their strategies as

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Speaker 4: well as the profitability.

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Speaker 2: Of the firm. So I think it's important what a

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Speaker 2: system that you create, and for us in our team,

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Speaker 2: you know, the growth path that we've been on.

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Speaker 4: You know, we started with four million in nineteen ninety

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Speaker 4: nine and we've grown as six billion today in twenty

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Speaker 4: twenty five, and we see plenty of organic growth that

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Speaker 4: makes us very excited. That being said, I think that

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Speaker 4: the inorganic growth opportunities that we see are less abound

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Speaker 4: M and A and more around partnering with institutions that

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Speaker 4: don't have the expertise that we have and but have

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Speaker 4: some of the other things that we don't have, the distribution,

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Speaker 4: the reasons that you might want to be part of

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Speaker 4: a part of a larger organization, and finding ways to

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Speaker 4: collaborate and partner in different strategies. So I mentioned you

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Speaker 4: know a great example in Mexico, we put out four

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Speaker 4: and a half billion dollars to once one sector. We're

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Speaker 4: six billion dollar manent acid management firm. You can't do

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Speaker 4: that on your own. So we have plenty of partnerships

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Speaker 4: with our clients and LPs and allowed us to punch

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Speaker 4: over our weight. And you know, we've never been constrained

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Speaker 4: by you know, in New market in the UK. Last

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Speaker 4: year we did a five hundred and fifty million dollar

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Speaker 4: deal for litigation finance and Down and Them angled to it.

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Speaker 4: So we're we're happy where we are. We've been doing

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Speaker 4: this for twenty six years, hope you know. We also

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Speaker 4: feel like a twenty six year old startup, got a

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Speaker 4: lot of energy, a lot of ambition, and I think

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Speaker 4: our growth in organic. It's well placed here in the

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Speaker 4: organic partnerships that we find along the way.

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Speaker 1: Did you say UK for litigation finance, Robert correct, So

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Speaker 1: I'm interested in that being considered an emerging market, but

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Speaker 1: probably is nowadays. But I just wanted to back up

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Speaker 1: to what you said about pemics because we do have

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Speaker 1: the joy of having many different types of listeners from

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Speaker 1: all sorts of backgrounds. Some of them don't even know

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Speaker 1: what pemics is. I will explain it. As you know,

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Speaker 1: one of the biggest oil companies in the world, Mexico

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Speaker 1: is a huge producer of oil. It's a state run producer,

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Speaker 1: and you have been lending to their supplies. But in

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Speaker 1: terms of other kinds of deals, and as I said

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Speaker 1: at the beginning, we don't really cover a lot of

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Speaker 1: emerging market. So what does emerging markets direct lending look

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Speaker 1: look like to you? What other kinds of sectors you

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Speaker 1: generally engaged in?

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Speaker 4: Yeah, and it'll help you answer the question. And told

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Speaker 4: ask them before about how do you get scaled in

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Speaker 4: these markets?

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Speaker 2: And I didn't necessarily answer that. So one, when.

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Speaker 4: You talk about developed market private credit, and you James

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Speaker 4: us the word that sponsored back deals, mergers and acquisitions,

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Speaker 4: what have you for better worse, that doesn't really exist

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Speaker 4: in emerging markets. And the way that we have sourced

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Speaker 4: diversification and scale and emerging markets is through having our

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Speaker 4: own dedicated lending platforms in the different markets. So when

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Speaker 4: we mentioned Mexico, we have a lending platform that's called Grammax.

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Speaker 2: It has multiple suppliers to.

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Speaker 4: Pemex, so we can get depth and breadth in an industry,

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Speaker 4: but it also gets you boots on the ground in Mexico,

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Speaker 4: where we've also diversified into real estate, real estate back

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Speaker 4: transactions or transactions.

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Speaker 2: That have to do with nearshore in French shore and

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Speaker 2: whatever may be.

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Speaker 4: So we have a platform in Mexico, we have one

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Speaker 4: in Brazil, we have one in Peru, we have one

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Speaker 4: in Turkey, et cetera. What that gives you is unique,

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Speaker 4: repeatable origination. What we're not doing is waiting for an

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Speaker 4: M and a deal where some sponsor is going to

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Speaker 4: ask twelve guys to put a term sheet in, And

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Speaker 4: we're not sitting here waiting for a bank to come

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Speaker 4: by and say, hey, we've completely baked this deal, would

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Speaker 4: you like to buy five or ten million. Everything that

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Speaker 4: we do is bespoke and tailor made for the needs

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Speaker 4: that we have. So probably half of what we do

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Speaker 4: today comes through these platforms, where.

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Speaker 2: On any given.

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Speaker 4: Vehicle that we may do, we know that like fifty

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Speaker 4: percent of the loans we make are kind of already

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Speaker 4: spoken for to the repeatability of those platforms. And then

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Speaker 4: the other one is having been in this asset classes

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Speaker 4: individuals for thirty thirty.

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Speaker 2: Five after forty years, we have all.

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Speaker 4: Sorts of relationships in all these different markets with folks

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Speaker 4: that normally help us do due diligence on transactions, with

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Speaker 4: sorts of a lot of transactions for us.

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Speaker 1: What are they supplying to pemics, what kind of supplies?

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Speaker 2: So it's really around.

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Speaker 4: For example, we have folks that lend lay the pipes,

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Speaker 4: people to build the platforms, people that service the pipe layers, the.

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Speaker 2: Platforms they having. So there's whole ecosystem.

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Speaker 4: Around some of the shallow, shallow water drilling that the

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Speaker 4: pemic stuffs.

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Speaker 1: And why isn't a local bank, you know, they have

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Speaker 1: tons of pesos captive, probably very cheap. Why aren't they

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Speaker 1: just doing those deals?

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Speaker 2: Well as totally.

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Speaker 4: Knows because she's been covering banks for a long period

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Speaker 4: of time that banks like to cover quote the the

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Speaker 4: quote safe, easy, liquid business. Right, so they'll be doing

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Speaker 4: syndicated loans at libraries, So for plus two hundred that

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Speaker 4: are uncollabalized or whatever.

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Speaker 2: It may be.

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Speaker 4: So I think the banks have committed their balance sheets

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Speaker 4: to kind of traditional corporate lending, and the working capital

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Speaker 4: needs of pemics and their suppliers have been left to others.

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Speaker 3: Just sort of to follow up on what you meant

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Speaker 3: men about doing business in Mexico and Turkey and elsewhere,

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Speaker 3: just more broadly, where would you say you see the

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Speaker 3: biggest opportunities across the em universe at the moment if

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Speaker 3: we're talking about regions, and also maybe in terms of industry,

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Speaker 3: obviously Pemex is oil and gas, but are there other

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Speaker 3: industries that you think are or sectors that you think

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Speaker 3: are interesting at the moment, and what regions or countries

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Speaker 3: is grammar sly looking at at the current time.

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Speaker 4: Sure, when you say grammar seeders, you know, in some

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Speaker 4: ways there's three grammar seas, right, there's a public credit

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Speaker 4: grammar seeds, there's a private credit grammar.

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Speaker 2: Seen, there's a special situations.

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Speaker 4: So I'll do my best and say, look, generally, we

401
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Speaker 4: continue to see a lot of opportunities in Latin America.

402
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Speaker 4: We see a lot of opportunities in emerging Europe and Africa,

403
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Speaker 4: and lesso in Asia. And so when I think about,

404
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Speaker 4: you know, the returns that we get out of Latam

405
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Speaker 4: relative to unit of risk, you can't find that in Asia.

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Speaker 4: So what we take quickly find in Asia is high

407
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Speaker 4: returns with a tremendous amount of risk. So typically mezzanine

408
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Speaker 4: finance and you know, M and A financing and what

409
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Speaker 4: have you, or really low yields because the risk, you know, it's.

410
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Speaker 2: It's low and it's over bought in net market.

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Speaker 4: So we're finding quite a bit from a from a

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Speaker 4: regional perspective in Latan and samea. Turkey has been a

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Speaker 4: phenomenal market for us on the direct lending side. You know,

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Speaker 4: there's been this aversion to Turkey on the public side,

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Speaker 4: which I understand, particularly with the currency that's gone from

416
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Speaker 4: one point three to thirty five over the past you know,

417
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Speaker 4: ten years whatever. Maybe dollar based bond investors that have

418
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Speaker 4: done okay, but we're able to go into Turkey and

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Speaker 4: get mid to upper teams doing really simple trade finance

420
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Speaker 4: sitting with collateral in our warehouse is real estate backed finance,

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Speaker 4: you know LTVs of.

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Speaker 2: You know, zero point twenty five, and that to us

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Speaker 2: is a great example of you know, we're willing to

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Speaker 2: give up a couple of years of liquidy to be

425
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Speaker 2: in Turkey, to get rid of the currency risk and

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Speaker 2: have a bunch of collateral in case things go wrong.

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Speaker 3: Since you brought up Turkey, I will ask a question

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Speaker 3: about that before I sort of switched back to latime,

429
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Speaker 3: where I have another question. So, you know, you mentioned

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Speaker 3: obviously that there is a lot of public Turkey debt,

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Speaker 3: and we know that the Turkish banks, major banks anyway,

432
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Speaker 3: are accustomed to dealing with challenges and they've managed relatively well.

433
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Speaker 3: But there are these issues that you mentioned with the

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Speaker 3: currency inflation, et cetera. So how does that affect the

435
00:22:33,040 --> 00:22:35,960
Speaker 3: direct lending and other businesses that you're looking at in

436
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Speaker 3: Turkey or are they not affected by these headlines that

437
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Speaker 3: we sometimes see coming out of Turkey and the broader region.

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Speaker 4: Look, it creates those challenges, those headlines, the headwinds for

439
00:22:49,280 --> 00:22:52,240
Speaker 4: the banks in places like Turkey. That's what creates the

440
00:22:52,240 --> 00:22:55,160
Speaker 4: opportunity for us something like plund I mean, we oftentimes

441
00:22:55,480 --> 00:22:57,600
Speaker 4: will sit in an investment committee and say, if this

442
00:22:57,720 --> 00:23:01,280
Speaker 4: risk was anywhere else in the world, we probably wouldn't

443
00:23:01,280 --> 00:23:01,840
Speaker 4: get to price it.

444
00:23:01,880 --> 00:23:03,119
Speaker 2: Where we are, we wouldn't see it.

445
00:23:03,160 --> 00:23:06,159
Speaker 4: So we're getting to lend to what would otherwise be

446
00:23:06,760 --> 00:23:10,119
Speaker 4: investment grade barrowards if it wasn't for the fact that

447
00:23:10,160 --> 00:23:14,480
Speaker 4: it was being constrained by the sovereign itself, the sovereign

448
00:23:14,520 --> 00:23:16,879
Speaker 4: rating right, And that's what that's really interesting when you

449
00:23:16,960 --> 00:23:19,679
Speaker 4: when you talk about deals where you have collateral and

450
00:23:19,720 --> 00:23:23,639
Speaker 4: you can ensure and protect principle, but it's in a

451
00:23:23,680 --> 00:23:26,760
Speaker 4: place that's not investment grade. That's that's the arbitrage in

452
00:23:26,840 --> 00:23:28,919
Speaker 4: Turkey in particular, if you go back, goes back as

453
00:23:28,960 --> 00:23:33,280
Speaker 4: far as twenty eighteen, when the banks, you know, we're

454
00:23:33,280 --> 00:23:38,000
Speaker 4: really suffering from the from the beginning of the Lyric crisis.

455
00:23:38,240 --> 00:23:40,520
Speaker 4: That's when the direct lending market really.

456
00:23:40,359 --> 00:23:42,440
Speaker 2: Opened up for us. And I recall.

457
00:23:42,280 --> 00:23:44,720
Speaker 4: There was a transaction where one corporate thing we'd known

458
00:23:44,840 --> 00:23:48,480
Speaker 4: for twenty years, we knew their business, I knew him personally.

459
00:23:49,240 --> 00:23:51,760
Speaker 2: Colin said, can we have lunch in London?

460
00:23:52,040 --> 00:23:56,280
Speaker 4: It turns into a seven hour meeting walk out with

461
00:23:56,359 --> 00:23:57,639
Speaker 4: cocktail napkins.

462
00:23:57,240 --> 00:23:59,400
Speaker 2: Which we'll call it, which call a turn sheet.

463
00:24:00,200 --> 00:24:02,160
Speaker 4: We describe a problem that the banking sector was happ

464
00:24:02,240 --> 00:24:03,359
Speaker 4: not that his business has happened.

465
00:24:03,359 --> 00:24:04,160
Speaker 2: Is business is fun.

466
00:24:04,800 --> 00:24:08,600
Speaker 4: But in Turkey, if you have what we would call

467
00:24:09,400 --> 00:24:12,959
Speaker 4: post dated checks, they call commercial paper, and they used

468
00:24:12,960 --> 00:24:14,760
Speaker 4: to be able to take that commercial paper to a

469
00:24:14,800 --> 00:24:19,080
Speaker 4: bank and factory. Well, when the banks were under pressure,

470
00:24:19,200 --> 00:24:22,240
Speaker 4: they stopped the factory. So not only do these people

471
00:24:22,280 --> 00:24:25,239
Speaker 4: lose their working capital, but they had great assets and

472
00:24:25,320 --> 00:24:25,920
Speaker 4: they had.

473
00:24:26,280 --> 00:24:27,280
Speaker 2: Ill liquidity issues.

474
00:24:27,640 --> 00:24:30,960
Speaker 4: For us, you know, banks oftentimes will only lend against

475
00:24:31,600 --> 00:24:33,960
Speaker 4: tangible cash flow and they don't look at the assets.

476
00:24:34,000 --> 00:24:35,880
Speaker 4: We'll look at a combination of the tangible cash flow

477
00:24:35,920 --> 00:24:40,040
Speaker 4: and the assets, and we're given extraordinary yields, both in

478
00:24:40,160 --> 00:24:42,880
Speaker 4: terms of absolute and relative to the risk for doing

479
00:24:42,920 --> 00:24:43,880
Speaker 4: so well.

480
00:24:43,920 --> 00:24:46,600
Speaker 3: We'll try not to keep you here for seven hours, Robert,

481
00:24:47,400 --> 00:24:51,679
Speaker 3: but so going back to Latin, and you know the

482
00:24:51,720 --> 00:24:56,160
Speaker 3: opportunities that you see there. In the last few days,

483
00:24:56,280 --> 00:24:59,119
Speaker 3: well mainly over the weekend, clearly Columbia was in the

484
00:24:59,160 --> 00:25:03,320
Speaker 3: news very unwelcome, especially given that the US and Columbia

485
00:25:03,320 --> 00:25:08,240
Speaker 3: is supposed to be allies. So given the risks related

486
00:25:08,280 --> 00:25:12,760
Speaker 3: to tariffs and potential trade wars and politics and immigration

487
00:25:12,920 --> 00:25:16,960
Speaker 3: and so on, are you concerned about latime in that

488
00:25:17,119 --> 00:25:19,840
Speaker 3: context or do you think that, like we saw at

489
00:25:19,880 --> 00:25:23,760
Speaker 3: the weekend, there will be some sort of quick solution

490
00:25:24,359 --> 00:25:29,040
Speaker 3: when these sorts of issues come up, whether it's with

491
00:25:29,680 --> 00:25:33,359
Speaker 3: countries that are allies of Trump or countries that are

492
00:25:33,840 --> 00:25:34,760
Speaker 3: not so close to him.

493
00:25:35,400 --> 00:25:39,199
Speaker 4: Look, I think the highest conviction theme that we have

494
00:25:39,280 --> 00:25:44,640
Speaker 4: as a team is volatility. There's so much uncertainty and

495
00:25:44,800 --> 00:25:48,000
Speaker 4: you know where Muhammalarian, when we speak about all the

496
00:25:48,119 --> 00:25:52,120
Speaker 4: different possibilities, you should think about like a normal distribution curve,

497
00:25:52,160 --> 00:25:55,760
Speaker 4: and there's all sorts of you know, various outcomes that

498
00:25:55,840 --> 00:25:58,399
Speaker 4: have very little wings to them, but when they occur,

499
00:25:58,520 --> 00:26:02,840
Speaker 4: they have material, major impact. So the reason that we

500
00:26:02,920 --> 00:26:06,000
Speaker 4: have the most conviction in volatility is because we have

501
00:26:06,080 --> 00:26:09,880
Speaker 4: the most uncertain environment that one could imagine, and when

502
00:26:09,960 --> 00:26:13,399
Speaker 4: uncertainty goes up, whether it's top down or bottoms up,

503
00:26:13,520 --> 00:26:17,359
Speaker 4: then one should expect volatility to increase. And remember you

504
00:26:17,960 --> 00:26:20,920
Speaker 4: were talking about an era when rates were very low

505
00:26:21,480 --> 00:26:22,440
Speaker 4: financial repression.

506
00:26:22,600 --> 00:26:24,480
Speaker 2: Well, volatility was also very low.

507
00:26:24,880 --> 00:26:27,720
Speaker 4: And if you remember, everybody was bellyaching that there was

508
00:26:27,760 --> 00:26:30,439
Speaker 4: no volatility and they couldn't trade the volatility, and macro

509
00:26:30,480 --> 00:26:35,040
Speaker 4: funds would have you had a very difficult time. Volatility

510
00:26:35,160 --> 00:26:37,840
Speaker 4: it embraced properly as your friend. And so if you

511
00:26:37,880 --> 00:26:41,840
Speaker 4: expect volatility and you position around volatility, and I don't

512
00:26:41,840 --> 00:26:44,320
Speaker 4: want to sound too simple, but if you think about

513
00:26:44,320 --> 00:26:47,359
Speaker 4: buying low and selling high, or planning the trade and

514
00:26:47,359 --> 00:26:50,560
Speaker 4: trading the plan, which is, you know, if the Colombian

515
00:26:50,800 --> 00:26:54,879
Speaker 4: pesot gets to forty eight hundred, we're going to think

516
00:26:54,960 --> 00:26:59,440
Speaker 4: about increasing our pacer risk or reducing our PASO hedges

517
00:26:59,800 --> 00:27:02,359
Speaker 4: and it over gets over bought to thirty eight hundred,

518
00:27:02,640 --> 00:27:04,479
Speaker 4: And that just happens with volatility, you know.

519
00:27:05,080 --> 00:27:06,880
Speaker 2: Unfortunately, the Trump volatility.

520
00:27:06,440 --> 00:27:08,800
Speaker 4: Was opened before the market opened on Monday morning, so

521
00:27:09,320 --> 00:27:11,080
Speaker 4: all we could do was think about it on Sunday,

522
00:27:11,200 --> 00:27:13,080
Speaker 4: not actually executed on Monday.

523
00:27:13,440 --> 00:27:14,840
Speaker 2: But there's plenty of opportunities.

524
00:27:14,880 --> 00:27:17,359
Speaker 4: I'm sure there will continue to be where if you

525
00:27:18,080 --> 00:27:20,520
Speaker 4: think about planning the trade and trading a plan, and

526
00:27:20,560 --> 00:27:23,960
Speaker 4: then you execute your plan, volatility.

527
00:27:23,520 --> 00:27:23,960
Speaker 2: Is your friend.

528
00:27:24,200 --> 00:27:26,159
Speaker 1: But you mentioned the uncertainy. I mean it's always uncertain

529
00:27:26,200 --> 00:27:28,240
Speaker 1: that it's particularly in emerging markets. Would you say that

530
00:27:28,280 --> 00:27:31,920
Speaker 1: this is an extreme point in history. You've been covering

531
00:27:31,960 --> 00:27:35,000
Speaker 1: this for decades. Is this worse than you've seen it before?

532
00:27:35,280 --> 00:27:39,040
Speaker 4: Look, I've used the word beta agnostics several times today,

533
00:27:39,040 --> 00:27:43,040
Speaker 4: and one of the older I get, the less beta

534
00:27:43,080 --> 00:27:45,879
Speaker 4: I went the portfolio, and I think that question relates

535
00:27:45,960 --> 00:27:48,600
Speaker 4: to beta and the way that people typically think about

536
00:27:48,640 --> 00:27:53,720
Speaker 4: emerging markets. I remember a couple of years ago the

537
00:27:53,760 --> 00:27:56,040
Speaker 4: markets were really volatile. The US market was down five

538
00:27:56,119 --> 00:27:58,760
Speaker 4: six seven percent one day and a friend called me

539
00:27:58,840 --> 00:28:00,520
Speaker 4: up and said where are you I I'm out with

540
00:28:00,520 --> 00:28:02,440
Speaker 4: my family, and I'm like, well, don't you see what's going.

541
00:28:02,359 --> 00:28:04,920
Speaker 2: On with the market? And my response was private credit,

542
00:28:05,720 --> 00:28:07,840
Speaker 2: we're well structured. It doesn't really matter. And that's in

543
00:28:07,840 --> 00:28:08,520
Speaker 2: Turkey as well.

544
00:28:08,560 --> 00:28:11,280
Speaker 4: Like you know that loan we made in twenty eighteen,

545
00:28:11,320 --> 00:28:13,480
Speaker 4: the lero was at twelve five.

546
00:28:13,400 --> 00:28:14,600
Speaker 2: Years later was it thirty two?

547
00:28:14,720 --> 00:28:16,480
Speaker 4: Our clou was still there and we got we got

548
00:28:16,480 --> 00:28:18,840
Speaker 4: pre paid because the borrow. We just wanted to get

549
00:28:18,840 --> 00:28:23,080
Speaker 4: their cloud back. So it's the world is uncertain, you know.

550
00:28:23,119 --> 00:28:24,800
Speaker 4: I think one of the challenges in the world today

551
00:28:24,920 --> 00:28:28,840
Speaker 4: is thirty five years ago when I started this asset class,

552
00:28:29,200 --> 00:28:33,439
Speaker 4: there was a strong trend towards globalization, and emerging markets

553
00:28:33,480 --> 00:28:38,200
Speaker 4: was a huge beneficiary of that. Globalization looks different today,

554
00:28:38,480 --> 00:28:44,000
Speaker 4: looks more like regionalization, and you know, fences and barriers.

555
00:28:43,440 --> 00:28:47,240
Speaker 2: And blocks and what have you. So it's more challenging.

556
00:28:47,280 --> 00:28:49,200
Speaker 4: But if you have a background in the political science

557
00:28:49,200 --> 00:28:51,960
Speaker 4: and history and economics and finance, what have you, it's

558
00:28:52,000 --> 00:28:52,600
Speaker 4: a playground.

559
00:28:52,800 --> 00:28:55,479
Speaker 1: Also, things can change very quickly, and they can, you know,

560
00:28:55,960 --> 00:29:01,440
Speaker 1: erupt in all sorts of terrible conditions, and you may

561
00:29:01,480 --> 00:29:03,520
Speaker 1: have the collateral, but you can't collect it or you

562
00:29:03,520 --> 00:29:05,240
Speaker 1: don't want to collect it. I mean, do you really

563
00:29:05,280 --> 00:29:09,320
Speaker 1: want to own a gas station in Turkey? Or as

564
00:29:09,320 --> 00:29:12,080
Speaker 1: we saw in the Argentina restructurings, it's really very hard

565
00:29:12,120 --> 00:29:15,040
Speaker 1: to collect on all of the judgments you might get.

566
00:29:15,320 --> 00:29:17,760
Speaker 1: So how do you hedge how do you stay out

567
00:29:17,800 --> 00:29:18,400
Speaker 1: of trouble?

568
00:29:18,920 --> 00:29:21,840
Speaker 4: Well, first of all, in emerging markets when you underwrite

569
00:29:21,840 --> 00:29:23,760
Speaker 4: and I'll go to Turkey for example, Since you mentioned

570
00:29:23,800 --> 00:29:26,760
Speaker 4: the gas station. The first thing you have to underwrite

571
00:29:26,800 --> 00:29:29,720
Speaker 4: is the people, the person, the borrower. You have to

572
00:29:29,800 --> 00:29:34,120
Speaker 4: understand them, their credit culture and how they behaved in

573
00:29:34,160 --> 00:29:38,160
Speaker 4: times of dress in the past to predict how they're.

574
00:29:37,960 --> 00:29:38,880
Speaker 2: Going to behave in the future.

575
00:29:39,320 --> 00:29:43,280
Speaker 4: And everybody keeps talking about how challenging Turkey's been for five, ten, fifteen,

576
00:29:43,320 --> 00:29:47,200
Speaker 4: twenty years. That's really been a local market Lira story.

577
00:29:47,320 --> 00:29:49,760
Speaker 4: But total talk to me about the last time there

578
00:29:49,800 --> 00:29:51,240
Speaker 4: was a sovereign default Turkey.

579
00:29:51,320 --> 00:29:54,200
Speaker 3: Of course, I mean, we haven't had that in a while,

580
00:29:54,600 --> 00:29:54,920
Speaker 3: but we.

581
00:29:54,920 --> 00:29:57,560
Speaker 2: Do have strong credit culture.

582
00:29:58,040 --> 00:30:02,600
Speaker 3: It is a culture where they believe that debt should

583
00:30:02,680 --> 00:30:04,960
Speaker 3: be paid back, which but if.

584
00:30:04,840 --> 00:30:06,240
Speaker 4: You don't pay it, they come to your door and

585
00:30:06,240 --> 00:30:10,040
Speaker 4: they take your sofa, right the credit card company and James,

586
00:30:10,080 --> 00:30:13,080
Speaker 4: you're right, like, we don't want the gas stations, but

587
00:30:13,200 --> 00:30:15,600
Speaker 4: the borrower did yet two of them, one for each

588
00:30:15,600 --> 00:30:17,080
Speaker 4: of his sons, and so.

589
00:30:18,080 --> 00:30:20,600
Speaker 2: Having pledge cloudal was it that you want to take

590
00:30:20,600 --> 00:30:23,160
Speaker 2: the collateral. It's that they want the collateral.

591
00:30:23,200 --> 00:30:26,360
Speaker 4: And when you have collateral, or even in bad situations,

592
00:30:26,480 --> 00:30:28,000
Speaker 4: you come up with good outcomes.

593
00:30:28,200 --> 00:30:29,040
Speaker 2: That's what it's about.

594
00:30:29,360 --> 00:30:32,760
Speaker 3: One of the issues, I guess looking at the real

595
00:30:32,880 --> 00:30:37,000
Speaker 3: estate sector in em specifically has been what happened with China.

596
00:30:37,080 --> 00:30:41,560
Speaker 3: So you already said that you're not necessarily focused on

597
00:30:41,800 --> 00:30:45,239
Speaker 3: that aspect of emerging markets. But is there anywhere that

598
00:30:45,360 --> 00:30:47,880
Speaker 3: you think within emerging markets where you think there are

599
00:30:48,000 --> 00:30:52,840
Speaker 3: good real estate sector opportunities or do you think maybe

600
00:30:52,920 --> 00:30:56,000
Speaker 3: now think that there's more to do in China now

601
00:30:56,000 --> 00:30:59,160
Speaker 3: that we are having a number of the restructurings and

602
00:30:59,200 --> 00:30:59,960
Speaker 3: so on shakeout.

603
00:31:00,320 --> 00:31:01,120
Speaker 2: So I think.

604
00:31:02,400 --> 00:31:05,280
Speaker 4: Real estate emerging markets is a bit of a Barbelle.

605
00:31:05,400 --> 00:31:08,160
Speaker 4: So there's kind of traditional real estate back financing that

606
00:31:08,200 --> 00:31:10,960
Speaker 4: you can do, and I think you can get a

607
00:31:11,040 --> 00:31:14,120
Speaker 4: good return and a great relative return to some of

608
00:31:14,120 --> 00:31:16,240
Speaker 4: the other corporate debt that you might get when you

609
00:31:16,280 --> 00:31:18,120
Speaker 4: speak about China. And I think China is a great

610
00:31:18,120 --> 00:31:20,640
Speaker 4: example of in the season doing damage to emerging.

611
00:31:20,360 --> 00:31:23,480
Speaker 2: Market investors because if we re recall when all the China.

612
00:31:23,280 --> 00:31:26,480
Speaker 4: Property names were at par they were material way to

613
00:31:26,520 --> 00:31:27,520
Speaker 4: the corporate bond index.

614
00:31:27,880 --> 00:31:29,600
Speaker 2: So if you didn't own it, it.

615
00:31:29,480 --> 00:31:31,760
Speaker 4: Was painful, and eventually if you owned it, it was

616
00:31:31,800 --> 00:31:37,080
Speaker 4: even more painful. So when China was China property was

617
00:31:37,080 --> 00:31:38,840
Speaker 4: at PARR was part of an index. We had no

618
00:31:38,880 --> 00:31:41,800
Speaker 4: interest in it, We didn't see any property backing up.

619
00:31:42,000 --> 00:31:43,720
Speaker 2: There was no collabteral. They called it China property, but

620
00:31:43,800 --> 00:31:47,360
Speaker 2: there was no property for offshore investors, and for offshore

621
00:31:47,400 --> 00:31:48,000
Speaker 2: investors to.

622
00:31:47,920 --> 00:31:51,479
Speaker 4: Get paid, you needed the ability and the willingness of

623
00:31:51,520 --> 00:31:56,320
Speaker 4: the onshore borrower to dividends some money to the offshore

624
00:31:56,400 --> 00:31:57,560
Speaker 4: to pay well.

625
00:31:57,600 --> 00:31:59,840
Speaker 2: All those par bonds have turned into five cent bonds.

626
00:32:00,720 --> 00:32:03,880
Speaker 4: There's over a thousand home builders one hundred issue bonds,

627
00:32:03,920 --> 00:32:06,920
Speaker 4: and we think maybe there's five sixty seven of them

628
00:32:07,360 --> 00:32:12,040
Speaker 4: that will go through restructurings as opposed to liquidations that'll

629
00:32:12,080 --> 00:32:14,479
Speaker 4: never get anywhere near parer. But when you're coming in

630
00:32:14,480 --> 00:32:17,960
Speaker 4: at five fifteen twenty twenty five, it's pretty powerful.

631
00:32:18,400 --> 00:32:20,800
Speaker 3: So it's all about the entry point there then, which

632
00:32:20,840 --> 00:32:21,320
Speaker 3: is right enough?

633
00:32:21,600 --> 00:32:24,520
Speaker 4: Everyone talks about the investibility of China. Is China investment?

634
00:32:24,600 --> 00:32:26,920
Speaker 4: We'll say, well, you know, if you're talking about a

635
00:32:26,920 --> 00:32:30,360
Speaker 4: bunch of power securities, and the closer you get to

636
00:32:30,360 --> 00:32:33,680
Speaker 4: things a matter of national security and defense and technology,

637
00:32:33,760 --> 00:32:34,800
Speaker 4: the answer is absolutely.

638
00:32:34,880 --> 00:32:34,960
Speaker 2: Know.

639
00:32:35,400 --> 00:32:39,280
Speaker 4: If you're talking about a five cent bond in a

640
00:32:39,360 --> 00:32:43,160
Speaker 4: sector that matters to China, you know you can't ignore

641
00:32:43,240 --> 00:32:44,320
Speaker 4: twenty five to thirty.

642
00:32:44,080 --> 00:32:46,080
Speaker 2: Percent of your GDP forever you.

643
00:32:46,000 --> 00:32:48,400
Speaker 4: Know, they instead of the Bazuka that's coming out in.

644
00:32:50,120 --> 00:32:50,760
Speaker 2: Little pieces.

645
00:32:50,800 --> 00:32:52,920
Speaker 4: But I think the goal of the Chinese government was

646
00:32:52,960 --> 00:32:56,240
Speaker 4: to isolate Evergrand and insulate the rest of the sector,

647
00:32:56,600 --> 00:32:57,720
Speaker 4: and that's failed miserably.

648
00:32:57,880 --> 00:33:01,880
Speaker 3: I mean, away from China real estate, then you wouldn't

649
00:33:01,920 --> 00:33:06,240
Speaker 3: necessarily see, well, the same sorts of opportunities to go

650
00:33:06,280 --> 00:33:09,600
Speaker 3: from five to fifteen or whatever to make those sorts

651
00:33:09,640 --> 00:33:13,120
Speaker 3: of returns in real estate outside of China, then it's

652
00:33:13,160 --> 00:33:17,560
Speaker 3: fair to say that China's where those opportunities exist.

653
00:33:17,800 --> 00:33:21,000
Speaker 4: Yeah, China's less about the real estate cru se, right,

654
00:33:21,040 --> 00:33:23,240
Speaker 4: and the value and the process of the destructuring. And

655
00:33:23,280 --> 00:33:27,200
Speaker 4: then to James's point, you know, we don't want the

656
00:33:27,240 --> 00:33:29,200
Speaker 4: gas stations and we don't want the apartment buildings. This

657
00:33:29,240 --> 00:33:31,920
Speaker 4: isn't about underwriting what the departments are worth. It's about

658
00:33:32,000 --> 00:33:35,200
Speaker 4: underwriting that there's a subset that I go through restructuring,

659
00:33:36,200 --> 00:33:39,200
Speaker 4: and quite frankly, the value might be in the equity

660
00:33:39,200 --> 00:33:41,280
Speaker 4: as much as is in the bonds, because if you

661
00:33:41,320 --> 00:33:44,000
Speaker 4: look at these restructurings and emerging markets, you know what

662
00:33:44,080 --> 00:33:46,760
Speaker 4: happens is typically debt and equity you're both worth one

663
00:33:46,840 --> 00:33:49,320
Speaker 4: hundred before you've got to default or whatever, they both

664
00:33:49,360 --> 00:33:52,360
Speaker 4: go down and trade at pennies. The debt gets restructured

665
00:33:52,360 --> 00:33:55,760
Speaker 4: and hair code and the equity doesn't get materially deluded.

666
00:33:56,240 --> 00:33:58,400
Speaker 2: That's what we're seeing in the China property sector.

667
00:33:58,520 --> 00:34:03,440
Speaker 4: So the value of a deadly structuring in China property

668
00:34:03,520 --> 00:34:05,800
Speaker 4: maybe the death and maybe some combination.

669
00:34:05,400 --> 00:34:06,240
Speaker 2: Of debt and equity.

670
00:34:06,960 --> 00:34:10,920
Speaker 3: Another question on return, So I know we've talked about

671
00:34:11,040 --> 00:34:14,640
Speaker 3: not hugging the benchmark a lot here, but if we

672
00:34:14,800 --> 00:34:19,680
Speaker 3: do look at those main em benchmarks, performance last year

673
00:34:19,840 --> 00:34:23,280
Speaker 3: twenty twenty four and the previous year wasn't too bad.

674
00:34:23,520 --> 00:34:28,640
Speaker 3: So given that you've had two consecutive years of okay performance,

675
00:34:28,920 --> 00:34:32,439
Speaker 3: what do you think people should expect in twenty twenty five.

676
00:34:32,480 --> 00:34:35,760
Speaker 3: I can tell you, like from a European real estate perspective,

677
00:34:35,760 --> 00:34:38,160
Speaker 3: that's one of the concerns that you've had two great years.

678
00:34:38,600 --> 00:34:41,160
Speaker 3: Can we have a third? Maybe not? So is that

679
00:34:41,200 --> 00:34:43,439
Speaker 3: also an issue in emerging market or do you think

680
00:34:43,520 --> 00:34:49,040
Speaker 3: that because of your differentiated positioning you might continue to

681
00:34:49,080 --> 00:34:50,439
Speaker 3: perform well again this year.

682
00:34:50,880 --> 00:34:52,640
Speaker 2: So I think that's a public credit question, on a

683
00:34:52,680 --> 00:34:53,880
Speaker 2: private credit question.

684
00:34:54,120 --> 00:34:57,839
Speaker 4: Particularly talk about the industry, but I also think as

685
00:34:57,880 --> 00:35:01,920
Speaker 4: on where you are in public credit right so the

686
00:35:01,920 --> 00:35:03,879
Speaker 4: money to be made in public credit in.

687
00:35:03,840 --> 00:35:06,479
Speaker 2: Twenty three twenty four was.

688
00:35:07,920 --> 00:35:10,439
Speaker 4: Not so much about yes, no, but where you were

689
00:35:10,600 --> 00:35:13,359
Speaker 4: even within that index based world, and not just the

690
00:35:13,400 --> 00:35:16,759
Speaker 4: dispersion of the emerging market sovereigns, but even some sub

691
00:35:17,040 --> 00:35:21,480
Speaker 4: sub subsectors like you know, for US, we found that

692
00:35:21,719 --> 00:35:25,000
Speaker 4: high yield was a great place to be when rates

693
00:35:25,000 --> 00:35:28,600
Speaker 4: were rapidly rising, and that the corporate balance sheets were

694
00:35:28,600 --> 00:35:31,160
Speaker 4: in great shape. The sovereign balance sheets were not such

695
00:35:31,200 --> 00:35:34,120
Speaker 4: great at space. So the sovereigns had two headwinds. They

696
00:35:34,160 --> 00:35:36,360
Speaker 4: had the duration, which was typically more duration and the

697
00:35:36,360 --> 00:35:39,120
Speaker 4: ig stuff, ironically than the high yield.

698
00:35:39,360 --> 00:35:41,520
Speaker 2: And then you know.

699
00:35:41,560 --> 00:35:43,880
Speaker 4: Late last year, I say late twenty three twenty four,

700
00:35:43,880 --> 00:35:46,080
Speaker 4: it was about turning the doll back towards investment.

701
00:35:45,760 --> 00:35:48,440
Speaker 2: Grade and duration. So it's hard to answer it in

702
00:35:48,520 --> 00:35:50,600
Speaker 2: a blanket fashion.

703
00:35:50,640 --> 00:35:53,080
Speaker 4: I think there's a lot of analysis that needs to

704
00:35:53,080 --> 00:35:54,879
Speaker 4: be done below the surface.

705
00:35:55,040 --> 00:35:57,279
Speaker 1: So em private debt. I mean, we have a lot

706
00:35:57,320 --> 00:35:59,680
Speaker 1: of conversations on this show about private debt in general

707
00:35:59,719 --> 00:36:02,080
Speaker 1: and the potential scale of it. And you know, Polo

708
00:36:02,160 --> 00:36:04,840
Speaker 1: is talking about a forty trillion dollar market addressable. I

709
00:36:04,920 --> 00:36:08,360
Speaker 1: think they're mostly talking about US and developed markets there,

710
00:36:08,760 --> 00:36:13,280
Speaker 1: But is there a huge undiscovered opportunity in emerging markets

711
00:36:13,280 --> 00:36:15,600
Speaker 1: that you you are seeing and you know it doesn't

712
00:36:15,600 --> 00:36:17,080
Speaker 1: seem like a lot of other people are piling in,

713
00:36:17,120 --> 00:36:19,239
Speaker 1: So how big is this opportunity? And you know, what's

714
00:36:19,239 --> 00:36:20,320
Speaker 1: the addressable market?

715
00:36:20,600 --> 00:36:22,480
Speaker 2: Well, I mean, one way to think about it is

716
00:36:22,560 --> 00:36:24,400
Speaker 2: just you know, you talked about all.

717
00:36:24,280 --> 00:36:26,360
Speaker 4: The challenges at the beginning of the show of emerging

718
00:36:26,360 --> 00:36:29,560
Speaker 4: market investing emerging market debt investing is why is anybody investable?

719
00:36:29,560 --> 00:36:31,239
Speaker 2: The route is there's you know, over trillion dollarge and

720
00:36:31,280 --> 00:36:33,120
Speaker 2: emerging market debt today, right, So.

721
00:36:33,080 --> 00:36:36,520
Speaker 4: You don't have to necessarily convince people to take emerging

722
00:36:36,520 --> 00:36:37,040
Speaker 4: market risks.

723
00:36:37,040 --> 00:36:39,360
Speaker 2: They already have the risk. The conversation you have to

724
00:36:39,360 --> 00:36:40,640
Speaker 2: have is like, is there a more.

725
00:36:40,520 --> 00:36:43,120
Speaker 4: Intelligent way to take the risk? And I think that's

726
00:36:43,160 --> 00:36:46,520
Speaker 4: the opportunity for private credit. And I also think that,

727
00:36:47,680 --> 00:36:50,239
Speaker 4: like the example we talked about in the Turkey, the

728
00:36:51,320 --> 00:36:55,799
Speaker 4: flows to dedicate an emerging market have slowed down the

729
00:36:55,920 --> 00:37:01,400
Speaker 4: massive outflows, the recovery hasn't come, which means if that continues,

730
00:37:01,840 --> 00:37:03,600
Speaker 4: it's going to be more and more challenging for emerging

731
00:37:03,680 --> 00:37:06,719
Speaker 4: market issuers to get capital at the rate that they

732
00:37:06,760 --> 00:37:11,320
Speaker 4: find competitive, and again we have lent to investment grade

733
00:37:11,400 --> 00:37:14,040
Speaker 4: what would otherwise have been investment grade borrowers in places

734
00:37:14,080 --> 00:37:16,760
Speaker 4: like Turkey in Mexico because of the dearth of capital

735
00:37:16,800 --> 00:37:19,200
Speaker 4: that was either coming from dedicated to emerging market debt

736
00:37:19,200 --> 00:37:22,000
Speaker 4: investors and maybe for the reason totally mentioned, because the

737
00:37:22,040 --> 00:37:24,680
Speaker 4: size of the loan was an index weight or whatever

738
00:37:24,719 --> 00:37:28,839
Speaker 4: it may be, or there's just other regulatory challenges going

739
00:37:28,880 --> 00:37:30,360
Speaker 4: on in the country at that time that allows you

740
00:37:30,400 --> 00:37:32,760
Speaker 4: to seek that risk wouldn't otherwise.

741
00:37:32,840 --> 00:37:34,360
Speaker 2: But I remember runninground Turkey.

742
00:37:34,080 --> 00:37:38,440
Speaker 4: In two thousand and probably mid twenty fourteen fifteen, as

743
00:37:38,440 --> 00:37:40,279
Speaker 4: we were starting a private credit business and meeting with

744
00:37:40,320 --> 00:37:43,480
Speaker 4: all sorts of borrowers, and they were like, we can

745
00:37:43,480 --> 00:37:45,520
Speaker 4: borrow seven percent unsecured all day long.

746
00:37:45,560 --> 00:37:46,560
Speaker 2: We don't need your capital.

747
00:37:46,719 --> 00:37:48,560
Speaker 4: And my response was to keep my cards just in

748
00:37:48,600 --> 00:37:50,840
Speaker 4: case it doesn't work out. You know, all those people

749
00:37:50,840 --> 00:37:54,239
Speaker 4: started calling us in twenty eighteen. You know, same thing

750
00:37:54,239 --> 00:37:56,080
Speaker 4: that happened in Argentina in two thousand and seven. Hey,

751
00:37:56,120 --> 00:37:57,840
Speaker 4: everybody's investing, we don't need your capital.

752
00:37:57,840 --> 00:38:00,560
Speaker 1: We'll keep the cards, kids, And you'll see more of that,

753
00:38:00,640 --> 00:38:02,919
Speaker 1: more of those calls now because rates are high because

754
00:38:03,040 --> 00:38:06,000
Speaker 1: local banks are pulling back, is that the general.

755
00:38:06,200 --> 00:38:09,839
Speaker 4: Local banks are point back rates are higher, and the

756
00:38:09,920 --> 00:38:15,719
Speaker 4: dedicated corporate emerging market flow isn't necessarily there. So that

757
00:38:15,840 --> 00:38:18,880
Speaker 4: being said, emerging market new issues is doing pretty well,

758
00:38:19,400 --> 00:38:21,120
Speaker 4: and we think a lot of that's coming from the

759
00:38:21,160 --> 00:38:23,799
Speaker 4: local buyer as well from the cross server buyer.

760
00:38:25,160 --> 00:38:27,440
Speaker 3: I have one question, because I think you've come across

761
00:38:27,640 --> 00:38:30,200
Speaker 3: very constructive, which is what we would have expected, obviously

762
00:38:30,760 --> 00:38:34,120
Speaker 3: from someone who has seen many cycles or the twelve

763
00:38:34,120 --> 00:38:37,960
Speaker 3: dislocations that you talked about in emerging markets. But what

764
00:38:38,160 --> 00:38:40,960
Speaker 3: keeps Robert up at night? Then in emerging markets, what

765
00:38:41,000 --> 00:38:44,560
Speaker 3: are you concerned might go wrong in twenty twenty five

766
00:38:45,040 --> 00:38:49,879
Speaker 3: or sooner or soon, sorry, that would change your view

767
00:38:49,920 --> 00:38:52,879
Speaker 3: drastically on the outlook for emerging markets.

768
00:38:53,320 --> 00:38:55,840
Speaker 4: And just to clarify a lot constructive on the asset

769
00:38:55,880 --> 00:38:57,720
Speaker 4: class for the non am em shop.

770
00:38:57,960 --> 00:38:59,960
Speaker 2: I've been talking about an approach to an answer clas

771
00:39:00,080 --> 00:39:03,040
Speaker 2: it's not seeing the praises of the acid class.

772
00:39:04,120 --> 00:39:06,880
Speaker 3: Fair enough, Yeah, so you did. It's specific and.

773
00:39:06,920 --> 00:39:08,640
Speaker 4: Again when you ask that question, I have to I

774
00:39:08,640 --> 00:39:11,600
Speaker 4: think I have to answer it from the perspective of

775
00:39:11,640 --> 00:39:12,520
Speaker 4: different types.

776
00:39:12,239 --> 00:39:14,400
Speaker 2: Of lending to the acid class. Right, So, if I

777
00:39:14,400 --> 00:39:15,160
Speaker 2: think about.

778
00:39:14,960 --> 00:39:19,480
Speaker 4: Public markets, you know, a week ago we said that

779
00:39:19,640 --> 00:39:22,680
Speaker 4: the the pain trade was to four and a quarter,

780
00:39:22,760 --> 00:39:25,200
Speaker 4: not to five and a quarter. That everyone was pricing

781
00:39:25,239 --> 00:39:27,560
Speaker 4: that the treasuries were going to go to five five

782
00:39:27,600 --> 00:39:27,919
Speaker 4: and a.

783
00:39:27,880 --> 00:39:30,960
Speaker 2: Quarter, and we got below four fifteen.

784
00:39:31,280 --> 00:39:33,840
Speaker 4: I think one of the one of the challenges for

785
00:39:34,040 --> 00:39:36,919
Speaker 4: fixed income and emerging markets is as we think about

786
00:39:37,000 --> 00:39:40,160
Speaker 4: this new administration in the United States, and you know,

787
00:39:41,480 --> 00:39:44,520
Speaker 4: we all kind of think that Trump's using the thread

788
00:39:44,560 --> 00:39:47,520
Speaker 4: of the tariff more than the implementation of the tariff.

789
00:39:47,880 --> 00:39:49,279
Speaker 2: It's one thing if it's two and a half or

790
00:39:49,280 --> 00:39:49,880
Speaker 2: five percent.

791
00:39:49,920 --> 00:39:52,200
Speaker 4: It's another thing if it's twenty five percent of Columbia

792
00:39:52,239 --> 00:39:54,239
Speaker 4: for fifteen minutes. But if we end up in a

793
00:39:54,280 --> 00:39:57,120
Speaker 4: world where what we say higher for longer, so we

794
00:39:57,160 --> 00:40:00,080
Speaker 4: say bigger for longer, larger for longer.

795
00:39:59,800 --> 00:40:02,640
Speaker 2: On on the terrorists, that's.

796
00:40:02,400 --> 00:40:05,920
Speaker 4: Not just gonna have an impact on the individual countries,

797
00:40:05,960 --> 00:40:07,480
Speaker 4: but it's going to start to have an impact on

798
00:40:07,560 --> 00:40:09,759
Speaker 4: the macro in the United States and rates in the

799
00:40:09,840 --> 00:40:14,080
Speaker 4: United States. And you know, unfortunately, I think emerging markets

800
00:40:14,080 --> 00:40:16,920
Speaker 4: public credit has been setting itself up for the traditional

801
00:40:17,400 --> 00:40:20,359
Speaker 4: When the Fed starts cutting rates, just close your eyes

802
00:40:20,360 --> 00:40:20,799
Speaker 4: and by it.

803
00:40:21,200 --> 00:40:21,960
Speaker 2: Well, now you have to.

804
00:40:21,960 --> 00:40:24,400
Speaker 4: Think more about the volatility and all these other factors

805
00:40:24,400 --> 00:40:26,080
Speaker 4: that are going on at the same time.

806
00:40:26,440 --> 00:40:28,000
Speaker 1: And to end on a high note, Rolle, what's the

807
00:40:28,000 --> 00:40:30,280
Speaker 1: biggest opportunity for this year? What are you most excited

808
00:40:30,280 --> 00:40:31,320
Speaker 1: about in global credit?

809
00:40:31,600 --> 00:40:34,440
Speaker 2: Look, I mean, we've talked about it at nauseum.

810
00:40:34,600 --> 00:40:37,399
Speaker 4: I think what I'm excited about is I see what's

811
00:40:37,400 --> 00:40:39,759
Speaker 4: happened in developed markets as it relates to direct land

812
00:40:39,840 --> 00:40:42,840
Speaker 4: in private credit, and I see that we're just scratching

813
00:40:42,840 --> 00:40:45,399
Speaker 4: the surface in emerging markets. And I think it's really

814
00:40:45,400 --> 00:40:49,200
Speaker 4: exciting to go deeper and broader in EM as an

815
00:40:49,200 --> 00:40:51,719
Speaker 4: asset class with the tools that have proven to work

816
00:40:51,760 --> 00:40:54,520
Speaker 4: already in DAM. That's super exciting and it's the way

817
00:40:54,560 --> 00:40:57,000
Speaker 4: to navigate all the risks that we talked about today.

818
00:40:57,400 --> 00:40:59,120
Speaker 1: Is this the year you think it breaks through?

819
00:40:59,280 --> 00:41:00,719
Speaker 2: All right? We'll breaking through every year.

820
00:41:00,880 --> 00:41:02,600
Speaker 4: So yeah, on the one hand, I'm excited about it,

821
00:41:02,640 --> 00:41:04,759
Speaker 4: but my competitors to get too excited about it.

822
00:41:05,239 --> 00:41:07,440
Speaker 1: We've been talking about a golden age in private credit

823
00:41:07,480 --> 00:41:10,480
Speaker 1: in the US for some years now, so emerging markets follows.

824
00:41:10,480 --> 00:41:13,120
Speaker 1: There therefore a golden age for emerging markets.

825
00:41:12,840 --> 00:41:15,240
Speaker 2: And we look, I'll joke in aside.

826
00:41:15,280 --> 00:41:17,359
Speaker 4: I mean the story that people used to tell about

827
00:41:17,360 --> 00:41:20,080
Speaker 4: emerging markets. It was just x years behind developed markets,

828
00:41:20,280 --> 00:41:22,759
Speaker 4: and it was emerging towards and converging.

829
00:41:22,239 --> 00:41:24,520
Speaker 2: Towards what's going on in develop markets.

830
00:41:24,840 --> 00:41:27,520
Speaker 4: Don't know why that won't be the case for private

831
00:41:27,560 --> 00:41:30,000
Speaker 4: credit and the strategies that you can build around private

832
00:41:30,000 --> 00:41:31,520
Speaker 4: credit and emerging markets.

833
00:41:31,680 --> 00:41:35,000
Speaker 1: Great stuff, Robert Koenigsberger, founder of Grammacy Funds Management. It's

834
00:41:35,000 --> 00:41:36,919
Speaker 1: been a pleasure having you on the Credit Edge. Many thanks,

835
00:41:37,160 --> 00:41:39,399
Speaker 1: thank you very much, and of course we're always very

836
00:41:39,400 --> 00:41:42,399
Speaker 1: grateful to Tolu Alamutu from Bloomberg Intelligence. Thanks for joining

837
00:41:42,440 --> 00:41:42,840
Speaker 1: us today.

838
00:41:42,960 --> 00:41:44,359
Speaker 3: Thank you for having me for.

839
00:41:44,360 --> 00:41:47,520
Speaker 1: More credit market analysis and insight. Followed Tolu Alamutu's work

840
00:41:47,560 --> 00:41:50,160
Speaker 1: on the Bloomberg terminal. Bloomberg Intelligence is part of our

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00:41:50,160 --> 00:41:53,280
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842
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843
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844
00:41:59,120 --> 00:42:03,080
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845
00:42:03,120 --> 00:42:05,800
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846
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848
00:42:12,160 --> 00:42:15,800
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849
00:42:16,320 --> 00:42:18,239
Speaker 1: I'm James Crombie. It's been a pleasure having you join

850
00:42:18,280 --> 00:42:21,440
Speaker 1: us again. Next week on the Credit Edge,