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Speaker 1: This is Mesters in Business with very Results on Bloomberg Radio.

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Speaker 1: This week on the podcast, I have an extra special guest.

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Speaker 1: His name is Robert Koenigsberger, and he has a fascinating

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Speaker 1: career in emerging market, opportunistic and distressed debt investing. Uh.

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Speaker 1: He started at a small boutique before going to Marry

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Speaker 1: Lynch and Lehman Brothers and ultimately launching his own shop

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Speaker 1: called Grammarcy Funds Management. UH. If you're interested in what

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Speaker 1: it's like investing in emerging market debt, how that part

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Speaker 1: of the investment from it has changed over the decades

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Speaker 1: as the world itself has changed. Uh. He began in

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Speaker 1: South America and Latin America UM, before investing in places

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Speaker 1: like Russia and China and Turkey. UM. Fortunately for them,

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Speaker 1: they were out of Russia long before the most recent

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Speaker 1: invasion of Ukraine happened. Uh. It's just a fascinating conversation

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Speaker 1: about looking at the world from both bottoms up and

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Speaker 1: top down, as well as thinking about what valuations are like,

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Speaker 1: how likely our macro events to impact you getting not

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Speaker 1: just a return on capital, but, as his famously said,

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Speaker 1: in fixed income, a return of your capital. It really

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Speaker 1: is a very, very different approach than what we think

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Speaker 1: of as as typical equity investing, and and it not

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Speaker 1: only has the advantages of uh there being inefficiency, so

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Speaker 1: there's a potential to generate alpha, but if you do

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Speaker 1: it right, it's pretty non correlated with probably the rest

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Speaker 1: of your portfolio. I found it fascinating and I think

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Speaker 1: you will also, So, with no further ado, my interview

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Speaker 1: with Grammarcy Funds Managements Robert Kohonensberger, let's talk a little

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Speaker 1: bit about your background. You you get an MBA in

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Speaker 1: Warton and then a master's in International Studies in Latin America.

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Speaker 1: Your graduate thesis was on the origins and implications of

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Speaker 1: the Latin American debt crises. It seems like you were

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Speaker 1: built to trade distressed em debt built and lucky quite frankly,

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Speaker 1: you know. Um, I actually go back to undergrad where

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Speaker 1: I did political science and history of of Latin America,

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Speaker 1: and I was asked to do a similar thesis on

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Speaker 1: you know, to do a thesis, and my parents told

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Speaker 1: me I had to find a job at the same time,

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Speaker 1: and so I try to put the thesis and the

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Speaker 1: job searched together. And the only issue in Latin America,

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Speaker 1: which was my major back in eighty seven was the

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Speaker 1: Latin American debt crisis. So I did my study on that,

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Speaker 1: and I got fortunate enough to meet a gentleman who

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Speaker 1: had been the finance minister of Peru. He had been

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Speaker 1: the head of Wells Fargo International. He lent it, he

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Speaker 1: borrowed it, he defaulted on it, and had this he

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Speaker 1: had this great boutique out in California. So um, I

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Speaker 1: feel really fortunate to uh to have spent thirty five

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Speaker 1: years doing the same thing in emerging markets. And you know,

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Speaker 1: the gentleman I worked with was just a great professional.

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Speaker 1: So late eighties, early nineties or a VP for an

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Speaker 1: advisory firm that leads some sovereign debt restructurings and transactions

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Speaker 1: in both South America and Central America. Tell us what

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Speaker 1: that experience was like during that period. Emerging markets in

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Speaker 1: the late eighties was very different than the emerging markets

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Speaker 1: of two. I think it's fair to say it was

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Speaker 1: a bit of the wild West. Um, you know, go back,

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Speaker 1: you know the entire you know, it was the last decade, right,

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Speaker 1: theties was the last decade. And in Latin America, Mexico

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Speaker 1: defaults in eighty two. Virtually the entire regions in default

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Speaker 1: by by the end of the decade. So what it

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Speaker 1: was like was, you know, putting Humpty Dumpty back together

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Speaker 1: again and dealing with countries that had defaulted debt and

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Speaker 1: taking them through what's now known as the Brady debt

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Speaker 1: restructuring and having these bonds that nobody really understood come

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Speaker 1: out of it. And that, quite Frankie, was was the

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Speaker 1: beginning of the asset class. And I remember, like, you know,

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Speaker 1: even like we were doing, you have countries that that

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Speaker 1: were shared borders, that couldn't talk to each other, that

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Speaker 1: one of the other, and you can get in the

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Speaker 1: middle and do some sort of of debt swap or

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Speaker 1: a buy back or what have you. And so one

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Speaker 1: of my fond memories was like Guatemala, I think it

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Speaker 1: was in the nine and I didn't know what FX was,

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Speaker 1: I didn't know what letters of credit were, and I

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Speaker 1: had to go get a letter of credit. I had

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Speaker 1: to go to Guatemala, I had to present it and

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Speaker 1: then we did a buy back. But we got paid

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Speaker 1: in cansalis, which was the local currency. And so my

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Speaker 1: job for basically two weeks was to get up, go

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Speaker 1: sell as much f X or by as many dollars

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Speaker 1: as I could, and then go back to the hotel

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Speaker 1: and ship by the pool. That's not a bad gig.

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Speaker 1: It was great. So so you go from that onto

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Speaker 1: Mother Meryl for three years where you traded distress d M.

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Speaker 1: Then you're a VP of Lehman Brothers. And this was

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Speaker 1: late nineties, not the Lehman Brothers we kind of a

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Speaker 1: familiar with from the financial crisis. What was it like

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Speaker 1: at those big shops Mery Lynch and Lehman Brothers doing

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Speaker 1: distressed E M debt? Sure? I mean that, first of all,

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Speaker 1: they were They were great experiences because you know, I

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Speaker 1: started in a very small, boutique, boutique environment. And again

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Speaker 1: I'm on political science and history major prior to to

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Speaker 1: graduate school. So to actually get experience in finance, to

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Speaker 1: lead the bank's efforts in investing in sovereign debt restructions,

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Speaker 1: and to bring our clients along was was a great experience. Um.

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Speaker 1: You know, I got to learn a lot about about

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Speaker 1: how markets function or not UM and I got to

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Speaker 1: get his feel for Wall Street politics, which I found

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Speaker 1: out really weren't for me, and and all the conflicts

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Speaker 1: of interest that one finds in Wall Street. You mentioned

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Speaker 1: earlier that the late eighties early nineties were very different

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Speaker 1: than the state of EM debt today. Um, how has

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Speaker 1: the industry changed? How is E M distressed debt today

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Speaker 1: different than it was thirty years ago? So distressed as

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Speaker 1: different and EM is is different. You know, i'd start

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Speaker 1: with break it down. You know when when I got

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Speaker 1: to Maryland, Um, and you looked at the trade blotder

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Speaker 1: of who you were trading with. It was basically banks

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Speaker 1: trading with each other and every so often a client

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Speaker 1: would come by. So it's a tremendous amount of proprietary trading.

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Speaker 1: You know, hedge funds in the back book, a little bit,

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Speaker 1: a little bit of a front look. So I would

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Speaker 1: characterize it as a bit of a bazaar, unless of

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Speaker 1: a market, because you know, I was at Meryl and

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Speaker 1: I would call JP Morgan and I would sell something

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Speaker 1: to them, and they would call Chase and they would

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Speaker 1: call Naman. It was just a roundabout and then the

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Speaker 1: market would drop five points or what have you. So

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Speaker 1: musical chairs the last one holding got got stuck with it. Yeah,

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Speaker 1: and um, so you know I tend to have create

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Speaker 1: a lot of volatility. You know, if if everyone wanted

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Speaker 1: to buy herself the same thing at the same thing,

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Speaker 1: same time. Today the markets massively larger. You know, it

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Speaker 1: was predominantly a sovereign market back then. You know, um,

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Speaker 1: now it's sovereign, quasi sovereign, U S dollar local corporates,

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Speaker 1: high yield, etcetera. What's quasi sovereign? Sorry, like state versus

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Speaker 1: national or something and so so usually and I usually

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Speaker 1: talk about quasi sovereign and sovereign adjacent. So sovereign is

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Speaker 1: just the dead obligation of the country. Quasi sovereign is

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Speaker 1: typically an entity owned by the state that issues GSC

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Speaker 1: or like take pan X in Mexico as opposed to

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Speaker 1: Mexico right, Um, and then sovereign adjacent are interesting as

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Speaker 1: well because they're not explicitly owned by the state, but

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Speaker 1: they're so important that there's some sort of nexus between

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Speaker 1: the sovereign and that and that corporate. But you know,

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Speaker 1: today the markets, you know, think about now there is

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Speaker 1: a buy side e t F S four jacts. The

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Speaker 1: by side is so much larger than the street. It

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Speaker 1: used to be just the street street had a lot

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Speaker 1: of balance sheet um. Today, if you take emerging market

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Speaker 1: corporates as an example, there's go back five years, ten years.

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Speaker 1: Emerging market corporates are five times larger today than they

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Speaker 1: were back then. Go back to right after two thousand

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Speaker 1: and eight, every bank made markets, every bank had had

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Speaker 1: balance sheet. Today you have less banks, less balance sheet,

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Speaker 1: less market making, and a really big buy side. So

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Speaker 1: you have inelastic you know, in elastic supply when people

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Speaker 1: want to buy, Like if you have a dollar there

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Speaker 1: there'll be someone in emerging markets that wants to issue

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Speaker 1: a bond and take that dollar from you. But when

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Speaker 1: there's outflows, you don't have an elastic demand, and that's

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Speaker 1: where you tend to get this this volatility and dislocations

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Speaker 1: that we've seen. So let me stick with sovereign adjacent

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Speaker 1: In the US, as we learned during the financial crisis,

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Speaker 1: the government sponsored enterprises like Fannie Mae and Freddy Mack

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Speaker 1: and by extension um Sally. May you go down the

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Speaker 1: whole list of these things, the U. S. Government's full

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Speaker 1: faith and credit. Even though it wasn't obligated to these

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Speaker 1: quasi publicly traded, quasi private entities, the U. S. Government

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Speaker 1: still ended up standing behind them for systemic reasons. So

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Speaker 1: that's here in the United States. Do you have similar

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Speaker 1: situations in Latin America and elsewhere or is it just

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Speaker 1: country by country it's all completely different. First of all,

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Speaker 1: let's unpack that. I mean, emerging markets is not this

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Speaker 1: home much any asasset class. So almost anything and I

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Speaker 1: could talk about it would be different. You know, there'd

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Speaker 1: be dispersion of of of factors. But when you think

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Speaker 1: about you know, bailouts of corporates, UH, sovereign at Jason

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Speaker 1: or what have you, we've certainly seen it in emerging markets,

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Speaker 1: and I would say the most you know, the greatest

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Speaker 1: example right now is in China property. If you've seen

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Speaker 1: what's going on there. So it started as a crisis

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Speaker 1: for ever Ground, right and I think the Chinese government

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Speaker 1: wanted to kind of isolate Evergrand and then insulate the

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Speaker 1: rest of the sector. And now what we've seen is

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Speaker 1: that it contaminated, you know, the Everground just poured over

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Speaker 1: to even the best names like a country garden or

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Speaker 1: what have you. And so right after the Party Congress,

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Speaker 1: we've just seen massive amounts of aid. I would argue

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Speaker 1: that that what we're witnessing today is the TARP program

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Speaker 1: in China for for for the property sector, and you

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Speaker 1: can see, you know, assets have gone. We were buying

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Speaker 1: performing bonds at eight cents on the dollar. Wow, that

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Speaker 1: you had to pay for a crude right, which is

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Speaker 1: which is a weird concept to pay for a crew.

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Speaker 1: So so it's it's a crude interest. So maybe it's

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Speaker 1: got four points of interest on an eight cent bond

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Speaker 1: that typically when something trades to eight, people don't think

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Speaker 1: it's going to keep paying. Um. And then once the

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Speaker 1: program came out this Chinese tarp, if you will, Um,

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Speaker 1: all of a sudden, eight cent bonds were trading at

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Speaker 1: thirty two this morning. They're like sixty Wow, just on

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Speaker 1: this this this bailout notion. How do we get me

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Speaker 1: some of those? That sounds very attractive and we'll talk later.

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Speaker 1: So I was going to ask you what trades or

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Speaker 1: deals stand out is especially memorable that seems to be

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Speaker 1: fairly recent memorable Anything from the uh wild West days

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Speaker 1: that sticks out is I mean, I love the idea

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Speaker 1: of just going out buying dollars and then sending pool

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Speaker 1: side for the rest of the day. It was, um,

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Speaker 1: you know, Margarita's or whatever they the local drink was.

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Speaker 1: What else really stands out? You know, if I go

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Speaker 1: back to the to the late eighties or early nineties,

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Speaker 1: and you know, you're asking about distress then versus distressed today.

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Speaker 1: And you know, I think one of the most interesting

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Speaker 1: things in distresses when people are throwing away the keys,

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Speaker 1: you want to be there to catch them. And I

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Speaker 1: remember one one time, and I think it was eighty

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Speaker 1: nine or ninety, We're right at the end of the

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Speaker 1: you know, the Lost decade and emerging markets, and all

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Speaker 1: the banks are basically not all the banks, but a

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Speaker 1: few of the banks are is like just getting out

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Speaker 1: of Latin America and one of them just get me out.

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Speaker 1: Just that's it, full capitulation, that's right. So one example

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Speaker 1: that was a lot of fun, I think was eighty

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Speaker 1: nine or ninety Bank of America decided they wanted to

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Speaker 1: sell their branch in Lima, Peru, and they the price

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Speaker 1: tag was a million dollars. I'm like five years old.

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Speaker 1: My boss, as gentleman mentioned, had been the finance Minister

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Speaker 1: pru He's like, I need you to go down to

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Speaker 1: Prue and and take a look at the bank due

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Speaker 1: to diligence, right, twenty five years old. So I don't

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Speaker 1: know if you've ever been to Lima. But in in

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Speaker 1: in the center of Lima and santing Cerro, there was

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Speaker 1: a retort, no, like a roundabout, and one big tower.

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Speaker 1: On the top of the tower it says Bank of America.

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Speaker 1: We didn't have cell phones or whatever you so I

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Speaker 1: got to run back to the hotel and I said,

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Speaker 1: you know, Carlos, is the building included? So yes, I said,

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Speaker 1: it's got to be worth a million bucks, right, So

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Speaker 1: we paid a million dollars for that made three million

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Speaker 1: dollars trading facts before we sold it, and it was

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Speaker 1: sold for fifty million dollars three years later, and that

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Speaker 1: became the beginning of one of the largest groups in

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Speaker 1: in Prue today. And so fast forward after after graduate school,

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Speaker 1: I'm having lunch with a friend from school and Eric

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Speaker 1: says he's working for Bank of America. And I said, Eric,

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Speaker 1: what do you guys? What are you guys doing? Is Oh,

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Speaker 1: we're thinking of opening a branch in Lima, Peru. Oh

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Speaker 1: do I have a building for you? And you know

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Speaker 1: another one real quickly. You know, Russia has been so

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Speaker 1: much in the news these days, and I remember the

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Speaker 1: wild wild West, and Russia was the Yelts era, the nineties,

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Speaker 1: the era of default. And I remember going there with

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Speaker 1: a group of investors in it was nine June. Their

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Speaker 1: defaulted debt was trading at six cents. And we go

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Speaker 1: into this conference room at Vanessa conam Bank, which was

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Speaker 1: the Thebligor, the Export Import Bank of Russia, and this

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Speaker 1: trader walks in and he's completely disheveled and he goes,

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Speaker 1: I want to know who's buying back my debt. You

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Speaker 1: guys are getting in my way. I'm trying to buy

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Speaker 1: back my debt. Greatest buy signal that any of us

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Speaker 1: that I've seen the problems. We don't have cell phones, right,

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Speaker 1: so it's like race back to the hotel to see

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Speaker 1: who can call their training death fast enough to buy

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Speaker 1: Russian And if you look on your Bloomberg screen today,

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Speaker 1: on that day, the asset went from six cents to

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Speaker 1: twelve cents, just on this meeting. That's amazing. I love

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Speaker 1: this quote of yours, which now I understand much better.

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Speaker 1: I've been doing emerging markets since before they emerged. Yeah,

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Speaker 1: I mean, um, you know, that's that's oftentimes when I

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Speaker 1: talk with clients about because as you know, if you

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Speaker 1: go back to the nineteen eighties, um, it was. I

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Speaker 1: wouldn't call it an asset class. It was a bunch

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Speaker 1: of bank loans in default. Um it was submerging at

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Speaker 1: the time, right, And it was, I guess, you know,

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Speaker 1: unpolitely called the Third World debt crisis lesser Developed country

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Speaker 1: debt crisis. But no one was thinking about putting an

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Speaker 1: index around a bunch of defaulted bonds. So I was

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Speaker 1: fortunate enough to be there as we transformed defaulted loans

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Speaker 1: to performing bonds. And then when JP Morgan made the

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Speaker 1: index in part, I think that was really the beginning

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Speaker 1: of emerging markets debt as an asset class. Quite fascinating.

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Speaker 1: So so let's talk a little bit about Grammarcy. What

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Speaker 1: led you from big shops to launching your own firm? Um? Well,

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Speaker 1: and were you always international debt focused? Yeah? A few things.

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Speaker 1: I mean, Um, I started in a boutique environment, and

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Speaker 1: I never really thought that I was gonna stand Wall

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Speaker 1: Street for a long period of time. I always wanted

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Speaker 1: to do something entrepreneurial. Obviously I wanted to stay invested

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Speaker 1: and have a career in emerging market debt UM. But

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Speaker 1: so you know, the factors behind starting Grammarcy were a few. Um, one,

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Speaker 1: you know, I mentioned conflict of interests on Wall Street,

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Speaker 1: and when you are going through a sovereign debt restructuring,

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Speaker 1: that's just a negotiation. I'm sitting there representing the bank,

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Speaker 1: and I'm sitting across from the senior debt negotiator from

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Speaker 1: the Russian Federation or wherever it may be. And I

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Speaker 1: remember at the banks, you know, on my sides would

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Speaker 1: be someone from investment banking, someone from corporate relations. And

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Speaker 1: so I'm just pushing to get the bank and our

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Speaker 1: clients paid, and these guys are thinking about the next

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Speaker 1: the next trade in Russia or whatever it may be.

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Speaker 1: So one is you know, I really, I really wanted

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Speaker 1: to have a conflict free, mission driven firm, and our

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Speaker 1: mission is really simple. All we do is focus on

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Speaker 1: investment management. We want to focus on the well being

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Speaker 1: of our clients, our portfolio investments in their communities, and

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Speaker 1: our team members. That's it. And that's hard to do

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Speaker 1: at a big, big shop on on Wall Street. Um.

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Speaker 1: You know, obviously, eat what you kill. I wanted a meritocracy,

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Speaker 1: and Wall Street is quite frankly anything but a meritocracy

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Speaker 1: because of all the politics and what have you. Um.

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Speaker 1: I remember the day I made up my mind to

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Speaker 1: start Grammarcy was at the end of the ninety seven

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Speaker 1: bonus year early. Now go back to Lehman. They almost

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Speaker 1: blew up in Mexico. We were basically I went to

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Speaker 1: work there right after that. We had had no aspirations

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Speaker 1: for p l in n very little aspirations. Is like,

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Speaker 1: just don't lose money, right, that was emerging market debt

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Speaker 1: for for for Lehman, and so what is it just

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Speaker 1: a service for the banks that and and don't take

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Speaker 1: a lot of risk and make a lot of money supposedly, right.

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Speaker 1: And so I go into ninety seven. My book, the

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Speaker 1: restruction book has a five million dollar what do you

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Speaker 1: call it? Budget? Then they raised it to ten, then

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Speaker 1: they raised it to thirty, and then they raised it

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Speaker 1: to forty. So I walked into my bonus discussion in

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Speaker 1: January February and it starts with, well, we almost made it, right.

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Speaker 1: So they were trying to trying to basically say, since

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Speaker 1: you didn't get to the forty, you know you shouldn't

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Speaker 1: expect to get paid very well. So I said, well,

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Speaker 1: we'll wait a minute, just stop right here, this conversation

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Speaker 1: is over. I'll come back tomorrow. You put a different

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Speaker 1: number on the piece of paper, and that was the

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Speaker 1: moment that I said I wanted to start the firm.

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Speaker 1: And you know, we're purely there for our clients, and

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Speaker 1: if our clients do well, we do well, and that's

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Speaker 1: all that matters. I have heard variations of that precise story.

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Speaker 1: I've experienced that precise story over and over again. Sometimes

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Speaker 1: the short sightedness of upper management on Wall Street is shocking. Um,

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Speaker 1: you just see all of these super profitable firms with

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Speaker 1: the most successful traders. I am genuinely shocked when people say, yeah,

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Speaker 1: then that's just not it's just not worth it. I'll

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Speaker 1: tell you another story. I remember when I when I

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Speaker 1: left Mary Lynch so fed started raising rates ninety four.

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Speaker 1: We've got the the tequila crisis in Mexico and I

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Speaker 1: resigned and my boss has Venezuelan and the big boss

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Speaker 1: is Cuban, and the Venice one was like, well, you

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Speaker 1: gotta go talk to the to the Cuban. And so

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Speaker 1: they start talking in Spanish in front of me, and

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Speaker 1: they go, you bi lingual and bilingual. But they didn't

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Speaker 1: don't know that I speak a little Turkish to it

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Speaker 1: out of my wife. My wife's Turkish as well. But

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Speaker 1: so I go upstairs and meet with the big boss

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Speaker 1: and they start chatting in Spanish and they go, you know,

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Speaker 1: you told me that there were no other jobs out

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Speaker 1: there that we didn't have to pay these guys, right,

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Speaker 1: So then he turns to me, he goes, Robert, you

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Speaker 1: know what can I tell you? And I answered him

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Speaker 1: back in Spanish, I said, I just heard everything. Thank

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Speaker 1: you very much. By the way, how can you do

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Speaker 1: emerging market debt? I mean, I know everybody everywhere more

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Speaker 1: or less speaks English, but isn't it an enormous advantage

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Speaker 1: to be able to speak in the local language. Absolutely?

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Speaker 1: First of all, I mean a lot of places we go, UM,

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Speaker 1: English isn't necessarily spoken well um, even at the most

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Speaker 1: senior levels of government. So to be able to um speak,

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Speaker 1: seek information, um persuade others in their language is is

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Speaker 1: very helpful. And I'm not gonna say I do it

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Speaker 1: as well in Spanish as I do in English, but

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Speaker 1: that's very helpful to you know, Emerging markets is all

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Speaker 1: about assessing people, right, So we have to think about

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Speaker 1: credit risk like everybody else. But the end of the day,

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Speaker 1: emerging markets risk is about credit culture people. How do

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Speaker 1: they behave in times of durest in the past, predict

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Speaker 1: how they're going to behave in the future. It's helpful

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Speaker 1: to be able to assess that prediction in that in

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Speaker 1: that language. So on the equity side, some people say

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Speaker 1: you don't really need boots on the ground and emerging markets.

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Speaker 1: I'm I don't know how true that is, but it

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Speaker 1: really sounds like it's not true. On the debtor or

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Speaker 1: credit side, especially a distress circumstance. Now, I mean boots

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Speaker 1: on the ground is is essential, and I would say

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Speaker 1: both internal boots and external boots. Right. So we have

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Speaker 1: our own people, we have our own platforms. We have

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Speaker 1: offices in Argentina and Turkey and Mexico and what have you.

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Speaker 1: And those people are really important for sorcing. Do is

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Speaker 1: doing due diligence on deals, doing due diligence on on people,

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Speaker 1: you know? Quite frankly, Um, one of our biggest strengths

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Speaker 1: is in in our on our website. It's it's all

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Speaker 1: the relationships we've had for thirty five years with people

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Speaker 1: in different countries that can give you good information on people,

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Speaker 1: you know. I remember a story in Thailand a few

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Speaker 1: years ago. We were getting ready to buy the debt

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Speaker 1: of a country, of a company that had come out

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Speaker 1: of debt restructuring. And you know, we are research guys

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Speaker 1: did their work, the traders did the work. We like

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Speaker 1: the value, we like the entry point. Well, then we

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Speaker 1: went out to our network external lawyer who had sat

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Speaker 1: in the debt restructuring conversations, and the lawyer says to me, Robert,

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Speaker 1: before you invest, let me tell you what the debt

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Speaker 1: restructuring looked like. It's great. So it was a patriarch,

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Speaker 1: former military guy, had the discussions at his house, not

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Speaker 1: a law firm. You were escorted into the conference room

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Speaker 1: through three levels of security, and the gentleman starts the negotiations.

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Speaker 1: He goes, um, let's have a toast. Here's to my

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Speaker 1: wealth and to your health. You just have to have

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Speaker 1: people on the ground to that's just that's just bad. Now.

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Speaker 1: Is that a local custom or is that a subtle threat? What?

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Speaker 1: What is that? I mean? I think it was. I

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Speaker 1: think it was a subtle threat. And again, you know,

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Speaker 1: I want I wouldn't We're not so subtle. I wouldn't

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Speaker 1: make that blanket statement, you know, throughout emerging markets. But

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Speaker 1: quite frankly, you know when I see some kid in

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Speaker 1: their twenties or thirties started business and you know there

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Speaker 1: are three or four people around their Bloomberg screens and

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Speaker 1: they don't have the internal analysts, and they don't have

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Speaker 1: the external network. I don't know how they think they

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Speaker 1: can do it. That's really quite quite uh quite fascinating.

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Speaker 1: You mentioned, um your shop, you have offices around the world, right,

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Speaker 1: what countries do you have offices in? So we're based

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Speaker 1: in Grenich, Connecticut, we have offices in Latin America, in Mexico, Peru, Argentina.

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Speaker 1: We have a lending platform and office in Turkey, Brazil.

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Speaker 1: Done some stuff in Africa as well through a lending platform.

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Speaker 1: And and you know, getting back to the local presence,

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Speaker 1: you know, the having having a platform, having your own

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Speaker 1: team in the market, you know, has all the obvious benefits,

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Speaker 1: but also it gives you the ability to get depth

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Speaker 1: and breadth. And you know, our our business, you know,

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Speaker 1: particularly private credit business. You know where we're doing asset

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Speaker 1: back lending in a country. Um And I remember a

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Speaker 1: friend who does domestic private credit told me once, you know,

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Speaker 1: Robert is just as easy to do a four million

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Speaker 1: dollar loan as a forty million dollar loan. And so

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Speaker 1: what we're trying to do with these platforms is get

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Speaker 1: depth and breadth in the different regions. So if I

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Speaker 1: go to Mexico, for example, where we're lending to the

428
00:21:29,040 --> 00:21:32,439
Speaker 1: suppliers to pemm X, people who lay pipes, people who

429
00:21:32,440 --> 00:21:34,960
Speaker 1: build build the platforms. If you do it on a

430
00:21:34,960 --> 00:21:38,239
Speaker 1: one off basis, you can't really scale it. But if

431
00:21:38,280 --> 00:21:41,320
Speaker 1: you have a platform of dedicated people to that too

432
00:21:41,560 --> 00:21:43,760
Speaker 1: and the controls, it gives you the ability to depth

433
00:21:43,760 --> 00:21:45,920
Speaker 1: and breadth in Mexico to look at other industries not

434
00:21:46,000 --> 00:21:48,040
Speaker 1: maybe we can look at real estate, but also think

435
00:21:48,080 --> 00:21:50,600
Speaker 1: about the same industry in a place like Columbia or

436
00:21:50,600 --> 00:21:52,600
Speaker 1: whatever it maybe. So I think I know the answer

437
00:21:52,680 --> 00:21:56,199
Speaker 1: to this, but I have to ask you are long only?

438
00:21:56,359 --> 00:21:59,960
Speaker 1: And I would imagine there are all sorts of opportunity

439
00:22:00,040 --> 00:22:02,639
Speaker 1: knees on the short side where you could see something

440
00:22:03,520 --> 00:22:05,679
Speaker 1: starting to circle the drain and make a bet to

441
00:22:05,720 --> 00:22:09,479
Speaker 1: the down side. I have to ask, why long only

442
00:22:09,480 --> 00:22:13,760
Speaker 1: when there's so many opportunities on the down side. Yeah,

443
00:22:13,760 --> 00:22:16,560
Speaker 1: and let me clarify. We we have UM. So we

444
00:22:16,600 --> 00:22:19,800
Speaker 1: have four major strategy groups within the firm. One of

445
00:22:19,840 --> 00:22:22,679
Speaker 1: them is long only UM, and we do you know,

446
00:22:22,720 --> 00:22:26,119
Speaker 1: four subsets there. The other is alternatives where we can

447
00:22:26,160 --> 00:22:29,200
Speaker 1: do long short, alpha shorts, what have you. The third

448
00:22:29,200 --> 00:22:32,040
Speaker 1: one is what we call capital solutions or private credit

449
00:22:32,160 --> 00:22:35,560
Speaker 1: or asset back lending. And the last one is special situations.

450
00:22:36,000 --> 00:22:39,760
Speaker 1: So I agree with you sometimes, you know, in long only,

451
00:22:39,840 --> 00:22:41,600
Speaker 1: you know, the only way you can express negative view

452
00:22:41,640 --> 00:22:45,320
Speaker 1: is to not have any exposure. Sit on your hands, right. Um,

453
00:22:45,359 --> 00:22:47,800
Speaker 1: But when we start thinking about our our alternative group,

454
00:22:47,840 --> 00:22:50,000
Speaker 1: we can think about relative value, We can think about

455
00:22:50,040 --> 00:22:53,080
Speaker 1: long short, we can think about doing things with derivatives

456
00:22:53,080 --> 00:22:56,199
Speaker 1: that give you kind of you know, a call on

457
00:22:56,240 --> 00:22:58,080
Speaker 1: the left tail, so to speak. So is that more

458
00:22:58,080 --> 00:23:00,639
Speaker 1: of a hedge or what I'm hearing is three of

459
00:23:00,680 --> 00:23:04,040
Speaker 1: your four strategies seem to be primarily long and one

460
00:23:04,080 --> 00:23:07,000
Speaker 1: strategy has that opportunity to go short if it you

461
00:23:07,040 --> 00:23:10,919
Speaker 1: want downside. So our Special Situations group, we do a

462
00:23:10,920 --> 00:23:14,480
Speaker 1: lot of litigation finance, right. So, and in litigation finance,

463
00:23:14,520 --> 00:23:17,520
Speaker 1: you know, the most the most difficult thing to predict

464
00:23:17,600 --> 00:23:19,719
Speaker 1: is the outcome of the litigation. Sure, right, we can

465
00:23:19,760 --> 00:23:22,240
Speaker 1: actually hedge that we can actually buy insurance. Right there's

466
00:23:22,240 --> 00:23:25,959
Speaker 1: insurance companies that will you know, offer you insurance for

467
00:23:26,040 --> 00:23:29,399
Speaker 1: maybe you know, you know, if it's a eight hundred

468
00:23:29,440 --> 00:23:31,920
Speaker 1: million dollar claim and you can buy insurance for ten

469
00:23:31,920 --> 00:23:34,600
Speaker 1: million dollars to insure the ten million dollars litigation, and

470
00:23:34,640 --> 00:23:37,840
Speaker 1: it costs you three million dollars um, that's pretty good

471
00:23:37,920 --> 00:23:40,080
Speaker 1: asymmetry in terms of you know, if you lose, you

472
00:23:40,160 --> 00:23:41,640
Speaker 1: lose the three but if you win, you're in free

473
00:23:41,720 --> 00:23:45,879
Speaker 1: hundred hundred million dollars. So we use hedging, and but

474
00:23:46,000 --> 00:23:48,320
Speaker 1: that's not the same as you know, just I am

475
00:23:48,359 --> 00:23:51,680
Speaker 1: making a directional bet that country X is Dad is

476
00:23:51,720 --> 00:23:54,440
Speaker 1: going to get cut in half. That's right. Um. And look,

477
00:23:54,520 --> 00:23:57,000
Speaker 1: there's two different ways to do it and long only,

478
00:23:57,160 --> 00:23:59,000
Speaker 1: and it's it's risky to do it long only, right,

479
00:23:59,040 --> 00:24:01,240
Speaker 1: And so it seems like long only is the less risky.

480
00:24:01,280 --> 00:24:03,879
Speaker 1: You know, you're you're going up against an index, and

481
00:24:03,960 --> 00:24:07,359
Speaker 1: oftentimes these industries have very risky proxies in them. I mean,

482
00:24:07,440 --> 00:24:11,399
Speaker 1: let's talk about Russia and Ukraine this year. R so, um,

483
00:24:11,480 --> 00:24:13,520
Speaker 1: we you know, we had the good fortune to have

484
00:24:13,560 --> 00:24:17,919
Speaker 1: no Russia, no Ukraine in February. Our analysts walked in

485
00:24:17,920 --> 00:24:20,200
Speaker 1: in January said I think there's a fifty percent chance

486
00:24:20,240 --> 00:24:22,600
Speaker 1: that there'll be some sort of invasion and the assets

487
00:24:22,600 --> 00:24:24,679
Speaker 1: will drop a little like, well, Petar, you got the

488
00:24:24,680 --> 00:24:26,800
Speaker 1: first part right, but if there's an invasion with the

489
00:24:26,880 --> 00:24:30,160
Speaker 1: capital I or small eye, Ukraine has gone from eighty

490
00:24:30,200 --> 00:24:32,320
Speaker 1: to twenty and Russia has gone from part of part

491
00:24:32,359 --> 00:24:35,880
Speaker 1: part of fifty. That's great. We missed February. February, we're out,

492
00:24:36,359 --> 00:24:38,840
Speaker 1: but it stayed in an index for two months, right,

493
00:24:38,920 --> 00:24:40,720
Speaker 1: And so one of the riskiest things we had to

494
00:24:40,760 --> 00:24:42,800
Speaker 1: do is sit there and watch Russian debt trade up

495
00:24:42,840 --> 00:24:45,840
Speaker 1: and down while we have zero exposure. So even though

496
00:24:46,440 --> 00:24:49,760
Speaker 1: you know you can't short it when you don't own

497
00:24:49,760 --> 00:24:54,000
Speaker 1: in the index, um, you actually um, it's it's not riskless, right,

498
00:24:54,400 --> 00:24:57,199
Speaker 1: um in our alternatives, you know, more traditional hedge funds.

499
00:24:57,440 --> 00:24:59,719
Speaker 1: To your point, we can do alpha shorts. We can

500
00:24:59,760 --> 00:25:03,640
Speaker 1: say and look, we were long protection against Russia in February.

501
00:25:04,400 --> 00:25:05,840
Speaker 1: That was an alphabet for us. It was like, you

502
00:25:05,880 --> 00:25:09,199
Speaker 1: know what, we think Russia has asymmetry, asymmetric downside, and

503
00:25:09,240 --> 00:25:12,240
Speaker 1: we can express that um in that vehicle. And I

504
00:25:12,280 --> 00:25:14,960
Speaker 1: assume that that worked out pretty well, worked out pretty well.

505
00:25:15,080 --> 00:25:18,000
Speaker 1: So so let's stick with Russia for a second. You know,

506
00:25:18,119 --> 00:25:21,359
Speaker 1: I look out and I have no idea what the

507
00:25:21,480 --> 00:25:25,239
Speaker 1: endgame is here. Can can Putin ride this out? Can

508
00:25:25,320 --> 00:25:31,120
Speaker 1: Russia survive with Putin? And when will that country become

509
00:25:31,720 --> 00:25:35,440
Speaker 1: investable again? It seems like they're not. They haven't been

510
00:25:35,440 --> 00:25:38,720
Speaker 1: for a while before the invasion. It's hard to imagine

511
00:25:38,720 --> 00:25:40,639
Speaker 1: anyone wanting to put up a lot of risk capital

512
00:25:40,680 --> 00:25:42,640
Speaker 1: with them. Yeah, I think you need to look back

513
00:25:43,040 --> 00:25:45,080
Speaker 1: at the past, at the last time there was regime

514
00:25:45,160 --> 00:25:48,919
Speaker 1: change in Russia to be able to trialogy At And

515
00:25:48,960 --> 00:25:50,800
Speaker 1: what I mean is, you know, yelts part of me.

516
00:25:50,880 --> 00:25:53,159
Speaker 1: Putin has been around for so long, right that you

517
00:25:53,200 --> 00:25:55,240
Speaker 1: got to go back to the Yeltsin era. And I've

518
00:25:55,240 --> 00:25:57,600
Speaker 1: read and heard so many times that you know, if

519
00:25:57,760 --> 00:26:00,439
Speaker 1: if Putin just leaves, everything will be fine. But I

520
00:26:00,480 --> 00:26:03,520
Speaker 1: have no idea what's behind Putin in Russia. And I

521
00:26:03,560 --> 00:26:06,720
Speaker 1: remember being in, you know, in Russia in the late nineties,

522
00:26:07,080 --> 00:26:09,440
Speaker 1: and you know, I would get a call in the

523
00:26:09,440 --> 00:26:11,440
Speaker 1: middle of the night. It's like Yeltsin's in the hospital

524
00:26:11,960 --> 00:26:14,840
Speaker 1: and you'd have to triage which hospital one was for cardiac,

525
00:26:14,920 --> 00:26:16,359
Speaker 1: for heart attack, and the other ones he was just

526
00:26:16,440 --> 00:26:18,680
Speaker 1: drunk and sanatorium. And it made it and it made

527
00:26:18,720 --> 00:26:21,080
Speaker 1: a big difference, and it mattered because none of us

528
00:26:21,160 --> 00:26:24,080
Speaker 1: knew what would happen if yelts in past, right, um?

529
00:26:24,160 --> 00:26:26,640
Speaker 1: And so I'll take that to today. It's like if

530
00:26:26,680 --> 00:26:29,120
Speaker 1: if Putin weren't here tomorrow, I can't tell you what

531
00:26:29,480 --> 00:26:32,920
Speaker 1: the politics look like there. And I also, how is

532
00:26:32,960 --> 00:26:35,000
Speaker 1: Russia going to be treated on the other side of this, right?

533
00:26:35,040 --> 00:26:37,480
Speaker 1: Is it gonna be treated like Germany after World War One?

534
00:26:37,680 --> 00:26:40,879
Speaker 1: Or Germany after World War Two? Right? Um? You know,

535
00:26:40,920 --> 00:26:43,399
Speaker 1: will it be? Will will be embraced in that. You know,

536
00:26:43,760 --> 00:26:46,400
Speaker 1: Putin was a bad guy who led good people astray.

537
00:26:46,840 --> 00:26:50,600
Speaker 1: And let's have some sort of reconstruction of Ukraine and Russia.

538
00:26:51,000 --> 00:26:53,160
Speaker 1: Or is it going to be more like Germany after

539
00:26:53,160 --> 00:26:55,960
Speaker 1: World War One where that's still a prize state? Huh?

540
00:26:56,200 --> 00:26:59,520
Speaker 1: Really quite fascinating. Let's talk a little bit about the

541
00:26:59,560 --> 00:27:04,439
Speaker 1: state of em today. Valuations, at least on the equity side,

542
00:27:04,720 --> 00:27:07,119
Speaker 1: they're the cheapest we've seen in a couple of decades.

543
00:27:07,760 --> 00:27:09,720
Speaker 1: What do you see when you're looking at the debt

544
00:27:09,800 --> 00:27:14,480
Speaker 1: and credit side of emerging markets? Some something similar? And

545
00:27:14,520 --> 00:27:16,720
Speaker 1: you know, I think what we have observed, and again

546
00:27:16,760 --> 00:27:20,320
Speaker 1: we're all credit not equity, but um is over the

547
00:27:20,600 --> 00:27:22,760
Speaker 1: twenty five years we've been together for a team there's

548
00:27:22,800 --> 00:27:26,440
Speaker 1: been eleven major dislocations in emerging markets around the world,

549
00:27:26,520 --> 00:27:29,320
Speaker 1: different countries, eleven times, and I would even call them

550
00:27:29,320 --> 00:27:33,040
Speaker 1: systemic like we've seen today, and they all have kind

551
00:27:33,040 --> 00:27:35,320
Speaker 1: of looked the same, which is peak to trough. It's

552
00:27:35,400 --> 00:27:39,960
Speaker 1: taken about five months, they drop about eight months later,

553
00:27:40,080 --> 00:27:42,760
Speaker 1: it's up like seven and twelve to twenty four months

554
00:27:42,880 --> 00:27:45,800
Speaker 1: later it's up thirty pc. So with that kind of

555
00:27:45,880 --> 00:27:50,399
Speaker 1: top down historical framework, UM, it's easy to see that

556
00:27:50,440 --> 00:27:53,760
Speaker 1: there's cheap valuations and emerging markets. But you know, we

557
00:27:53,800 --> 00:27:55,760
Speaker 1: also have to think about where we came from, you know,

558
00:27:55,880 --> 00:27:58,080
Speaker 1: like really low interest rates, a lot of liquidity, what

559
00:27:58,160 --> 00:28:00,080
Speaker 1: have you. So we also have to prove out with

560
00:28:00,119 --> 00:28:03,000
Speaker 1: the portfolios that we build that those same type of

561
00:28:03,000 --> 00:28:05,159
Speaker 1: expected returns are there. And you know, one of the

562
00:28:05,200 --> 00:28:09,439
Speaker 1: beautiful things about fixed income versus equity UM is we

563
00:28:09,520 --> 00:28:12,760
Speaker 1: have contractual coupons. And so if you can pick good

564
00:28:12,760 --> 00:28:16,199
Speaker 1: credits that pay their coupons that roll roll down the

565
00:28:16,240 --> 00:28:20,520
Speaker 1: curve to par um, the mathematics work, right. That's why

566
00:28:20,560 --> 00:28:22,920
Speaker 1: after these big dislocations, if you can pick a subset

567
00:28:22,920 --> 00:28:27,760
Speaker 1: of credit that has coupon, we'll keep paying and roll

568
00:28:27,840 --> 00:28:31,000
Speaker 1: down the curve towards par, then you're going to get

569
00:28:31,040 --> 00:28:33,159
Speaker 1: these types of extraordinary returns. And I think we're in

570
00:28:33,200 --> 00:28:37,240
Speaker 1: that type of environment today. Now, of course, um there's

571
00:28:37,240 --> 00:28:39,360
Speaker 1: a lot of altility, and I think one needs to

572
00:28:39,400 --> 00:28:42,920
Speaker 1: be you know, respectful of that baltiy today. But you know,

573
00:28:43,200 --> 00:28:46,120
Speaker 1: I continue to think that, you know, the expected returns

574
00:28:46,120 --> 00:28:50,640
Speaker 1: in the destination weren't what maybe a bumpy journey. So

575
00:28:50,800 --> 00:28:54,960
Speaker 1: given those sorts of numbers, the pullbacks, recoveries, what sort

576
00:28:55,000 --> 00:29:00,320
Speaker 1: of correlations are there with other types of of at

577
00:29:00,680 --> 00:29:05,640
Speaker 1: be it performing or distressed equities and other asset classes.

578
00:29:05,680 --> 00:29:10,360
Speaker 1: It sounds like this is a fairly non correlated group

579
00:29:10,440 --> 00:29:13,960
Speaker 1: of investments. Yeah, And I think you can create lack

580
00:29:14,000 --> 00:29:17,840
Speaker 1: of correlation depend on about how you construct the portfolio.

581
00:29:18,040 --> 00:29:19,920
Speaker 1: And I think if you pick one return stream and

582
00:29:19,960 --> 00:29:22,680
Speaker 1: emerging markets and stick with that return stream, you're going

583
00:29:22,720 --> 00:29:25,080
Speaker 1: to find a lot more correlation to markets. What I

584
00:29:25,080 --> 00:29:27,960
Speaker 1: really like is on top of these four return streams

585
00:29:27,960 --> 00:29:29,720
Speaker 1: that we have, we kind of have a multi asset

586
00:29:29,800 --> 00:29:33,040
Speaker 1: dynamic acid allocation process, and that's where you're able to

587
00:29:33,080 --> 00:29:34,920
Speaker 1: create alpha, and that's where we're able to have really

588
00:29:34,960 --> 00:29:38,680
Speaker 1: low UM correlation to to the markets. UM and you know,

589
00:29:38,760 --> 00:29:44,040
Speaker 1: one day markets are you know, at all time highs,

590
00:29:44,080 --> 00:29:46,200
Speaker 1: so not that interesting to want to buy ACCU, SIPs

591
00:29:46,280 --> 00:29:48,040
Speaker 1: or public debt at that point, and then you have

592
00:29:48,040 --> 00:29:53,440
Speaker 1: a dislocation. Relative value has changed. Now most folks don't

593
00:29:53,520 --> 00:29:56,080
Speaker 1: have the governance, don't have the staff, et cetera to

594
00:29:56,080 --> 00:29:58,040
Speaker 1: be able to make the I'm going to sell A

595
00:29:58,320 --> 00:30:03,000
Speaker 1: and buy B. I remember like UM during COVID, and

596
00:30:03,040 --> 00:30:05,920
Speaker 1: you know, we wrote at grammar Sy that we expected

597
00:30:05,920 --> 00:30:07,640
Speaker 1: there could be a dislocation in the fourth quarter two

598
00:30:07,680 --> 00:30:12,120
Speaker 1: thousand nineteen. Markets are really tightly wound and people should

599
00:30:12,120 --> 00:30:16,080
Speaker 1: batten down the hatches, but get ready for the dislocation

600
00:30:16,160 --> 00:30:19,719
Speaker 1: because when it comes, that's when the extraordinary opportunities come.

601
00:30:20,000 --> 00:30:22,360
Speaker 1: So we call everyone in March and April. Remember we

602
00:30:22,360 --> 00:30:23,920
Speaker 1: talked about this. We didn't know what was going to

603
00:30:23,960 --> 00:30:26,480
Speaker 1: break the camera's back, but but it's broken, UM, and

604
00:30:26,560 --> 00:30:28,920
Speaker 1: these we expect a U. You know, we don't sure

605
00:30:28,920 --> 00:30:31,000
Speaker 1: if it's gonna be a V shaped recovery at W

606
00:30:31,160 --> 00:30:34,360
Speaker 1: shaped recovery, but we believe they'll be a strong recovery.

607
00:30:34,520 --> 00:30:37,000
Speaker 1: And we would talk to our clients and prospects and

608
00:30:37,000 --> 00:30:40,720
Speaker 1: they say, well, let's see, it's March or April, um,

609
00:30:40,760 --> 00:30:42,400
Speaker 1: I might be able to get you into the October

610
00:30:42,440 --> 00:30:45,320
Speaker 1: board meeting, right and so sorry, we don't have that

611
00:30:45,360 --> 00:30:47,840
Speaker 1: type of I need an answer by five. So that's

612
00:30:47,880 --> 00:30:50,360
Speaker 1: what with our with our multi asset strategy, we wanted

613
00:30:50,360 --> 00:30:52,480
Speaker 1: to solve for that problem, which is i'll call it

614
00:30:52,520 --> 00:30:54,760
Speaker 1: a governance problem, you know, acid allocation. I think in

615
00:30:54,800 --> 00:30:58,680
Speaker 1: emerging markets one being dynamic isn't just convenient, it's necessary.

616
00:30:58,800 --> 00:31:00,920
Speaker 1: And that's how you create the lack of correlation, and

617
00:31:00,960 --> 00:31:03,800
Speaker 1: that's how you create off of really really quite interesting.

618
00:31:04,160 --> 00:31:06,720
Speaker 1: So so where are we in the present emerging market

619
00:31:06,760 --> 00:31:10,800
Speaker 1: cycle that this seems to be lots of UM different

620
00:31:10,800 --> 00:31:14,760
Speaker 1: cycles in the space. Should we be optimistic about EM

621
00:31:14,800 --> 00:31:17,800
Speaker 1: here or should we be worrying about EM here? Look,

622
00:31:17,800 --> 00:31:20,920
Speaker 1: I think we are cautiously optimistic UM, and we know

623
00:31:20,920 --> 00:31:23,040
Speaker 1: we've had that call for for for a few months.

624
00:31:23,560 --> 00:31:26,160
Speaker 1: I would probably say after a ten percent rally that

625
00:31:26,160 --> 00:31:28,880
Speaker 1: we've had over the last five six weeks, maybe a

626
00:31:28,920 --> 00:31:31,600
Speaker 1: little more cautious, but still optimistic in the in the

627
00:31:31,760 --> 00:31:34,720
Speaker 1: medium term. The reason that you know we have this

628
00:31:34,760 --> 00:31:38,920
Speaker 1: optimism goes back to the mathematics after these dislocations, right

629
00:31:39,000 --> 00:31:41,320
Speaker 1: that and then this isn't a blanket statement about all

630
00:31:41,320 --> 00:31:44,520
Speaker 1: emerging market debt. But if you can pick good and

631
00:31:44,640 --> 00:31:46,479
Speaker 1: just like stocks, right, if you pick if you can

632
00:31:46,640 --> 00:31:50,960
Speaker 1: pick stocks, well, um, you can significantly outperform and an index.

633
00:31:51,000 --> 00:31:52,400
Speaker 1: And you know, if I showed you a chart of

634
00:31:52,440 --> 00:31:55,040
Speaker 1: the dispersion of the returns within the Jape Morgan Emerging

635
00:31:55,080 --> 00:31:57,200
Speaker 1: Market Bond Index, you wouldn't believe it. I mean, things

636
00:31:57,240 --> 00:32:00,040
Speaker 1: down fifteen, things up fifteen, oil and gas and on

637
00:32:00,160 --> 00:32:04,320
Speaker 1: hand and you know, importers of energy on on another hand. So, um,

638
00:32:04,360 --> 00:32:08,040
Speaker 1: we're we're cautiously optimistic. We see good returns in the

639
00:32:08,040 --> 00:32:10,680
Speaker 1: medium term. Uh, one has to think about how do

640
00:32:10,680 --> 00:32:14,000
Speaker 1: you protect capital after a long run like this. So

641
00:32:14,240 --> 00:32:16,480
Speaker 1: we're raising a little bit of cashier thinking about hedge

642
00:32:16,480 --> 00:32:19,080
Speaker 1: overlays and what have you. But you know, we're somewhere

643
00:32:19,080 --> 00:32:21,760
Speaker 1: closer to the bottom of the you know, of the

644
00:32:21,800 --> 00:32:25,160
Speaker 1: cycle than the top. The next question is a bit obvious.

645
00:32:25,480 --> 00:32:27,640
Speaker 1: We've seen a big uptick in in rates here in

646
00:32:27,640 --> 00:32:30,480
Speaker 1: the US and around the world. How do you look

647
00:32:30,520 --> 00:32:34,440
Speaker 1: at em based on how the central banks of the

648
00:32:34,480 --> 00:32:38,440
Speaker 1: developing worlds are postured, like, I mean, I think that's

649
00:32:38,440 --> 00:32:41,520
Speaker 1: that's an important question because I think historically, you know,

650
00:32:41,560 --> 00:32:45,400
Speaker 1: when developed markets get sick, developing markets have gone to

651
00:32:45,400 --> 00:32:47,440
Speaker 1: the hospital. And I think that's a big part of

652
00:32:47,480 --> 00:32:49,400
Speaker 1: you know, I would say what's happened to emerging markets

653
00:32:49,400 --> 00:32:53,880
Speaker 1: in two has been predominantly an exogenous shock coming from

654
00:32:54,200 --> 00:32:57,040
Speaker 1: raising the rates around around the world. That's that hasn't

655
00:32:57,040 --> 00:32:58,760
Speaker 1: always been the case in emerging markets. You know, we

656
00:32:58,800 --> 00:33:01,720
Speaker 1: have things called the Kila crisis and the vodka crisis,

657
00:33:01,760 --> 00:33:04,520
Speaker 1: and the Capoina crisis and the Tangle crisis. Those were

658
00:33:04,520 --> 00:33:07,800
Speaker 1: indogenous crises created within emerging markets, but this one was

659
00:33:07,960 --> 00:33:11,200
Speaker 1: you know, it's been about higher rates, less liquidity UM

660
00:33:11,280 --> 00:33:13,680
Speaker 1: and markets. So that being said, you know, I think

661
00:33:13,720 --> 00:33:17,200
Speaker 1: that the FETE has been signaling slower you know, slower

662
00:33:17,240 --> 00:33:20,200
Speaker 1: pause on rates UM when we think about local rates

663
00:33:20,200 --> 00:33:23,440
Speaker 1: and emerging markets. UM. You know, we felt that once

664
00:33:23,520 --> 00:33:26,600
Speaker 1: the dollar's strength went away, that it might be a

665
00:33:26,600 --> 00:33:29,200
Speaker 1: good time to start leaning into local rates within within

666
00:33:29,240 --> 00:33:32,240
Speaker 1: emerging markets. UM. You know, we saw we were looking

667
00:33:32,240 --> 00:33:34,240
Speaker 1: for three things. You know, we have a top down

668
00:33:34,240 --> 00:33:36,440
Speaker 1: every month, and we said, if the twos go to

669
00:33:36,440 --> 00:33:39,560
Speaker 1: four fifty, if tens go to four, and the dollar

670
00:33:39,760 --> 00:33:43,200
Speaker 1: Dixie goes to one fifteen, that's a pretty good place

671
00:33:43,240 --> 00:33:46,000
Speaker 1: to think about board in the flight. So check on

672
00:33:46,200 --> 00:33:48,760
Speaker 1: four fifty, check on four and we hit one fourteen

673
00:33:48,800 --> 00:33:52,719
Speaker 1: and three quarters about six weeks ago. UM. So you know,

674
00:33:52,760 --> 00:33:55,160
Speaker 1: I think over the past couple of months that led

675
00:33:55,240 --> 00:33:57,240
Speaker 1: us to kind of ad duration even though rates you

676
00:33:57,240 --> 00:34:01,880
Speaker 1: were still predicted, and particularly low dollar price investment grade

677
00:34:01,920 --> 00:34:03,800
Speaker 1: securities where you get a lot of convexy that if

678
00:34:03,800 --> 00:34:06,400
Speaker 1: you get a snap back like we've seen in rates,

679
00:34:06,440 --> 00:34:10,080
Speaker 1: that you get to enjoy that right back up. Some

680
00:34:10,120 --> 00:34:13,520
Speaker 1: people have been looking at at the strong dollar of

681
00:34:13,560 --> 00:34:17,640
Speaker 1: the past two quarters is just a wrecking ball, wreaking

682
00:34:17,680 --> 00:34:21,560
Speaker 1: havoc everywhere. How do you put the strength of king

683
00:34:21,680 --> 00:34:26,759
Speaker 1: dollar into context? UM? And I could share some interesting

684
00:34:26,800 --> 00:34:29,680
Speaker 1: stories about some of the crazy things I've seen on

685
00:34:29,680 --> 00:34:32,600
Speaker 1: my side of the street. How does it impact emerging

686
00:34:32,680 --> 00:34:36,160
Speaker 1: markets when when the dollar is as just you know,

687
00:34:36,360 --> 00:34:38,799
Speaker 1: as powerful as it's been this year and again within

688
00:34:38,840 --> 00:34:41,080
Speaker 1: emerging markets, I think it's a it's a dispersion of

689
00:34:41,120 --> 00:34:44,520
Speaker 1: responses based upon upon where you are. UM. But I

690
00:34:44,560 --> 00:34:48,200
Speaker 1: think you know, generally, you know, higher rates, stronger dollar

691
00:34:48,280 --> 00:34:52,239
Speaker 1: has been been a headwind for emerging markets. You know, interestingly, UM,

692
00:34:52,360 --> 00:34:54,839
Speaker 1: emerging markets have had a lot less wiggle room than

693
00:34:54,880 --> 00:34:57,080
Speaker 1: the FED and the ECB and what have you. So

694
00:34:57,160 --> 00:35:00,239
Speaker 1: quite frankly, whether it's Brazil or Columbia, would have they

695
00:35:00,239 --> 00:35:02,040
Speaker 1: were kind of ahead of the curve in terms of

696
00:35:02,239 --> 00:35:05,120
Speaker 1: raising rates. And I think that's what made US bottoms

697
00:35:05,200 --> 00:35:08,120
Speaker 1: up a bit more constructive on emerging market currencies once

698
00:35:08,200 --> 00:35:11,360
Speaker 1: the dollar peaked. And again I think perhaps we we

699
00:35:11,400 --> 00:35:13,800
Speaker 1: saw that at one fourteen and three quarters, Um, you know,

700
00:35:13,920 --> 00:35:16,080
Speaker 1: might go back to one town on on Dixie or

701
00:35:16,480 --> 00:35:21,680
Speaker 1: or what have you, Dixie being sorry the US dollar index, um,

702
00:35:21,719 --> 00:35:23,479
Speaker 1: And you know, we were, you know, we were talking

703
00:35:23,520 --> 00:35:27,680
Speaker 1: about potential vacations in Europe and in the summer, would

704
00:35:27,680 --> 00:35:29,480
Speaker 1: have you and I think, you know, with the with

705
00:35:29,560 --> 00:35:32,319
Speaker 1: the euro at at par and a hundred earlier this year,

706
00:35:32,360 --> 00:35:35,719
Speaker 1: it was pretty pretty good time to preplay the hotel. Yeah. Absolutely. Um,

707
00:35:35,760 --> 00:35:40,360
Speaker 1: so let's talk about some specific countries. Um, we we

708
00:35:40,400 --> 00:35:43,480
Speaker 1: already discussed Russia. How do you look at places in

709
00:35:43,520 --> 00:35:47,840
Speaker 1: South America like Argentina and Venezuela, both which seemed to

710
00:35:48,680 --> 00:35:53,000
Speaker 1: have a crisis almost on a regular schedule. Yeah, I mean,

711
00:35:53,040 --> 00:35:56,200
Speaker 1: let's start with Let's let's start with Argentina, and that

712
00:35:56,360 --> 00:35:58,920
Speaker 1: is a country that has been quite cyclical and the

713
00:35:58,920 --> 00:36:02,279
Speaker 1: returns have been cyclical UM as well. You know, for us,

714
00:36:02,520 --> 00:36:05,800
Speaker 1: we've looked at Argentina much more on an opportunistic basis

715
00:36:06,160 --> 00:36:08,560
Speaker 1: as opposed to somewhere that you want to be UM

716
00:36:08,600 --> 00:36:10,719
Speaker 1: all the time. You know, if you go back when

717
00:36:10,719 --> 00:36:14,680
Speaker 1: we started our business in Argentina was eighteen percent of

718
00:36:14,719 --> 00:36:17,799
Speaker 1: the index, and we were talking earlier about about how

719
00:36:17,880 --> 00:36:20,680
Speaker 1: risky indices can be. Right, So JP Morgan one of

720
00:36:20,719 --> 00:36:23,560
Speaker 1: the stuff eighteen percent of our portfolio in Russia, part

721
00:36:23,560 --> 00:36:28,160
Speaker 1: of me in Argentina right before it defaulted. Fast forward today.

722
00:36:28,360 --> 00:36:30,480
Speaker 1: You know, we have an election coming up in Argentina

723
00:36:30,520 --> 00:36:33,560
Speaker 1: in October three. We just had a passing of the

724
00:36:33,560 --> 00:36:38,440
Speaker 1: baton from Martin Guzman to Massa. UM. I think Massa

725
00:36:38,760 --> 00:36:41,560
Speaker 1: is market friendly enough. I think he's done, UM you

726
00:36:41,600 --> 00:36:43,879
Speaker 1: know what he needs to do with the IMF, and

727
00:36:43,960 --> 00:36:45,640
Speaker 1: you know, we expect that Massa will be able to

728
00:36:45,680 --> 00:36:48,560
Speaker 1: stabilize the markets before they start to climb the wall.

729
00:36:48,600 --> 00:36:52,359
Speaker 1: We're going into the presidential elections in October three. So

730
00:36:52,480 --> 00:36:56,520
Speaker 1: with you know, assets trading at twenty cents performing assets now,

731
00:36:56,520 --> 00:36:59,439
Speaker 1: they perform with very low coupons, but they're performing. UM.

732
00:36:59,480 --> 00:37:03,440
Speaker 1: I can't really imagine a debt restructuring scenario. In the

733
00:37:03,440 --> 00:37:06,240
Speaker 1: next regime, it's worth twenty cents. I can imagine training

734
00:37:06,280 --> 00:37:09,000
Speaker 1: less than because of the liquidity and air pockets of

735
00:37:09,000 --> 00:37:12,200
Speaker 1: of dislocation. But we're starting to focus more on you know,

736
00:37:12,239 --> 00:37:13,680
Speaker 1: we think there's a light at the end of the tunnel.

737
00:37:13,760 --> 00:37:16,320
Speaker 1: We think that's a you know, perhaps a change of regime,

738
00:37:16,360 --> 00:37:20,480
Speaker 1: a new government that comes in with um markedly more

739
00:37:21,000 --> 00:37:24,560
Speaker 1: market friendly policies that the market will like. And Venezuela.

740
00:37:25,360 --> 00:37:27,879
Speaker 1: Venezuela is more complicated. You know, first of all, it's

741
00:37:28,000 --> 00:37:32,120
Speaker 1: under restrictions today, right, so US Treasury, the O fact restrictions.

742
00:37:32,120 --> 00:37:36,000
Speaker 1: So Venezuela is more of a theoretical conversation. Now we

743
00:37:36,000 --> 00:37:39,120
Speaker 1: were talking about Russia and Ukraine before. You know, it's

744
00:37:39,160 --> 00:37:43,959
Speaker 1: interesting to note that Chevron's back pumping oil. Uh that's

745
00:37:43,960 --> 00:37:48,680
Speaker 1: a direct connection to Russia invading Ukraine. And I think

746
00:37:48,719 --> 00:37:50,719
Speaker 1: it was within days of not weeks, that the US

747
00:37:50,760 --> 00:37:53,600
Speaker 1: State Department was already in caraucas after the Russians had

748
00:37:53,719 --> 00:37:56,480
Speaker 1: had had invaded, Meaning we're out looking for oil wherever

749
00:37:56,480 --> 00:38:01,520
Speaker 1: we can get it to offset curtail and exports around

750
00:38:01,560 --> 00:38:03,359
Speaker 1: the world. I mean, think about two images that came out.

751
00:38:03,400 --> 00:38:05,320
Speaker 1: The first one was the fist pump with with Biden

752
00:38:05,360 --> 00:38:08,120
Speaker 1: and NBS and then it was John Kerry shaking hands

753
00:38:08,120 --> 00:38:11,920
Speaker 1: with Moduro. Right. So, um, like Venezuela has a lot

754
00:38:11,960 --> 00:38:14,839
Speaker 1: of oil capacity. You know, I think at their peak

755
00:38:14,880 --> 00:38:17,000
Speaker 1: they were doing three million barrels a day. Um, they

756
00:38:17,040 --> 00:38:19,040
Speaker 1: are probably averaged two point four million barrels a day

757
00:38:19,080 --> 00:38:21,600
Speaker 1: during the Chavez era. Today they're like seven thousand barrels.

758
00:38:21,640 --> 00:38:24,719
Speaker 1: They could probably easy Yet that's it. Well, you know,

759
00:38:25,200 --> 00:38:27,640
Speaker 1: the bad news is they haven't had the capex. The

760
00:38:27,640 --> 00:38:30,160
Speaker 1: good news is all they asked that's still under the ground.

761
00:38:30,760 --> 00:38:33,600
Speaker 1: So you know, I think there's a possibility of a thawing.

762
00:38:33,800 --> 00:38:36,960
Speaker 1: You know, hopefully, UM, they'll take the path of moving

763
00:38:36,960 --> 00:38:41,000
Speaker 1: towards a more democratic UM regime in the upcoming elections.

764
00:38:41,000 --> 00:38:42,799
Speaker 1: And I think the U S could live with a

765
00:38:43,760 --> 00:38:47,200
Speaker 1: a regime where the Chavista does win the current government, UM,

766
00:38:47,239 --> 00:38:50,719
Speaker 1: if it's perceived to be democratic or at least more

767
00:38:50,719 --> 00:38:55,320
Speaker 1: democratic UM. And we've seen that historically in Latin America,

768
00:38:55,440 --> 00:38:58,960
Speaker 1: you know, where people that were ostracized that came in

769
00:38:59,000 --> 00:39:02,120
Speaker 1: back through the democrat process. We're able to run. So

770
00:39:02,200 --> 00:39:06,200
Speaker 1: I tried desperately to avoid being a macro tourist. But

771
00:39:06,320 --> 00:39:09,560
Speaker 1: it sounds like, man, if there's ever a country that

772
00:39:09,640 --> 00:39:14,880
Speaker 1: has immense upside, talk about asymmetrical risks, what would it

773
00:39:14,920 --> 00:39:19,600
Speaker 1: take to make Venezuela really investable and for them to

774
00:39:20,160 --> 00:39:23,839
Speaker 1: become a little more integrated into the global economy. They're

775
00:39:23,920 --> 00:39:28,160
Speaker 1: they're potentially such a success story if they could get

776
00:39:28,160 --> 00:39:30,400
Speaker 1: out of their own ways. Yeah, I remember, go back

777
00:39:30,440 --> 00:39:32,440
Speaker 1: to the nine seventies, the Concord used to fly to

778
00:39:32,520 --> 00:39:36,319
Speaker 1: Caracas just to just to put it in perspective. Um,

779
00:39:36,400 --> 00:39:38,840
Speaker 1: and I think you're right. I mean the they have

780
00:39:38,920 --> 00:39:43,080
Speaker 1: the largest proven oil reserves in the world, not not

781
00:39:43,239 --> 00:39:46,560
Speaker 1: the largest outside of the Middle East, the largest are yeah,

782
00:39:46,680 --> 00:39:49,160
Speaker 1: so more than Saudi Arabia. So now we know that

783
00:39:49,480 --> 00:39:51,759
Speaker 1: you know, Saudi Aramco has done an I p O.

784
00:39:51,880 --> 00:39:55,799
Speaker 1: It's worth a trillion dollars um. You know, could Pettibasa

785
00:39:56,160 --> 00:39:57,799
Speaker 1: or viny A Ramco be worth a quarter of a

786
00:39:57,800 --> 00:40:00,360
Speaker 1: billion dollars? Should be quarter billion doll hours a go

787
00:40:00,440 --> 00:40:04,120
Speaker 1: long ways to being able to create capax a trillion

788
00:40:04,160 --> 00:40:06,759
Speaker 1: excuse quarter of a trillion. So there's a lot of

789
00:40:06,800 --> 00:40:10,560
Speaker 1: a lot of potential there um and hopefully you know,

790
00:40:10,640 --> 00:40:13,600
Speaker 1: the chevron is the first step towards a thawing of

791
00:40:13,680 --> 00:40:17,879
Speaker 1: relations between Venezuela and the West, the US, and that

792
00:40:18,120 --> 00:40:19,960
Speaker 1: UM that will have the ability to buy. You know,

793
00:40:20,040 --> 00:40:23,160
Speaker 1: it reminds me of I Rack quite frankly, so, UM,

794
00:40:23,200 --> 00:40:25,520
Speaker 1: before the Marines invaded Iraq, they were doing about a

795
00:40:25,560 --> 00:40:29,240
Speaker 1: million barrels a day of production. Today they're doing five million.

796
00:40:29,960 --> 00:40:33,239
Speaker 1: Their GDP was twenty five billion a year. It's two

797
00:40:33,320 --> 00:40:36,200
Speaker 1: hundred and fifty billion a year, ten x. That's just amazing.

798
00:40:36,440 --> 00:40:38,319
Speaker 1: And we can't say that it's because it was such

799
00:40:38,320 --> 00:40:42,000
Speaker 1: a politically stable place, right. So you know, we could

800
00:40:42,040 --> 00:40:45,520
Speaker 1: imagine a Venezuela on the other side where the seven

801
00:40:45,640 --> 00:40:50,560
Speaker 1: hundred thousand barrels goes back to two to three, and

802
00:40:50,560 --> 00:40:52,319
Speaker 1: that would make a difference today, and it would make

803
00:40:52,320 --> 00:40:54,680
Speaker 1: a difference not only to the market, but quite frankly, UM,

804
00:40:54,800 --> 00:40:59,080
Speaker 1: the Venezuelan people who have suffered immensely under this administration

805
00:40:59,080 --> 00:41:02,000
Speaker 1: and under the current UM. So. So, so let's talk

806
00:41:02,000 --> 00:41:05,440
Speaker 1: a little bit about China. UM, how do you approach China?

807
00:41:06,760 --> 00:41:10,840
Speaker 1: I'm I look at equity there. It's essentially flat since

808
00:41:10,880 --> 00:41:15,080
Speaker 1: the early If you're an outsider, it seems like the

809
00:41:15,200 --> 00:41:19,759
Speaker 1: Chinese Central Party has taken all of those gains for themselves. Um,

810
00:41:20,560 --> 00:41:23,360
Speaker 1: is China investable? How do you even approach a country

811
00:41:23,400 --> 00:41:27,719
Speaker 1: like that? So I think, Uh, when we think about investability,

812
00:41:28,040 --> 00:41:30,840
Speaker 1: one has to think about price right, initial conditions. And

813
00:41:30,880 --> 00:41:34,160
Speaker 1: so I'll start with historically in China, and for a

814
00:41:34,200 --> 00:41:37,799
Speaker 1: long period of time, we've been massively underweight or no

815
00:41:37,920 --> 00:41:42,120
Speaker 1: exposure because it's been asymmetric in your face. And what

816
00:41:42,160 --> 00:41:44,480
Speaker 1: I mean by that is we're we're we're debt, we're

817
00:41:44,480 --> 00:41:47,799
Speaker 1: debt investors, right, So debt is a contract, right, And

818
00:41:47,960 --> 00:41:52,879
Speaker 1: the contracts that Chinese companies had and the off shore

819
00:41:53,080 --> 00:41:56,400
Speaker 1: was basically a piece of paper, no assets, and you

820
00:41:56,440 --> 00:41:59,320
Speaker 1: had to rely upon the good faith and the willingness

821
00:41:59,480 --> 00:42:01,799
Speaker 1: and a bill of this corporate to pay you and

822
00:42:01,840 --> 00:42:03,640
Speaker 1: then and then to pay you to first to make

823
00:42:03,640 --> 00:42:07,200
Speaker 1: a dividend offshore and maybe get China to approve that dividend,

824
00:42:07,480 --> 00:42:09,680
Speaker 1: and then and then to pay you. So that that

825
00:42:09,760 --> 00:42:13,239
Speaker 1: sounds like a terrible setup for investment. Yeah, So for

826
00:42:13,280 --> 00:42:15,880
Speaker 1: a dead investor thinking about China at par, trying to

827
00:42:15,880 --> 00:42:18,840
Speaker 1: corporate a par made no sense to us. Now China

828
00:42:18,880 --> 00:42:23,480
Speaker 1: property has gone from par. The home builders too, We

829
00:42:23,520 --> 00:42:26,160
Speaker 1: talked about eight cents, ten cents five cents. So now

830
00:42:26,440 --> 00:42:29,200
Speaker 1: now you start to think about option value. And when

831
00:42:29,200 --> 00:42:32,120
Speaker 1: I look at the China property sector today, it reminds

832
00:42:32,120 --> 00:42:35,000
Speaker 1: me of a lot of emerging market UM corporates and

833
00:42:35,040 --> 00:42:39,839
Speaker 1: sovereigns historically, where one has to tease out distress isn't

834
00:42:39,880 --> 00:42:41,560
Speaker 1: something that's just cheaper than it used to be. It's

835
00:42:41,640 --> 00:42:44,160
Speaker 1: cheap relative to an outcome that we think that we

836
00:42:44,239 --> 00:42:47,560
Speaker 1: can catalyze. So when we look at an eight cents security,

837
00:42:47,680 --> 00:42:49,920
Speaker 1: we're not hearing from the company we're not going to

838
00:42:50,040 --> 00:42:53,359
Speaker 1: pay you, and we're not seeing insolvency. We're seeing bandit center.

839
00:42:53,440 --> 00:42:56,400
Speaker 1: We're seeing people FAMBI sent people frozen in in the headlight.

840
00:42:57,239 --> 00:43:00,399
Speaker 1: And I remember one one CFO and China that we're talking.

841
00:43:00,440 --> 00:43:03,399
Speaker 1: I remember there in lockdown, right, And so this poor

842
00:43:03,600 --> 00:43:06,440
Speaker 1: um CFO is doing the conference code with us in

843
00:43:06,560 --> 00:43:11,359
Speaker 1: his bathroom and the screen saver is a shower screen, right,

844
00:43:11,760 --> 00:43:14,520
Speaker 1: And so what what what you're seeing as someone who

845
00:43:14,520 --> 00:43:16,239
Speaker 1: doesn't know how to do a debt restruction? And I,

846
00:43:16,520 --> 00:43:19,120
Speaker 1: you know, go back to I remember Argentina two thousand

847
00:43:19,160 --> 00:43:21,440
Speaker 1: and nine and meeting with the finance minister who not

848
00:43:21,480 --> 00:43:23,239
Speaker 1: only didn't know finance, but didn't know how to do

849
00:43:23,280 --> 00:43:25,840
Speaker 1: a debt restruction. So when we look at China property

850
00:43:25,880 --> 00:43:28,600
Speaker 1: at five eight ten cents today, um, and we see

851
00:43:28,640 --> 00:43:32,600
Speaker 1: these people who are expressing willingness to restructure, but a

852
00:43:32,680 --> 00:43:35,200
Speaker 1: lack of understanding of how to do it, the option

853
00:43:35,280 --> 00:43:39,280
Speaker 1: value seems pretty cheap. That that's really really quite intriguing.

854
00:43:39,719 --> 00:43:43,560
Speaker 1: We talked earlier about Russia. I've always looked askance at

855
00:43:43,600 --> 00:43:47,839
Speaker 1: Russia because there's no respect for private property, for contract rights,

856
00:43:48,200 --> 00:43:51,160
Speaker 1: for rule of law. Do you have the same challenges

857
00:43:51,200 --> 00:43:55,239
Speaker 1: in China or are they a little more westernized in

858
00:43:55,360 --> 00:43:58,200
Speaker 1: terms of if you cut a deal, they will honor it.

859
00:43:58,360 --> 00:44:00,160
Speaker 1: Look at it. I don't want to talk in in

860
00:44:00,360 --> 00:44:03,200
Speaker 1: large generalities or stereotypes, but you know, I think we

861
00:44:03,239 --> 00:44:06,000
Speaker 1: saw the Chinese government plank as it relates to the

862
00:44:06,040 --> 00:44:09,160
Speaker 1: most important sector, that the property sector. And prior to

863
00:44:09,200 --> 00:44:11,359
Speaker 1: the Party Congress, you know, if you read the risk

864
00:44:11,440 --> 00:44:13,440
Speaker 1: in China was that they were going to take it

865
00:44:13,480 --> 00:44:15,600
Speaker 1: all that the government. You know, they were just gonna

866
00:44:15,640 --> 00:44:19,200
Speaker 1: like say you forget you to the to the offshore

867
00:44:19,200 --> 00:44:21,320
Speaker 1: bond holders, what have you. But I think they blinked

868
00:44:21,440 --> 00:44:24,920
Speaker 1: right that this is the GDP of the country, right. Um,

869
00:44:25,000 --> 00:44:27,080
Speaker 1: So to just think that you can, um, have a

870
00:44:27,160 --> 00:44:30,600
Speaker 1: Lehman moment and just you know, let them go. They

871
00:44:30,600 --> 00:44:32,560
Speaker 1: tried that with every grand quite frankly, like, let's just

872
00:44:33,239 --> 00:44:36,480
Speaker 1: it didn't work. So, Um, I think it's a lot

873
00:44:36,560 --> 00:44:38,800
Speaker 1: less risky today than it was eight weeks ago because

874
00:44:38,800 --> 00:44:41,239
Speaker 1: we've seen the new government, the third has come in

875
00:44:41,640 --> 00:44:43,400
Speaker 1: and we've seen that they kind of blinked as it

876
00:44:43,440 --> 00:44:45,759
Speaker 1: related to this, and it's just massive support going to

877
00:44:45,800 --> 00:44:48,239
Speaker 1: that sector. So does that mean I want to buy

878
00:44:48,239 --> 00:44:52,160
Speaker 1: a part security in China anytime soon? No? But do

879
00:44:52,200 --> 00:44:56,360
Speaker 1: we get more comfortable at ten cents with a Chinese

880
00:44:56,360 --> 00:45:01,160
Speaker 1: tarp and CFOs and CEOs telling us that they want

881
00:45:01,160 --> 00:45:03,680
Speaker 1: to restructure. They just want to extend. They don't want

882
00:45:03,680 --> 00:45:06,480
Speaker 1: to wipe us out, they don't want to equitize, they

883
00:45:06,480 --> 00:45:08,640
Speaker 1: don't want to toss the keys. I think it's a

884
00:45:08,640 --> 00:45:11,480
Speaker 1: pretty good bet. What do you make at the we're

885
00:45:11,520 --> 00:45:13,520
Speaker 1: recording this in the beginning of December, What do you

886
00:45:13,600 --> 00:45:16,839
Speaker 1: make of the changes in the COVID policy over there

887
00:45:17,120 --> 00:45:20,000
Speaker 1: and what might that mean for their economy and their

888
00:45:20,280 --> 00:45:23,319
Speaker 1: DAT issues. Yeah, I mean, so there's there's a you know,

889
00:45:23,360 --> 00:45:26,719
Speaker 1: there's a social element to to to that response, which is,

890
00:45:26,800 --> 00:45:29,480
Speaker 1: you know, you can see that the population has been

891
00:45:29,480 --> 00:45:31,400
Speaker 1: fed up. I mean I go back to you know,

892
00:45:32,040 --> 00:45:34,560
Speaker 1: my kids thought, you know, three months of being locked

893
00:45:34,600 --> 00:45:37,640
Speaker 1: up in the house in the second quarter was worst

894
00:45:37,640 --> 00:45:39,120
Speaker 1: thing that ever happened. I mean, this has been going

895
00:45:39,160 --> 00:45:42,239
Speaker 1: on China now for for nearly three years. So, um,

896
00:45:42,320 --> 00:45:46,360
Speaker 1: you have large numbers of people that have been very unhappy.

897
00:45:46,560 --> 00:45:49,240
Speaker 1: And I'm not surprised again to see after the Party

898
00:45:49,280 --> 00:45:52,719
Speaker 1: Congress them tact or pivot, which is everybody's favorite word

899
00:45:52,760 --> 00:45:55,640
Speaker 1: these days, um, and start to open up the economy.

900
00:45:56,080 --> 00:45:57,880
Speaker 1: I'll take that back to you know, I think that's

901
00:45:57,920 --> 00:46:00,279
Speaker 1: gonna create more what happened here, right, we had we

902
00:46:00,320 --> 00:46:02,239
Speaker 1: had the big closure and then when the reopening and

903
00:46:02,280 --> 00:46:05,120
Speaker 1: the reopening was slow and spotty, and now we're seeing

904
00:46:05,160 --> 00:46:06,839
Speaker 1: that it's you know, the demands there and we're having

905
00:46:06,840 --> 00:46:10,520
Speaker 1: difficulty with the supply side. I would expect something similar

906
00:46:10,520 --> 00:46:12,319
Speaker 1: in China, but I think demand for housing is going

907
00:46:12,360 --> 00:46:15,840
Speaker 1: to be there, the supports there, and that's a major,

908
00:46:16,880 --> 00:46:21,200
Speaker 1: a major part of their economy. Really quite fascinating. So

909
00:46:21,280 --> 00:46:24,560
Speaker 1: let's talk a little bit about market efficiency and debt.

910
00:46:25,120 --> 00:46:29,600
Speaker 1: It seems that e M is more complicated, less transparent,

911
00:46:29,880 --> 00:46:35,120
Speaker 1: less efficient than developed markets. Is that part of the

912
00:46:35,160 --> 00:46:39,120
Speaker 1: source from whence alpha is derived. Yeah, for sure. I mean,

913
00:46:39,160 --> 00:46:42,080
Speaker 1: I think the the information asymmetry means that if you

914
00:46:42,200 --> 00:46:45,520
Speaker 1: can organize yourselves in order to be able to capture information,

915
00:46:45,920 --> 00:46:48,680
Speaker 1: and again that's outside the firm and inside the firm.

916
00:46:48,719 --> 00:46:50,640
Speaker 1: You know, we talked a little bit about having platforms

917
00:46:50,640 --> 00:46:52,960
Speaker 1: that can suck up that information from the regions, but

918
00:46:53,360 --> 00:46:55,799
Speaker 1: also the way that we are organized an investment team

919
00:46:55,960 --> 00:46:59,760
Speaker 1: for different strategy groups, all collaborating, all meeting every morning,

920
00:47:00,040 --> 00:47:02,560
Speaker 1: sitting on an investment committee, sharing like what's going on

921
00:47:02,600 --> 00:47:05,040
Speaker 1: in public debt matters to private debt. You know, we

922
00:47:05,080 --> 00:47:08,520
Speaker 1: talked about Venezuela earlier, like what our special situations team

923
00:47:08,560 --> 00:47:12,919
Speaker 1: knows about litigation, litigation finance in Venezuela and O fact restrictions.

924
00:47:13,200 --> 00:47:15,640
Speaker 1: Was helping our long onlymaging market debt team think about

925
00:47:15,680 --> 00:47:18,160
Speaker 1: what it meant for Russia when those when those things

926
00:47:18,160 --> 00:47:20,960
Speaker 1: came on. So a lot of opportunities in the way

927
00:47:20,960 --> 00:47:23,279
Speaker 1: that we're organized to to be able to uh, to

928
00:47:23,360 --> 00:47:25,839
Speaker 1: create alpha. Um. You know, the other way to pick

929
00:47:26,120 --> 00:47:28,560
Speaker 1: to really create alpha and take advantage of the information

930
00:47:28,560 --> 00:47:31,319
Speaker 1: asymmetry is through the dynamic acid allocation that that that

931
00:47:31,360 --> 00:47:33,880
Speaker 1: we talked about UM. You know my pet peeve as

932
00:47:33,880 --> 00:47:37,080
Speaker 1: an investor who picks a return stream for ten years.

933
00:47:37,480 --> 00:47:40,719
Speaker 1: And you mentioned before that you know, um inequities. You

934
00:47:40,719 --> 00:47:42,719
Speaker 1: could argue with Chinese equities whatever it may be that

935
00:47:42,800 --> 00:47:46,040
Speaker 1: you know, maybe it's been lackluster returns. Well, UM, if

936
00:47:46,080 --> 00:47:48,360
Speaker 1: you stick with something, whether it trades in a hundred,

937
00:47:48,400 --> 00:47:52,400
Speaker 1: fifty or two, UM, you're just gonna get the average,

938
00:47:52,440 --> 00:47:54,480
Speaker 1: you know. But if you're able to move around between

939
00:47:54,560 --> 00:47:56,960
Speaker 1: value and relative value, I think there's a way to

940
00:47:56,960 --> 00:47:59,880
Speaker 1: take advantage of the information asymmetry UM and create alpha.

941
00:48:00,040 --> 00:48:02,040
Speaker 1: One of the things I've always wondered about the difference

942
00:48:02,080 --> 00:48:06,239
Speaker 1: between emerging market and frontier markets. At first, do you

943
00:48:06,280 --> 00:48:08,600
Speaker 1: look at frontier markets? And second, how do you really

944
00:48:08,680 --> 00:48:11,600
Speaker 1: distinguish between the two. We really try and put the

945
00:48:11,680 --> 00:48:14,400
Speaker 1: labels aside, and frontier markets a bit more of a

946
00:48:14,560 --> 00:48:17,000
Speaker 1: of an equity label than a debt label. To begin

947
00:48:17,080 --> 00:48:20,600
Speaker 1: with that being set up, I would say that you know,

948
00:48:20,680 --> 00:48:25,280
Speaker 1: most any country that was frontier we've invested in, traded,

949
00:48:25,320 --> 00:48:28,239
Speaker 1: and traveled at some point in our careers, and things

950
00:48:28,440 --> 00:48:33,560
Speaker 1: often go from frontier to emerging markets, sometimes they go back.

951
00:48:34,440 --> 00:48:36,560
Speaker 1: We're much more interested in kind of the bottoms up

952
00:48:36,600 --> 00:48:39,760
Speaker 1: analysis and what it means. But you know, Bulgaria was frontier,

953
00:48:41,080 --> 00:48:44,279
Speaker 1: it became investment grade shortly thereafter. Poland wasn't you know

954
00:48:44,719 --> 00:48:47,560
Speaker 1: the same thing. It was frontier UM. So for us

955
00:48:47,560 --> 00:48:49,800
Speaker 1: in the debt side, it doesn't really matter. Some frontiers

956
00:48:49,840 --> 00:48:51,640
Speaker 1: have a lot of debts, some don't have any debt.

957
00:48:51,719 --> 00:48:54,319
Speaker 1: How do you think about China? Are they still an

958
00:48:54,320 --> 00:48:57,640
Speaker 1: emerging market or have they emerged again? I think it

959
00:48:57,680 --> 00:49:00,040
Speaker 1: depends on how you define emerging markets. You know, in

960
00:49:00,080 --> 00:49:03,719
Speaker 1: the in the textbook, you know, per capita GDP, it's

961
00:49:03,719 --> 00:49:08,240
Speaker 1: certainly still classified as an emerging market. UM country UM,

962
00:49:08,440 --> 00:49:11,000
Speaker 1: second second largest economy in the world. Do they really

963
00:49:11,080 --> 00:49:14,600
Speaker 1: an emerging market anymore? Exactly? UM? And again it depends

964
00:49:14,640 --> 00:49:17,520
Speaker 1: on whether you're talking about UM from a from a

965
00:49:17,560 --> 00:49:21,799
Speaker 1: political economic perspective, from a GDP perspective. UM. But you know,

966
00:49:21,880 --> 00:49:25,200
Speaker 1: it's certainly hard to just compare to all other emerging markets.

967
00:49:25,200 --> 00:49:27,520
Speaker 1: And as you know, on the equity side, it's not

968
00:49:27,600 --> 00:49:30,480
Speaker 1: only is it. You know, it's such a big component

969
00:49:30,480 --> 00:49:32,960
Speaker 1: of the Emerging Market index, right, It's like when you

970
00:49:33,000 --> 00:49:36,080
Speaker 1: buy when you buy the the e M equity index,

971
00:49:36,080 --> 00:49:38,799
Speaker 1: you're basically buying China and a few others. Um, I'm

972
00:49:38,800 --> 00:49:40,799
Speaker 1: not sure that makes a lot of sense going forward. No,

973
00:49:40,880 --> 00:49:43,640
Speaker 1: I couldn't agree. More. Let's talk a little bit about

974
00:49:43,640 --> 00:49:46,880
Speaker 1: your team. You're the chairman of Grammarcy is the former

975
00:49:47,000 --> 00:49:51,239
Speaker 1: CEO of PIMCO, Muhammadalarian. What's it like to work with

976
00:49:51,320 --> 00:49:53,600
Speaker 1: him every day? How did he end up as chairman

977
00:49:53,640 --> 00:49:58,160
Speaker 1: of Grammarcy. Look, it's been Uh, it's been been phenomenal. Um.

978
00:49:58,280 --> 00:50:02,200
Speaker 1: Mohammed started with us as an investor first. UM, and

979
00:50:02,239 --> 00:50:03,919
Speaker 1: as he got to know us, he kind of leaned

980
00:50:03,960 --> 00:50:07,319
Speaker 1: in and and and and met the team, and UM,

981
00:50:07,400 --> 00:50:10,279
Speaker 1: we had a conversation about him helping us think about

982
00:50:10,320 --> 00:50:12,839
Speaker 1: how do we institutionalize the top down? How do we

983
00:50:13,040 --> 00:50:15,040
Speaker 1: you know, we've been very much a bottoms up you know,

984
00:50:15,080 --> 00:50:17,479
Speaker 1: stock picking shop and credit if you will, credit picking shop,

985
00:50:18,000 --> 00:50:19,520
Speaker 1: and we wanted to make sure that we had a

986
00:50:19,560 --> 00:50:22,920
Speaker 1: good institutional framework. And quite frankly, myself as the as

987
00:50:22,960 --> 00:50:25,279
Speaker 1: the c IO, I lacked the confidence to to go

988
00:50:25,360 --> 00:50:27,279
Speaker 1: to other portfolio manage and say, look, my view is

989
00:50:27,320 --> 00:50:29,640
Speaker 1: so strong and so right that you should get out

990
00:50:29,680 --> 00:50:31,759
Speaker 1: of that country or what have you. So now with

991
00:50:31,920 --> 00:50:35,160
Speaker 1: you know, Mohammed moved from an investor to an investor

992
00:50:35,239 --> 00:50:39,040
Speaker 1: that UM was an advisor. He helped us really institutionalize

993
00:50:39,040 --> 00:50:42,360
Speaker 1: the top down and then when COVID hit, he realized,

994
00:50:42,400 --> 00:50:44,400
Speaker 1: you know what, I can have a real impact on

995
00:50:44,400 --> 00:50:46,239
Speaker 1: the business. I don't have to be there every day

996
00:50:46,320 --> 00:50:48,280
Speaker 1: right in person. I can be there every day on Zoom.

997
00:50:48,320 --> 00:50:50,839
Speaker 1: And so he's with us most every morning on on

998
00:50:50,880 --> 00:50:53,840
Speaker 1: our daily call we have this top down call. And

999
00:50:54,280 --> 00:50:57,799
Speaker 1: full full credit to him. He's been a whole lot

1000
00:50:57,840 --> 00:51:01,480
Speaker 1: more right than wrong on everything for UM, from emerging

1001
00:51:01,560 --> 00:51:06,000
Speaker 1: markets to inflation to rates. He seems to be on

1002
00:51:06,080 --> 00:51:08,840
Speaker 1: a hot streak these days. Look, he he is a

1003
00:51:09,000 --> 00:51:12,920
Speaker 1: brilliant top down decoder. He's an investor, right. A lot

1004
00:51:12,960 --> 00:51:15,960
Speaker 1: of economists can can talk to talk, but they can't

1005
00:51:16,000 --> 00:51:20,400
Speaker 1: necessarily walk thetis they're not putting money. So he's brilliant

1006
00:51:20,440 --> 00:51:23,920
Speaker 1: as a top down decoder. He understands the investment implications

1007
00:51:23,920 --> 00:51:26,160
Speaker 1: of what he's just decoded, and he shares a passion

1008
00:51:26,160 --> 00:51:29,279
Speaker 1: for emerging markets with us. So it's it's a perfect fit.

1009
00:51:29,360 --> 00:51:32,320
Speaker 1: And and to your point, he was well ahead of

1010
00:51:32,320 --> 00:51:35,160
Speaker 1: the curve on COVID. Like I didn't know what he

1011
00:51:35,560 --> 00:51:37,040
Speaker 1: said to me one day, like you know, this is

1012
00:51:37,080 --> 00:51:40,440
Speaker 1: a sudden stop and you can't have a sudden start.

1013
00:51:42,800 --> 00:51:44,279
Speaker 1: Never really thought about that, right, but what are the

1014
00:51:44,280 --> 00:51:47,400
Speaker 1: implications of a sudden stop and a slow start? Um?

1015
00:51:47,520 --> 00:51:51,600
Speaker 1: Supply bottlenecks? Right, Um, still waiting for semiconductors to get

1016
00:51:51,640 --> 00:51:54,040
Speaker 1: to new cars, so people didn't what are something in

1017
00:51:54,080 --> 00:51:56,319
Speaker 1: that weight? Eighteen months? Yeah? You know he I think

1018
00:51:56,320 --> 00:51:58,560
Speaker 1: he's well ahead of the curve on on inflation, right,

1019
00:51:58,600 --> 00:52:00,719
Speaker 1: And so it's been great. It's given us a lot

1020
00:52:00,760 --> 00:52:03,160
Speaker 1: of confidence on the top down. Um. You know what

1021
00:52:03,239 --> 00:52:05,120
Speaker 1: I think differentiates us is we can take the top

1022
00:52:05,160 --> 00:52:07,600
Speaker 1: down that he's really helped us institutionalize and marry it

1023
00:52:07,640 --> 00:52:10,440
Speaker 1: with our strong bottoms up and be able to uh

1024
00:52:10,480 --> 00:52:12,880
Speaker 1: to differentiate. And you know, lastly, he's just he's just

1025
00:52:12,920 --> 00:52:18,560
Speaker 1: become a great friend. Yeah, he's really a fascinating, charming Um, gentlemen,

1026
00:52:18,640 --> 00:52:21,560
Speaker 1: I'm I'm I'm a big fan. Before I get to

1027
00:52:21,640 --> 00:52:24,200
Speaker 1: my favorite questions, let me throw a curved bowl at

1028
00:52:24,239 --> 00:52:27,719
Speaker 1: you a little bit. Um, tell us about Turkey. What

1029
00:52:27,719 --> 00:52:32,440
Speaker 1: what's your relationship to the country. How often are you there? So? Um,

1030
00:52:32,560 --> 00:52:34,640
Speaker 1: Turkey is a place. My my wife is Turkish. We've

1031
00:52:34,640 --> 00:52:36,920
Speaker 1: been married for almost thirty years now. So I've been

1032
00:52:36,920 --> 00:52:41,000
Speaker 1: traveling to Turkey for for that long. Um My daughters

1033
00:52:41,040 --> 00:52:42,640
Speaker 1: both speak Turkish, so we spent a lot of time

1034
00:52:42,680 --> 00:52:46,080
Speaker 1: there in the summers and so, um, you know it's

1035
00:52:46,400 --> 00:52:48,799
Speaker 1: in the summers, you mean every summer for the past

1036
00:52:48,840 --> 00:52:51,439
Speaker 1: thirty years, pretty much every summer for the last thirty years.

1037
00:52:51,680 --> 00:52:54,160
Speaker 1: We wanted our our daughters to learn Turkish, so we

1038
00:52:54,600 --> 00:52:57,480
Speaker 1: got an apartment there every summer. Uh. We love going

1039
00:52:57,520 --> 00:52:59,760
Speaker 1: to the beach down there, down in in in bodroom.

1040
00:52:59,840 --> 00:53:03,320
Speaker 1: Is beautiful water. Is that the medranean or the Asians.

1041
00:53:03,360 --> 00:53:07,719
Speaker 1: It's on the Agean side, so so that's spectacular, beautiful water,

1042
00:53:07,920 --> 00:53:13,840
Speaker 1: beautiful of great people, great hospitality, awesome food. So you know,

1043
00:53:13,840 --> 00:53:16,360
Speaker 1: I'm really enjoyed it. And you know, it's become an

1044
00:53:16,400 --> 00:53:18,120
Speaker 1: important part of our our business over the years too

1045
00:53:18,120 --> 00:53:20,160
Speaker 1: because I spent so much time there. Although I'm a

1046
00:53:20,200 --> 00:53:22,920
Speaker 1: Latin Americanist by training, I've become very comfortable in Turkey

1047
00:53:22,920 --> 00:53:26,120
Speaker 1: as well. Huh, really really very interesting. Let's jump to

1048
00:53:26,120 --> 00:53:29,960
Speaker 1: our favorite questions that we ask all our guests. And

1049
00:53:30,000 --> 00:53:32,040
Speaker 1: I'm gonna have to retire this question one of these

1050
00:53:32,120 --> 00:53:35,800
Speaker 1: days now that we're mostly reopened, but during the lockdown,

1051
00:53:35,960 --> 00:53:39,200
Speaker 1: tell us what you were doing to stay entertained. What

1052
00:53:39,200 --> 00:53:41,880
Speaker 1: were you streaming when we were all stuck in the house,

1053
00:53:42,680 --> 00:53:46,120
Speaker 1: So we were just talking about Turkey UM. And Netflix

1054
00:53:46,160 --> 00:53:49,320
Speaker 1: happens to have a great catalog of Turkish shows really

1055
00:53:49,400 --> 00:53:54,080
Speaker 1: so they're in Turkish with English English subtitles, really really good, UM,

1056
00:53:54,120 --> 00:53:56,560
Speaker 1: really good plots in drama and what have you. So

1057
00:53:56,920 --> 00:53:59,920
Speaker 1: it gave me the ability to learn Turkish language but

1058
00:54:00,080 --> 00:54:03,000
Speaker 1: also learned Turkish culture UM, and be really entertained in

1059
00:54:03,040 --> 00:54:05,879
Speaker 1: the process. Give us the name of the show. One

1060
00:54:05,920 --> 00:54:07,839
Speaker 1: of them that I just finished is called a tier

1061
00:54:08,040 --> 00:54:11,080
Speaker 1: in Turkish, which means the gift um. And it has

1062
00:54:11,120 --> 00:54:13,520
Speaker 1: a bit of h I think about twenty four episodes

1063
00:54:13,600 --> 00:54:17,480
Speaker 1: and it's about um kind of archaeology and Turkey and

1064
00:54:17,480 --> 00:54:21,200
Speaker 1: and uh, really fascinating, really good act really good actors UM,

1065
00:54:21,440 --> 00:54:26,320
Speaker 1: really good scripts, UM, and really good cinematography. Sounds interesting.

1066
00:54:26,640 --> 00:54:29,080
Speaker 1: Tell us about some of your early mentors who helped

1067
00:54:29,239 --> 00:54:32,600
Speaker 1: shape your career. So, in terms of mentors, I mentioned

1068
00:54:32,640 --> 00:54:35,560
Speaker 1: my my first boss, Carlos Arriguez Pasteur, the boutique I

1069
00:54:35,560 --> 00:54:38,040
Speaker 1: worked with in California. What was the name of the

1070
00:54:38,040 --> 00:54:42,440
Speaker 1: boutique CRP associates for for his initials um and I

1071
00:54:42,520 --> 00:54:44,200
Speaker 1: was very fortunate to work with Carlos. It was a

1072
00:54:44,280 --> 00:54:46,440
Speaker 1: very small boutique. Spent a lot of time with him

1073
00:54:46,440 --> 00:54:48,400
Speaker 1: on a one on one basis. Um, he had a

1074
00:54:48,440 --> 00:54:53,319
Speaker 1: great mind. He understood the intersection of politics and and markets. Um.

1075
00:54:53,480 --> 00:54:55,520
Speaker 1: You know, English was his second language, but I think

1076
00:54:55,520 --> 00:54:58,360
Speaker 1: he taught me English in terms of written English and

1077
00:54:58,360 --> 00:55:00,839
Speaker 1: business English and and what have you. Um. And I'd

1078
00:55:00,840 --> 00:55:03,719
Speaker 1: say the other one, quite frankly, was my stepfather, who

1079
00:55:03,800 --> 00:55:06,440
Speaker 1: was a pilot for United Airlines for thirty five years.

1080
00:55:06,440 --> 00:55:09,680
Speaker 1: And you know, he had this checklist mentality which looks

1081
00:55:09,719 --> 00:55:12,520
Speaker 1: a lot like risk management, right, like always thinking about

1082
00:55:12,560 --> 00:55:15,839
Speaker 1: what can go wrong and how to avoid the the

1083
00:55:15,840 --> 00:55:19,480
Speaker 1: the catastrophic mistake, um in the nonrecoverable mistake. And so

1084
00:55:19,520 --> 00:55:21,640
Speaker 1: I put those two together and say they were great mentors.

1085
00:55:22,000 --> 00:55:24,600
Speaker 1: I love the idea of checklist. It's it's pilots and

1086
00:55:24,640 --> 00:55:28,759
Speaker 1: surgeons want to make sure, um, that there aren't these

1087
00:55:28,800 --> 00:55:32,719
Speaker 1: silly little errors. It's avoiding mistakes more important than hitting

1088
00:55:32,760 --> 00:55:35,640
Speaker 1: the bull's eye. And maybe pilots more than surgeons because

1089
00:55:35,640 --> 00:55:39,440
Speaker 1: they're on the plane. That's that's the difference of pilot. UM.

1090
00:55:39,480 --> 00:55:43,080
Speaker 1: When a surgeon loses a patient they're sad. When a

1091
00:55:43,120 --> 00:55:46,120
Speaker 1: pilot loses a plane, he's dead. So it's a very

1092
00:55:46,120 --> 00:55:49,040
Speaker 1: different thing. Uh, tell us about some of your favorite books.

1093
00:55:49,120 --> 00:55:51,800
Speaker 1: What are you reading right now? Went back to Turkey.

1094
00:55:51,840 --> 00:55:53,319
Speaker 1: You know, we we've got an election coming up in

1095
00:55:53,320 --> 00:55:55,640
Speaker 1: Turkey this year as well, so I've been doing some

1096
00:55:55,160 --> 00:55:57,719
Speaker 1: uh some some reading on Turkey and one in particular

1097
00:55:58,080 --> 00:56:00,600
Speaker 1: book called Turkey under Ardwang, and it kind of just

1098
00:56:00,640 --> 00:56:02,399
Speaker 1: gives you sense of what Turkey has been like over

1099
00:56:02,400 --> 00:56:04,280
Speaker 1: the last twenty years with there to on and maybe

1100
00:56:04,520 --> 00:56:07,440
Speaker 1: think about, um, some of the factors that might influence

1101
00:56:07,520 --> 00:56:11,759
Speaker 1: the potential regime change in Turkey and later this year,

1102
00:56:11,920 --> 00:56:14,880
Speaker 1: what are the odds of that regime change happening? You know,

1103
00:56:14,920 --> 00:56:17,840
Speaker 1: they change every day and we all know that polls

1104
00:56:17,840 --> 00:56:22,000
Speaker 1: aren't as reliable as they never were. But when I

1105
00:56:22,040 --> 00:56:23,920
Speaker 1: was in Turkey this summer, I would have told you

1106
00:56:23,960 --> 00:56:27,719
Speaker 1: that the odds for him winning were quite low. And

1107
00:56:27,760 --> 00:56:30,480
Speaker 1: that's because if you spoke with you know, there's a

1108
00:56:30,480 --> 00:56:34,040
Speaker 1: bit of a misery index. You know, older retired people

1109
00:56:34,440 --> 00:56:37,680
Speaker 1: that were getting squeezed by high inflation um and and

1110
00:56:37,719 --> 00:56:40,680
Speaker 1: the currency devaluation, but then also young kids right that,

1111
00:56:40,920 --> 00:56:43,879
Speaker 1: um that just felt kind of hopeless. And so when

1112
00:56:43,920 --> 00:56:45,680
Speaker 1: I left there and in August, I'm like, it's going

1113
00:56:45,760 --> 00:56:49,239
Speaker 1: to be really difficult for him to win. Um. Now

1114
00:56:49,480 --> 00:56:51,839
Speaker 1: we were there, you know, we had a team there

1115
00:56:51,840 --> 00:56:55,879
Speaker 1: two weeks ago. You know, their calls, it's like, UM,

1116
00:56:55,920 --> 00:56:58,040
Speaker 1: and I think, you know, there's a there's a real

1117
00:56:58,080 --> 00:57:00,720
Speaker 1: dispersion of outcomes that could come from whether he stays

1118
00:57:00,800 --> 00:57:03,560
Speaker 1: or goes. How he stays, how he goes. So it's

1119
00:57:03,560 --> 00:57:06,000
Speaker 1: been interesting to to to read on that. And then

1120
00:57:06,040 --> 00:57:08,560
Speaker 1: of course, UM, I like the David Rubinstein books, the

1121
00:57:08,560 --> 00:57:11,440
Speaker 1: interviews you know, with the investors and and and and

1122
00:57:11,640 --> 00:57:15,160
Speaker 1: UM leadership. Yeah, he's he's a fascinating guy as well.

1123
00:57:15,239 --> 00:57:17,160
Speaker 1: So those are the two books you you just finished.

1124
00:57:17,200 --> 00:57:19,360
Speaker 1: Most recently, what sort of advice would you give to

1125
00:57:19,360 --> 00:57:22,280
Speaker 1: a recent college grad who was interested in a career

1126
00:57:22,800 --> 00:57:26,720
Speaker 1: in emerging markets? Opportunistic or distress that what's funny in

1127
00:57:27,160 --> 00:57:30,160
Speaker 1: the post COVID era. I would start with saying that

1128
00:57:30,160 --> 00:57:33,080
Speaker 1: that presence matters and that they should go to the office.

1129
00:57:33,480 --> 00:57:35,280
Speaker 1: And there's a lot of young kids who, you know,

1130
00:57:35,560 --> 00:57:39,120
Speaker 1: just think they're as as efficient at home as productive

1131
00:57:39,160 --> 00:57:41,920
Speaker 1: at home, but they forget that you know, God invented

1132
00:57:41,960 --> 00:57:45,800
Speaker 1: trading desk for a reason. They're open architectures, there's information flowing,

1133
00:57:46,120 --> 00:57:48,520
Speaker 1: and it's great training and great mentorship. So one, I'd

1134
00:57:48,560 --> 00:57:52,760
Speaker 1: say go to the office, um, and two i would say,

1135
00:57:52,800 --> 00:57:55,400
Speaker 1: you know, try and make your career more linear and

1136
00:57:55,480 --> 00:57:58,439
Speaker 1: fashion and logical. And I see a lot of young

1137
00:57:58,560 --> 00:58:00,680
Speaker 1: kids stays like, well, I'm gonna try and US banking

1138
00:58:00,720 --> 00:58:03,520
Speaker 1: and I'm gonna try tech. You know, whatever's hot. But

1139
00:58:03,560 --> 00:58:05,920
Speaker 1: if you're really interested in emerging markets or whatever it

1140
00:58:05,960 --> 00:58:09,880
Speaker 1: may be, then stick to it and evolve around that

1141
00:58:10,040 --> 00:58:13,800
Speaker 1: asset class. But don't hop but but but don't hop around.

1142
00:58:13,800 --> 00:58:15,960
Speaker 1: And then last thing I'd say with with young kids

1143
00:58:16,000 --> 00:58:19,080
Speaker 1: today is we don't really care where your degree is from.

1144
00:58:19,120 --> 00:58:21,360
Speaker 1: We don't care about pedigree. We care about who you are,

1145
00:58:21,960 --> 00:58:25,520
Speaker 1: what you've done, and and how you compliment the team.

1146
00:58:25,520 --> 00:58:27,200
Speaker 1: You don't have to emulate the team. You can. You

1147
00:58:27,200 --> 00:58:29,280
Speaker 1: can be different, you know, and with you know, with

1148
00:58:29,360 --> 00:58:33,360
Speaker 1: diversity comes you know better outcomes. So don't don't just

1149
00:58:33,400 --> 00:58:35,960
Speaker 1: try and be like everybody else. And our final question,

1150
00:58:36,200 --> 00:58:39,040
Speaker 1: what do you know about the world of emerging markets,

1151
00:58:39,520 --> 00:58:43,080
Speaker 1: distressed debt and investing today that you wish you knew

1152
00:58:43,120 --> 00:58:45,840
Speaker 1: thirty years or so ago when you were really first

1153
00:58:45,880 --> 00:58:48,360
Speaker 1: getting your legs under you. So when I left Lehman

1154
00:58:48,440 --> 00:58:52,920
Speaker 1: in uh in early you know, when you started an

1155
00:58:52,960 --> 00:58:55,320
Speaker 1: investment management in the emerging market debt, you know, it

1156
00:58:55,400 --> 00:58:57,600
Speaker 1: was basically you did a hedgephone, and you did a

1157
00:58:57,680 --> 00:59:00,520
Speaker 1: credit hedgephone and that and that's what we did. You know,

1158
00:59:00,560 --> 00:59:04,120
Speaker 1: if I could go back to today when we started gramacy,

1159
00:59:04,560 --> 00:59:06,520
Speaker 1: I think real long and hard about maybe we want

1160
00:59:06,560 --> 00:59:09,560
Speaker 1: to do private equity structures as opposed to hedge fund structures,

1161
00:59:10,160 --> 00:59:13,880
Speaker 1: have long locked capital as opposed to short locked capital,

1162
00:59:14,360 --> 00:59:17,520
Speaker 1: and be able to think about multiples of capital over

1163
00:59:17,520 --> 00:59:20,360
Speaker 1: the long period as opposed to volatility and I r

1164
00:59:20,440 --> 00:59:23,960
Speaker 1: R in the short short run meaning meaning forced the

1165
00:59:24,000 --> 00:59:28,120
Speaker 1: clients to be longer term investors than Yeah, And I

1166
00:59:28,120 --> 00:59:30,320
Speaker 1: don't want to use force, but partner with the clients

1167
00:59:30,320 --> 00:59:32,880
Speaker 1: and vehicles that are more. You know, over the years,

1168
00:59:32,880 --> 00:59:36,720
Speaker 1: we've even in our credit vehicles, we're having longer locked vehicles.

1169
00:59:37,000 --> 00:59:38,640
Speaker 1: That allows one. You know, if you're gonna make an

1170
00:59:38,680 --> 00:59:42,080
Speaker 1: asset back loan and capital solutions, you can't give ninety

1171
00:59:42,120 --> 00:59:43,840
Speaker 1: day liquidity, right, so it's got to be more like

1172
00:59:43,880 --> 00:59:47,720
Speaker 1: a quasi pe structure where you make a loan, you

1173
00:59:47,760 --> 00:59:49,480
Speaker 1: have three years to make the loan, you have three

1174
00:59:49,560 --> 00:59:51,440
Speaker 1: years to get it back and then return the capital

1175
00:59:51,440 --> 00:59:53,600
Speaker 1: and in six or seven years. That makes a lot

1176
00:59:53,640 --> 00:59:56,280
Speaker 1: more sense than you know, how do you build a

1177
00:59:56,320 --> 00:59:58,560
Speaker 1: portfolio not knowing where that portfolio is going to still

1178
00:59:58,600 --> 01:00:01,360
Speaker 1: be with you in thirty days. That's challenging. Hey, an

1179
01:00:01,360 --> 01:00:04,120
Speaker 1: ink cole the a liquidity premium for nothing, right. The

1180
01:00:04,160 --> 01:00:07,280
Speaker 1: whole idea of tying up capital for X number of

1181
01:00:07,360 --> 01:00:11,560
Speaker 1: years means the short term either gates or liquiditly demands

1182
01:00:11,600 --> 01:00:15,040
Speaker 1: aren't relevant to the investment thesis. You know, the illiquidity

1183
01:00:15,080 --> 01:00:18,360
Speaker 1: premium in emerging market debt. It's a really important concept

1184
01:00:18,400 --> 01:00:22,320
Speaker 1: because I see ce iOS, pension phones, whatever it may be,

1185
01:00:22,360 --> 01:00:24,800
Speaker 1: and they're like, we're gonna be three percent six percent

1186
01:00:24,800 --> 01:00:28,280
Speaker 1: emerging market debt forever. That's our that's our asset allocation.

1187
01:00:28,920 --> 01:00:33,640
Speaker 1: But they stick in liquid liquid in quotations T plus three.

1188
01:00:33,760 --> 01:00:35,800
Speaker 1: You know, get your money back in three days. And

1189
01:00:35,800 --> 01:00:38,160
Speaker 1: I'll go back to the Mexico example. You know a

1190
01:00:38,240 --> 01:00:40,840
Speaker 1: year ago you could get three percent for a security

1191
01:00:40,920 --> 01:00:43,400
Speaker 1: for pemm X, or we could lend a pemic suppliers

1192
01:00:44,960 --> 01:00:46,720
Speaker 1: and it wasn't that a liquid it was nine to

1193
01:00:46,760 --> 01:00:48,600
Speaker 1: twelve months, So if you're gonna be there for ten,

1194
01:00:48,960 --> 01:00:53,080
Speaker 1: why not pick up that extra thousand plus basis points?

1195
01:00:53,120 --> 01:00:55,240
Speaker 1: That sounds like it's worth it. Thank you, Robert for

1196
01:00:55,280 --> 01:00:57,840
Speaker 1: being so generous with your time. We have been speaking

1197
01:00:57,840 --> 01:01:01,880
Speaker 1: with Robert Koenigsberger. He is the chief investment Officer and

1198
01:01:01,920 --> 01:01:08,120
Speaker 1: managing partner at Grammercy Funds Management. If you enjoy this conversation, well,

1199
01:01:08,240 --> 01:01:10,200
Speaker 1: be sure and check out any of our prior four

1200
01:01:10,640 --> 01:01:15,840
Speaker 1: and fifty interviews. You can find those at iTunes, Spotify, YouTube,

1201
01:01:16,160 --> 01:01:20,240
Speaker 1: wherever you get your favorite podcast from. Sign up for

1202
01:01:20,360 --> 01:01:23,000
Speaker 1: my daily reads at Rid Halts dot com. You can

1203
01:01:23,080 --> 01:01:26,200
Speaker 1: follow me on Twitter at rid Halts. I would be

1204
01:01:26,240 --> 01:01:28,520
Speaker 1: remiss if I did not thank the crack team that

1205
01:01:28,640 --> 01:01:32,600
Speaker 1: helps put these conversations together each week. Justin Milner is

1206
01:01:32,640 --> 01:01:36,560
Speaker 1: my audio engineer. Paris Wold is my producer. Sean Russo

1207
01:01:36,680 --> 01:01:38,920
Speaker 1: is my head of research. Atika val Bront is my

1208
01:01:39,040 --> 01:01:43,760
Speaker 1: project manager. I'm Barry Hults. You've been listening to Masters

1209
01:01:43,760 --> 01:01:45,800
Speaker 1: in Business n Bloomberg Radio.