Speaker 1: US trade policy changes and tariffs in particular have dominated
Speaker 1: the minds of investors and businesses. They're a major driver
Speaker 1: of uncertainty and the increasingly shaky economic outlook globally.
Speaker 2: Executives have flagged this uncertainty across earnings calls all year,
Speaker 2: and higher tariffs could hit corporate earnings for money. But
Speaker 2: just like the game seen in equity markets, the credit
Speaker 2: market doesn't appear to reflect this concern. Corporate credit spreads
Speaker 2: have remained tight, and easing central bank policy rates should
Speaker 2: technically continue to benefit the space.
Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence. I'm John
Speaker 1: Lee in Hong Kong.
Speaker 2: I'm Katamitriva, also in Hong.
Speaker 1: Kong, and this week we're looking at credit markets in
Speaker 1: light of growing global risks and investor appetite for debt.
Speaker 2: This week we're chatting with Monica Shao. She is chief
Speaker 2: investment officer and founder of Treotic Capital. It's a hedge
Speaker 2: fund a base in Hong Kong, and she joins us
Speaker 2: here in our studio.
Speaker 3: Welcome, thank you, thanks for having me.
Speaker 2: So I wanted to start with something that's on a
Speaker 2: lot of investor minds, and you talked about this on
Speaker 2: Bloomberg TV last week as well. We've had incredibly tight
Speaker 2: spread since November of last year. And that's despite the
Speaker 2: sort of growing macro risks, growing risks to corporate So
Speaker 2: what is happening there and how much tighter can we go?
Speaker 4: Well, so, just to define for the audience, corporate spread
Speaker 4: is you take the corporate all in yield of a
Speaker 4: bond and you subtract the treasury rate, which is presumed
Speaker 4: to be the risk free rate, and so we take
Speaker 4: the US Treasury and that's the corporate spread.
Speaker 3: So the corporate.
Speaker 4: Spread has indeed come quite tight in Asia in particular.
Speaker 4: We have been able to explain it for all year
Speaker 4: and all last year by the tight supply that we
Speaker 4: have with the redemptions coming through last year and this
Speaker 4: year we're still you know, net supply is not really
Speaker 4: additive by that much relatively speaking. So that's the reason
Speaker 4: why corporate spreads here are tight. And then in the
Speaker 4: developed markets in US Europe that's also quite tight as well.
Speaker 4: But then then the US dollar denominated debt market, we
Speaker 4: see that the cash to debt ratio is relatively high
Speaker 4: because the corporates in general have been able to refund
Speaker 4: at relatively good rates, so you know, they have been
Speaker 4: in a pretty good spot in terms of their liquidity
Speaker 4: and monica.
Speaker 1: You mentioned that the corporates have got a lot of
Speaker 1: cash on their balance sheets. But are you surprised by
Speaker 1: the actions in the credit markets considering you know, the tariffs,
Speaker 1: the economic consurgency that we've had this year?
Speaker 4: For sure, I mean, I think that all of us
Speaker 4: would have hoped for more volativity and the credits spread,
Speaker 4: especially for hedge funds like ours. But that said, it's
Speaker 4: also been a really goldie locks environment for carry trade
Speaker 4: in terms of all in yield. You know, I would
Speaker 4: say that we all expect that in Q three there
Speaker 4: should be some more volatility around earning season. But you know,
Speaker 4: keep in mind that for as much as we keep
Speaker 4: talking about tariffs, you know, the other part of the
Speaker 4: equation is that the market is expecting to see deregulation ahead.
Speaker 4: We have tax cuts also in the bill, So it
Speaker 4: is a balance of all those factors. And you know,
Speaker 4: to the extent that we might have softening earnings ahead
Speaker 4: because of tariffs, to some extent, people have psychologically been
Speaker 4: prepped for that and the growth of embedded in equities
Speaker 4: valuation I think should be more hurt than credit credit.
Speaker 4: We really are just focused on debt servicing ability.
Speaker 2: And where are you focused? I mean, is it regionally?
Speaker 2: I know you've recently expanded globally, so not just in Asia,
Speaker 2: but are there certain regions you like or industries you
Speaker 2: like right now?
Speaker 4: Well, So just to back up a little bit, we
Speaker 4: launched in twenty fifteen as the Asia Credit Fund, which
Speaker 4: was focused on Pan Asia including Middle East as a
Speaker 4: non core region, and then we went through a route
Speaker 4: with China high yield debacle and post that period we
Speaker 4: came out of it globalizing the fund and pushing more
Speaker 4: towards DM markets as well. So today we are looking
Speaker 4: at global markets and you know, being a fund that
Speaker 4: is still more i would say em centric, with an
Speaker 4: add on of develop markets as well. We are looking
Speaker 4: at how do we focus our time in spots and
Speaker 4: basically we go after pockets where there's you know, sell
Speaker 4: off or ability for us to be contrarian. So in
Speaker 4: the last couple of years, for example, we were very
Speaker 4: happy to kind of go into European bank financials and
Speaker 4: they still are you know.
Speaker 3: Relatively good yield.
Speaker 4: But we had a real event play with SVB with
Speaker 4: the UPSCS stories and each time we would look at
Speaker 4: the bank tier one, tier two and see there was
Speaker 4: a lot of value, so we would pick up in
Speaker 4: areas like that. We still like some regions that are recovering,
Speaker 4: for example Sri Lanka. We were in those as an
Speaker 4: event trade with a turnaround and under the IMF they
Speaker 4: have really beaten the expectations in terms of growth of GDP.
Speaker 4: Of course, you know they also will potentially face headwinds
Speaker 4: from tariffs unless they come to an agreement really quickly,
Speaker 4: but those are still areas that have added value. We
Speaker 4: still like Mongolia on a relative value basis, and I
Speaker 4: think in terms of looking across at regions that are
Speaker 4: relatively tight, like India high Yield, there are particular names
Speaker 4: we like and we just really have to be going
Speaker 4: down into the grass to kind of like look at
Speaker 4: the micro stories. So to be honest, in credit land
Speaker 4: right now, there's so much to look at because the
Speaker 4: new issues that are coming as well are starting to
Speaker 4: pay more premium. So even if GOLDI the spreads are
Speaker 4: relatively tight to the extent that everybody's rushing in with supply,
Speaker 4: especially in July, we are able to kind of bargain
Speaker 4: for more new issue premium.
Speaker 2: Within Sri Lanka and Mongolia, are there certain industries or
Speaker 2: corporates you like without giving away your book obviously, but
Speaker 2: are there certain industries that you're looking at as well.
Speaker 4: Yeah, Sri Lanka is pretty simple because it's just sovereign.
Speaker 4: It's a sovereign play that you know, a lot of
Speaker 4: real money guys have jumped into as well. And Mongolia
Speaker 4: they have quasisofts, they have financials as well. But you know,
Speaker 4: I think overall Mongolia to the extent that people were
Speaker 4: concerned about commodities earlier in the year and the pricing there,
Speaker 4: you know, there was a chance to get in in
Speaker 4: some volatility and Monica.
Speaker 1: You mentioned Sri Lanka and Mongolia, now I should know
Speaker 1: these but apologies are they frontier markets.
Speaker 3: They are frontier markets.
Speaker 4: And actually I forgot to mention with Mongolia because there
Speaker 4: was a change in the prime minister, so there was
Speaker 4: some volatility around that as well. But you know, I
Speaker 4: think what we try to do is in our fund
Speaker 4: we would be looking at ourselves as sort of a
Speaker 4: multi strat credit fund, so we have event plays that
Speaker 4: you know, are really around turnaround stories, contrarian stories, and
Speaker 4: then we have relative value, which you know I was
Speaker 4: mentioning to you. So particularly in investment grade where it's tight,
Speaker 4: you still can find some relative value across regions that
Speaker 4: we will look at comparisons on. And then we have
Speaker 4: also within relative value within the same capital structure. We
Speaker 4: might look at for example, and financials Tier one versus
Speaker 4: Lty two or the senior bonds, and we look across
Speaker 4: each tranch to look at that relative value. So and
Speaker 4: then we have a base which is more like value investments,
Speaker 4: and we look at allocating opportunistically in the bonds that
Speaker 4: we might stay for a longer term for yield, but
Speaker 4: then we use the coupons to pay for some hedges
Speaker 4: like macro hedges and longer term meaning meaning well we've
Speaker 4: actually had bonds that we hold even to maturity in
Speaker 4: some cases and then maybe something like two to three.
Speaker 2: Years, okay, and short term short.
Speaker 4: Term can be a day or an hour, yeah these days. Well,
Speaker 4: so I mean that is the reason for us to
Speaker 4: be I think is that as a hedge fund, the
Speaker 4: idea is we can deploy all kinds of strategies and
Speaker 4: be faster to kind of think about some relative value
Speaker 4: on the curve and capture those. But you know, I
Speaker 4: wouldn't characterize ourselves as the fastest momentum type. We tend
Speaker 4: to kind of be watching to wait for a time
Speaker 4: where we can swoop in, and then we tend to
Speaker 4: be more fundamental than most guys out in Asia, where
Speaker 4: we do take a real view on the actual credit
Speaker 4: story rather than just momentum.
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Speaker 1: and share. So, Monica, I just wanted to clarify. So
Speaker 1: you're a long short hedge fund, so you would hit
Speaker 1: yourself across the capital structure.
Speaker 4: So what we are when we say we're long shot
Speaker 4: is purely opportunistic. I can be all long and I
Speaker 4: can be all short, and we've had periods where we
Speaker 4: had three times notional short for every one million long
Speaker 4: that has happened as well. So the idea is just
Speaker 4: that we can do anything and be anything along the
Speaker 4: way depending on the markets. In terms of the short's,
Speaker 4: generally speaking, we keep some ratio of macro hedges, right,
Speaker 4: So in Asia, so I came from London before, where
Speaker 4: it was a different type of market when I traded
Speaker 4: more DM. So I used to trade war US and
Speaker 4: European markets before I came out to Asia, and in
Speaker 4: those markets with all that depth, we have a very
Speaker 4: grown up, sophisticated market of single name CDs that we
Speaker 4: don't here in Asia. So we don't do a lot
Speaker 4: of the plays that we used to do there in
Speaker 4: terms of event plays around orphaning, succession events around CDs,
Speaker 4: for example, Here it's very different because you don't really
Speaker 4: hedge out with single name CDs for the most part, right,
Speaker 4: because they're not so liquid, and so we tend to
Speaker 4: look at indices as macro hedges.
Speaker 1: Okay, but would you be country neutral or can you
Speaker 1: go We don't have to be You don't have to
Speaker 1: be okay, So you talked about your Sri Lanka and
Speaker 1: your Mongolia positions, but you don't have to hedge those
Speaker 1: risks in the same country.
Speaker 3: No, we don't. Actually we take a view on those.
Speaker 4: You know, I think when I look back at what
Speaker 4: we went through in China, for example, I don't think
Speaker 4: that any amount of China CDs really would have helped you.
Speaker 4: So sometimes you have to look at if you were
Speaker 4: to really want to hedge something like a high yield,
Speaker 4: you would probably have to just take it off go
Speaker 4: to cash. We see cash as a hedge or another bond.
Speaker 1: Are you referring to the property crisis in China where
Speaker 1: like that's been gone for a couple of years.
Speaker 4: Yes, So in that case, it's like sort of the
Speaker 4: lesson that you learned through coming out of Asia is
Speaker 4: you know, not only do you have an issue of
Speaker 4: illiquidity of trading, but also because you don't have single
Speaker 4: name CDs as much unless you do some bespoke, which
Speaker 4: would have costed you a lot, then you really should
Speaker 4: just think about cash. You would have to have drawn
Speaker 4: a line.
Speaker 2: Yeah, you're talking about hedging, and you hedge using cash,
Speaker 2: As you said, I mean, could you talk a bit
Speaker 2: more about how you hedge?
Speaker 4: So when I say go to cash, I mean you
Speaker 4: literally just have to sell out and so that is
Speaker 4: something that you almost have to actively think about because
Speaker 4: you know, a lot of funds feel sort of pressure
Speaker 4: to have to use the cash and everything. But sometimes
Speaker 4: there are times you need to just get out because
Speaker 4: if you were to put a bond against another bond,
Speaker 4: so you short a bond against another bond, it may
Speaker 4: be so usyncratic that they don't match up. You may
Speaker 4: have periods of time where they kind of are going
Speaker 4: to hedge in a crisis regionally, but you know you
Speaker 4: will have slipperridge. And then in terms of other sort
Speaker 4: of hedging, it's really about rates or beta. So if
Speaker 4: you hedge like a you know, investment grade against investment grade,
Speaker 4: say you do like Korean financials versus India financials, the
Speaker 4: assumption is that if like for like, you'll hedge out
Speaker 4: at least rates, and then you're left with some kind
Speaker 4: of regional bias. But the way I see it is
Speaker 4: that whatever you show as DVO one flat and paper
Speaker 4: in terms of your risks is not real. You actually
Speaker 4: really need to look at line by line and you're
Speaker 4: never totally neutral.
Speaker 2: Could you give an example of that, just how you
Speaker 2: actually practically hedge, like you know, there's funds where people
Speaker 2: use gold as a hedge, for example, it's like the
Speaker 2: classic one, But like, how do you actually hedge?
Speaker 4: Again, it really depends on what you were talking about.
Speaker 4: So in that case what I was talking about the financials,
Speaker 4: you literally just sell the bond. So you buy the
Speaker 4: bond that is, let's say a Korean financialism that example,
Speaker 4: and then you sell the Indian bond that you decide
Speaker 4: that you think it's relatively expensive, for example, and then
Speaker 4: you can just make it like for like in terms
Speaker 4: of five year, both are five year, or both our
Speaker 4: ten year, or you may take a view on the
Speaker 4: curve and you may deliberately want to short a ten
Speaker 4: year versus a five year because you have.
Speaker 3: A curve view.
Speaker 4: And credit is complex that way. It's not quite like
Speaker 4: equity because you do have the embedded optionality, say of
Speaker 4: a call or a put. You have rates, you have
Speaker 4: potentially FX cross effcts if you're a US denominated fund,
Speaker 4: and then trading Aussie dollar. So you can take a
Speaker 4: view that way by very simple instruments, but complex view underlying.
Speaker 1: You mentioned liquidity or the lack of liquidity at certain times,
Speaker 1: and I think you prefaced China bonds, Is that an
Speaker 1: issue in executing your.
Speaker 3: Strategy, Sure it is.
Speaker 4: Trading liquidity is always something that we care more about
Speaker 4: in credit markets, I would think than equity, although I mean,
Speaker 4: I'm told in equity and EM markets, trading liquidity is
Speaker 4: also an issue. But basically in credit markets, we all
Speaker 4: know that anything that is trading very liquid and meaning
Speaker 4: that bidask is very tight, can easily become illiquid. As
Speaker 4: we went through the global financial crisis, as I've gone
Speaker 4: through twenty eleven, the EM crisis, and as we've gone
Speaker 4: through China and you know, March twenty twenty, all of
Speaker 4: these right, all of these routes we've had, I've lived
Speaker 4: through where you suddenly have something that was super liquid
Speaker 4: become illiquid to the point of not only your bid
Speaker 4: ass going out as much as ten bond points, but
Speaker 4: also you simply just can't find people to show up
Speaker 4: to trade, so suddenly all the traders are in the
Speaker 4: toilet or whatever. And you know, I think, first you
Speaker 4: have to live with the marks, which means like if
Speaker 4: you are a ten point bid ask, we always mark
Speaker 4: to mid. Then you suffer by that, and that is
Speaker 4: not real. It's not a real loss for your clients,
Speaker 4: but you have to mark to that daily. And this
Speaker 4: is something that we all know, and this is the
Speaker 4: reason why for credit funds, it actually really works better
Speaker 4: when you have a lock up and you have time
Speaker 4: to actually take a view on credit because more or
Speaker 4: less that illiquidity will resolve at some point and you
Speaker 4: need to have a real conviction around what you're doing
Speaker 4: in order to get in and get out of that trade.
Speaker 4: But the illiquidity can work for you as well because
Speaker 4: sometimes you can pick up really great things on a
Speaker 4: bargain because nobody else wants it and you have a
Speaker 4: real view talked.
Speaker 2: About some of the longs, you know, opportunities in Sri
Speaker 2: Lanka for example, what are some areas of risk or
Speaker 2: places that you're potentially on the short side right now?
Speaker 4: So on the short side right now, right now, right now,
Speaker 4: we have a view that it's relatively goldilocks period. So
Speaker 4: I don't have particular single name shorts that I really
Speaker 4: want to put on. I would rather put it on
Speaker 4: which I have through credit indices where we have macro hedges.
Speaker 4: But the way I see it right now is that
Speaker 4: we're in a relatively okay period for yield carry which
Speaker 4: means I'm not really expecting a ton right now of
Speaker 4: you know, capital gain, but in terms of yield, we're
Speaker 4: able to pick up some pretty good bonds in the
Speaker 4: recent one month that is averaging between eight to eleven
Speaker 4: percent yield, which is pretty good for five years or under.
Speaker 4: And this is in part thanks to all in yield,
Speaker 4: because we have you know, various times where you had
Speaker 4: rates of volatility, and also because we did go out
Speaker 4: and take a view that oil would not be totally crashing,
Speaker 4: and so some of the commodity bonds that were a
Speaker 4: bit sold off too much, you know, we stepped in
Speaker 4: in some of those as well.
Speaker 3: That's after the Middle East Iran Israel.
Speaker 4: Situation where well, I mean that actually helped oil, but
Speaker 4: more earlier when oil was kind of on a downward trend,
Speaker 4: especially after OPEC supply increase and people were worried about
Speaker 4: tariffs causing economics slow down. Then eventually probably they'll come
Speaker 4: back again. But my personal view is that oil doesn't
Speaker 4: really go much below sort of the high fifties or
Speaker 4: stay there. So in that case we can pick up
Speaker 4: some bonds where their break even is quite low per barrel.
Speaker 4: So we'll look at things like that, and then we
Speaker 4: have some event plays on particular you know, corporate turnarounds
Speaker 4: that we can't name, but you know, usually those are
Speaker 4: ones where there's a lot of fear and we do
Speaker 4: some analysis on the base case of either they do
Speaker 4: a liability management exercise what what that be? Or recovery
Speaker 4: or so forth, and you take a view. But typically
Speaker 4: we will look at things that tend to be more
Speaker 4: sold off or you know, we take a view that
Speaker 4: some bonds that we've known and liked, you know, we
Speaker 4: will always, even if we trade around a portion, will
Speaker 4: always keep something like thirty percent and take the ball
Speaker 4: on the price movement.
Speaker 1: Are you seeing any issues regarding default rates across Asia?
Speaker 4: Not across Asia, just because we only have a handful
Speaker 4: left that are even surviving out of China high yield,
Speaker 4: So the areas that were more sensitive tended to be that.
Speaker 4: And we literally have just a handful of names. So
Speaker 4: when people talk about Asia high yield returns coming back,
Speaker 4: I mean it's a little bit misleading because you're coming
Speaker 4: from a very low base and very few names, so
Speaker 4: the data points you know, are a few, right. But
Speaker 4: that being said, I think the default rate on DM
Speaker 4: markets like US is ticking up, and you know, you
Speaker 4: do see some underlying weakness in sort of the consumer
Speaker 4: household balance sheet, So when that will come out to
Speaker 4: roost is another story. But in the meantime, we are
Speaker 4: really having to look at the technicals of bond flows.
Speaker 4: And you know, last week, you know, week on week
Speaker 4: you're still looking at twenty billion dollars of inflow into
Speaker 4: credit markets across DM and EM. So despite supply coming,
Speaker 4: it's being very easily absorbed. We're seeing all the books
Speaker 4: over subscribed. So even if we want to focus on
Speaker 4: the fundamentals, I think the technicals are very important right now.
Speaker 1: Monica, I love to talk about your performance. How have
Speaker 1: you fared this year? But it's been really chopping financial markets.
Speaker 4: So we've actually done okay in that we started the
Speaker 4: year fairly positive. We had a wobble in between with
Speaker 4: the Liberation Day month, and then we kind of came
Speaker 4: back and so sequentially the last three months we've been up.
Speaker 4: So you know, so far a year to date, we're
Speaker 4: in the single digits up and in terms of our
Speaker 4: target we still are targeting high single to double digits.
Speaker 4: Historically before so the China route, we actually were pretty
Speaker 4: much annualizing at mid teens net returns. And then after
Speaker 4: we went more global and after we tweaked the risk
Speaker 4: framework after what we learned from the China debacle, we
Speaker 4: target sort of quote nquote safer returns. So we are
Speaker 4: more targeting kind of eight to twelve percent, whereas in
Speaker 4: the past we would target fifteen plus percent, and we
Speaker 4: had years where we were up almost thirty percent, you know,
Speaker 4: So you know, you can imagine that I tried to
Speaker 4: mirror the risk framework and my return target to what
Speaker 4: I would expect in terms of the environment in the
Speaker 4: market that we're in. And I think given that we
Speaker 4: have gone more global and also looking at DM, this
Speaker 4: is the reason why we've dialed back our risk framework
Speaker 4: and so we forced now a lot more diversification. I mean,
Speaker 4: to your point earlier about do you actually neutralize country
Speaker 4: risk personally, I've found that having traded through many prop
Speaker 4: desks in London in large hedge funds and then starting
Speaker 4: my own, I can tell you that if you are
Speaker 4: intellectually honest, you can't really do that on paper properly
Speaker 4: to neutralize P and L. Neutralizing risk on paper is
Speaker 4: one thing, but you know what you end up doing
Speaker 4: is people are being the system by putting on a
Speaker 4: bunch of like CDs that may not go anywhere, because ultimately,
Speaker 4: what we've learned with all these instruments is that whatever
Speaker 4: you think is theoretically the risk, really the technicals of
Speaker 4: that particular instrument is what matters. For example, in the
Speaker 4: global financial crisis, we learned the huge difference between funded
Speaker 4: and unfunded products. The people who thought they had neutral
Speaker 4: basis trades, for example, CDs versus bond like for like,
Speaker 4: same issuer name, completely blew up. And partly because you
Speaker 4: have this difference of funded vers unfunded and then suddenly
Speaker 4: you can't hold that position.
Speaker 2: On Liberation Day tariffs, how do you trade around that?
Speaker 2: You know it is quite a big risk. Always seems
Speaker 2: to be on the horizon. There are sort of daily
Speaker 2: fluctuations and daily changes in trade policy. But is there
Speaker 2: a way to long or short US trade policy.
Speaker 4: I think what we have experienced through this year to
Speaker 4: date is that it isn't just necessarily about actual policy.
Speaker 4: It's pretty much just the hot air of words and
Speaker 4: what is on tweets, and that is what makes it
Speaker 4: more difficult for traders who try to be intelligent and
Speaker 4: try to do analysis, because ultimately it's more about following
Speaker 4: Twitter and so that. Yeah, so that makes it difficult.
Speaker 4: And sometimes when I look at what we went through
Speaker 4: and that period, you're almost better off not thinking as much.
Speaker 4: And so so what I think helped us somewhat is
Speaker 4: that although we took the pain of Mars, we didn't
Speaker 4: trade as much as I kind of personally was itching
Speaker 4: to do, because sometimes the lesson overall the twenty some
Speaker 4: years I've been trading is just to sit tight a
Speaker 4: little bit when you know things are in flux. So
Speaker 4: we had to trade a little bit around edges for
Speaker 4: risk management, but really you probably don't want to overtrade
Speaker 4: in periods like that. And as through you know, March
Speaker 4: twenty twenty, where we fared relatively quite well, it's always
Speaker 4: been the same story, which is that if you didn't
Speaker 4: position somewhat prior, you just need to kind of like
Speaker 4: go along with it for a bit and then see
Speaker 4: what shakes out. Because if you had, for example, the
Speaker 4: March twenty twenty, we were que quote lucky, but then
Speaker 4: you know, we start to feel a little bit of
Speaker 4: some quick to come. Although we didn't realize the extent
Speaker 4: of it was really that we went thirty percent to cash,
Speaker 4: and that allowed us to have kind of the confidence
Speaker 4: that we can write through and through Liberation Day is
Speaker 4: a similar thing. We had just enough cash, so we
Speaker 4: held through some But do I regret selling anything, Yes,
Speaker 4: I do. But when I look back, you can only
Speaker 4: kind of assess with the information you had.
Speaker 3: And I actually.
Speaker 4: Remember the time when he came in like sort of
Speaker 4: you know, tweeted his big like bombshell that he was
Speaker 4: going to, you know, do the extension whatever, right like
Speaker 4: basically at that point, it was I don't know, it
Speaker 4: was like three or four am, and I was still
Speaker 4: up watching this, and it was just it was sort
Speaker 4: of unreal because right before that tweet, he tweeted something like,
Speaker 4: you know, everybody should buy America or whatever. And I
Speaker 4: remember on ibchat we're all like chatting with the traders
Speaker 4: and everybody's like, yeah, this is such bs. And but
Speaker 4: literally he sent you an Easter egg and then right after,
Speaker 4: you know, he came out with that, and so it
Speaker 4: was just at that point you had to like quickly
Speaker 4: make a decision to cover or not some shorts. And
Speaker 4: so I was lucky to be up at that point,
Speaker 4: but you realize you would have to be pretty much
Speaker 4: on like twenty four to seven then in order to
Speaker 4: monitor his tweets. So we were quite lucky that right
Speaker 4: before that we did cover some shorts on some big
Speaker 4: beta bonds, and we took actual profits on some shorts.
Speaker 4: But of course you can look back and be like,
Speaker 4: why didn't I just like buy anything and everything? Then, like,
Speaker 4: that's kind of what people would say looking back at
Speaker 4: the global financial crisis, right. So, I think part of
Speaker 4: doing what we do in this job. You ask about
Speaker 4: Liberation Day, but could be in any of those circumstances
Speaker 4: that I mentioned before where you don't know but you
Speaker 4: just know what you know today, you have to be
Speaker 4: comfortable with trading on the fly a.
Speaker 2: Little bit, so comfortable trading on the fly, but not
Speaker 2: necessarily doing it as much.
Speaker 4: Yeah, I think you would have to make some calls
Speaker 4: around bigger turns and that's it, and then you sort
Speaker 4: of like leave it and live with the fact that
Speaker 4: you think you've done the work on those trades and
Speaker 4: you know you live through. But I think this is
Speaker 4: maybe easier for me to say because we tend to
Speaker 4: be more fundamental. So maybe we deluded ourselves into the
Speaker 4: fact that we've done all this work and so we
Speaker 4: know something. But with trading everything is about timing. And
Speaker 4: I'm not gonna lie, you know, I tell you that
Speaker 4: there isn't some luck always involved in every year.
Speaker 2: Any big regrets that I mentioned sort of a general
Speaker 2: one like, ah, should I have bought maybe more, you know,
Speaker 2: sort of during the financial crisis as well, But any.
Speaker 4: I think my big regret, if anything, is that I
Speaker 4: wish I had, So I would say, when I look
Speaker 4: back at my career path and what we've done in Triata,
Speaker 4: we had years in a row of like kind of
Speaker 4: really top tier performance until the China route, and we
Speaker 4: did suffer for a couple of years and then work
Speaker 4: our way.
Speaker 3: Back kind of thing.
Speaker 4: And I have to say, first of all, it was
Speaker 4: a little traumatic for me personally because up till then,
Speaker 4: I swear to God, I had never had one full
Speaker 4: year of being down, like I mean, I had not
Speaker 4: had a physical down year, and not even through the
Speaker 4: financial crisis. So the China debacle was traumatic for me personally.
Speaker 4: As sort of lessons and so forth. And I look back,
Speaker 4: and you know, you have to always sort of reflect
Speaker 4: and think about the lessons learned, right, and I think
Speaker 4: I should have implemented what we are doing today, which
Speaker 4: is really force a certain amount of diversification by region,
Speaker 4: which we didn't because I never had that per se
Speaker 4: in some proper desks as well as in head fund,
Speaker 4: mainly because when we were focused on Asia or certain regions,
Speaker 4: and when I first came out in end of nine
Speaker 4: twenty ten, Asia was only so big and you couldn't
Speaker 4: force diversification by regions so much if you were doing
Speaker 4: just pan Asia.
Speaker 1: And you had to be invested in China property bonds, right,
Speaker 1: was all such a big portion of the market.
Speaker 3: Yeah, exactly.
Speaker 4: I mean China property bonds were seventy percent of Asia
Speaker 4: high yield at one point.
Speaker 2: Yeah.
Speaker 1: And just to educate some of our listeners who may
Speaker 1: not be for me live with the credit space, China
Speaker 1: property bonds used to trade. You know, if they were
Speaker 1: trading at ninety cents of the dollar, they traded it
Speaker 1: like sub ten cents.
Speaker 4: You know, well that they were traded over one hundred
Speaker 4: by far in many cases, and actually you know, some
Speaker 4: traded as tight as six seven percent, So you know,
Speaker 4: those are the same bonds where they are now trading
Speaker 4: probably around like six seven eight cents. No, yeah, exactly,
Speaker 4: And I think that what we went through, I wish
Speaker 4: we had forced anyway some regional diversication. But the other
Speaker 4: thing that the lesson learned is that you know, not
Speaker 4: all em regions will behave alike in terms of how
Speaker 4: the government response might be. Because I'm the first who
Speaker 4: you know, would be able to die on my sword
Speaker 4: for the views that I take from a business perspective
Speaker 4: and a risk assessment. But I think one thing we
Speaker 4: didn't expect was the difficulty for enforcement of the rights
Speaker 4: that you see on paper. And that's something that I
Speaker 4: still wish to that we had, you know, more of
Speaker 4: a regulatory overhaul. I mean, for example, we were here
Speaker 4: post crisis when we saw japan reform. We had JL
Speaker 4: We've seen you know, I wasn't in it, but you
Speaker 4: know I saw people in it where it was going
Speaker 4: down to zero, right, there was zero recovery for JL,
Speaker 4: and that was seen as Japan in and that was
Speaker 4: you know, potentially quite harmful to the entire regime of
Speaker 4: the Japanese credit turnaround stories. And Japan came out with
Speaker 4: an alternative dispute resolution framework that was alongside.
Speaker 3: The Bankruptcy Code, and I think.
Speaker 4: That was important to have and so that we could
Speaker 4: look at restructuring turnaround stories. I think China today, the
Speaker 4: struggle we all have and we wish that China HYOA
Speaker 4: would come back, is that you don't have a framework
Speaker 4: that you can count on to actually think about your enforceability, recovery,
Speaker 4: do proper risk analysis. And if you can't do analysis,
Speaker 4: you can't hold onto something. Then that's where you know,
Speaker 4: it's been difficul got for us to kind of return to.
Speaker 1: It's great having you one because a lot of the
Speaker 1: press and attention is focused on equity long short hedge funds,
Speaker 1: and you obviously are a long short credit hedge fund
Speaker 1: looking globally, but you you know the DNA is in Asia.
Speaker 1: Would you say Asia long short credit hedge fund business?
Speaker 1: Is that a growth business going forward? Do you see
Speaker 1: a lot of opportunities?
Speaker 4: Wow, that's a really good question, but also loaded.
Speaker 2: Yeah, like let's talk about your competitors.
Speaker 4: No, I actually it's not even that I would say
Speaker 4: that our competitors are peers. We all I think would
Speaker 4: cheer each other on now if that were a growth opportunity.
Speaker 3: Unfortunately, it's been very difficult.
Speaker 4: Hand on heart, the truth is that even as P
Speaker 4: and L, like the fund's P and L come back
Speaker 4: or as managed well or you know, I mean in
Speaker 4: our case, I think our P and L is like
Speaker 4: relatively competitive across peers. Even if your performance is there
Speaker 4: for you to sell it as a product, it's been
Speaker 4: very difficult to raise aum being based in Hong Kong,
Speaker 4: That's the truth. And I think there's always this kind
Speaker 4: of bias attached from so for example, you know, we
Speaker 4: used to have some money from the endowment types or
Speaker 4: pension types like from the US, right R they're not
Speaker 4: coming back, and I think there's still this overhang of
Speaker 4: potential political risk. All of that that with China, I
Speaker 4: mean with China, so just being based here, I mean,
Speaker 4: the truth is that for us, the funds are not here.
Speaker 4: We are physically here, but our funds are not here.
Speaker 4: So it's perfectly safe and it's held by an administrator
Speaker 4: or whatever. Right so in terms of the technicality of
Speaker 4: how the fund is set up, they shouldn't worry about that. However,
Speaker 4: because it's harder for people to come here to Asia
Speaker 4: to do due diligence. For example, we still have the
Speaker 4: warning advisory for travel with Americans right, you know, I
Speaker 4: think that's an added sort of nuance to that. And
Speaker 4: then in general, being based here, you know, having been
Speaker 4: Asia centric before and so forth, I think that our
Speaker 4: fundraising would as a whole really truly only benefit in
Speaker 4: momentum if Asia as a whole came back and the
Speaker 4: rest of Asia ex China is normal it's come back
Speaker 4: and so forth. But you know, we haven't had the
Speaker 4: huge growth explosion of market that can truly replace China
Speaker 4: high yield. We've had a number of new issuers come
Speaker 4: in India right, for example, but unfortunately in Asia overall,
Speaker 4: besides China. Prior to that, we already had some kind
Speaker 4: of blow up stories in Indonesia, And so when you
Speaker 4: couple all of that in, I think we have more
Speaker 4: of a general confidence issue that we need to address
Speaker 4: in Asia credit and unfortunately we all get wrapped up
Speaker 4: in it, even if we are nimble and we are
Speaker 4: a long.
Speaker 2: Short Maybe that's a good place to end it on.
Speaker 2: Thank you so much for being here. Sure, thank you
Speaker 2: very much for having me. You've been listening to Asia
Speaker 2: Centric from Bloomberg Intelligence. I'm Katie Dimitrieva on Hong Kong, and.
Speaker 1: I'm John Lee also in Hong Kong. You can find
Speaker 1: all our episodes on Spotify, Apple Podcasts, or wherever you listen.
Speaker 1: This podcast was produced and edited by Clara Jan.
Speaker 2: Thanks for listening.