E327: $7B CIO: The Right Way to Invest in Emerging Markets

What if emerging markets aren’t a trap, but most investors just approach them wrong? In this episode, I sit down with Robert Koenigsberger, Founder and CIO of Gramercy, to explore how he has built a $7 billion emerging markets platform by focusing on high conviction, structured private credit, and long-term partnerships. After nearly four decades in emerging markets, Robert has pioneered strategies that capture the upside while managing risk, proving that careful underwriting, local knowledge, and disciplined execution outperform passive index approaches.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Weisburd?

  Robert, you're founder and CIO of a $7 billion fund focused on emerging markets. Everybody that I've ever met tells me emerging markets is a trap. Why is emerging markets not a trap?

• 0:11Speaker 01

  Look, I think that's a great question, and I think people perceive it to be a trap because of the way that they've approached the asset class. And what I mean by that is I think most investors have thought of emerging markets more of an afterthought and more of a yes, no, digital, should I do it or should I not do it as opposed to how I should do it? So what do they end up doing? They end up kind of buying the wrong thing at the wrong time. They stick with it for too long, they capitulate, and then they blame it on the asset class. But that's not necessarily how they invest in developed markets. In developed markets, they think about where do I want to be? Where do I want to be in fixed income? Do I want to be in equity? Do I want to be in growth? Do I want to be in value? But in EM, it just seems to be yes, no. Or they'll go and do one investment in one country, doesn't work out, and they say the entire asset class makes no sense to them.

• 0:51David Weisburd?

  I invest in Indonesia, emerging markets doesn't work.

• 0:54Speaker 01

  I mean, there's been times where, you know, someone will say, give an example of somewhere you're working right now and say, oh, we're working in Turkey right now. They go, oh, Turkey? Would never invest there. I was like, well, let me guess, you did one private equity investment, the currency was at 1.5. Today it's at 43. The company's in great shape, but you're not. Said, exactly. They said, well, that's about how to do the asset class, not if to do the asset class. Because at the same time, you probably could have kind of done a private credit structured loan in US dollar, gotten collateral, uncorrelated collateral, and not needed some sort of super monetization event to get your capital back. So, look, I just think it's all about how people do it, and they tend to come in late cycle, and they come in with very low conviction. And when does low conviction ever work out?

• 1:36David Weisburd?

  It's absurd if somebody did that to the US. They would invest into some factory in Ohio, and then they would say the United States doesn't work. They had people do that for emerging markets. When we last chatted, you said that emerging market indices have done more harm to emerging markets than almost anything. Why is that?

• 1:53Speaker 01

  Let's continue on the last concept, which is now that someone's made up their mind to go into the market. And quite frankly, they're usually chasing last year's returns when they do it. And they look at an index and then they buy some sort of index tracker, right? So they made their decision probably later than they should have. And by definition, when you go into an index, you're going into low conviction, right? You're buying what somebody else told you to buy. In our case, in emerging market debt, it's JP Morgan, right? So they create the JP Morgan Emerging Market Bond Index. It does some really bad things to investors, right? So when I started Gramercy back in 1998, 99, Argentina was 18% of the index. We were already writing research about the coming default in Argentina. Why the heck is it safe to be market neutral or benchmark neutral Argentina at eight, nine, or whatever?

• 2:35Speaker 01

  And you can say that was a long time ago, but in 22, the same index forced you to own Russia and Ukraine, just as Russia was invading Ukraine.

• 2:42David Weisburd?

  The issue is that these indices are just completely passive. What's the issue exactly?

• 2:49Speaker 01

  By definition, when you buy an index, you don't buy what you've necessarily decided you want to buy. You've decided what someone else should tell you that you should own. But then, look, I get the whole ETF effect in developed markets. I don't get it in emerging markets. And what I mean by that is if you look at the last five years in emerging markets debt, the index, the blended index has maybe done an average of eight or not an average, probably eight or nine percent total return over that period.

• 3:14Speaker 01

  Over that five years, the dispersion of outcomes within that index have been down 95% and plus 200%. So to me, that seems like an environment that at a bare minimum is target rich for active management. Or another way of saying it, you're somewhere between negligent and grossly negligent to take that approach as opposed to a high conviction approach.

• 3:31David Weisburd?

  What's the right way to approach emerging markets and what has worked?

• 3:36Speaker 01

  I'll start with the notion of high conviction. And, you know, the emerging market story over the past 20, 25 years, if you were Rip Van Winkle, actually came true, right? Which is you've got these upwardly mobile economies, populations, GDP growth, and you've had better returns, you know, than the US comparable risk elsewhere. The challenge has been is that people haven't been Rip Van Winkle. They have been trapped by the cycles that have occurred within emerging markets. And each, each of these cycles has had a name, right? So dislocation events. One was called the tequila crisis. Then we had the Asian debt crisis. Then we had the vodka crisis. Then we had the caporina crisis. Then we had the tango crisis in Argentina. Then we had the global financial crisis. You would think that a monkey could figure out how to allocate and trade into this market. There's very identifiable cycles that have occurred, but people have.

• 4:20Speaker 01

  Done this strange dance between fear and fear of missing out. So last year was a great year for emerging market debt and quite frankly, for local markets and emerging markets. What do people want to buy this year? Local emerging market debt. The FOMO has kicked back in. And what will happen is people will allocate to the wrong thing. There'll be a gap. They'll capitulate and they'll blame it on the asset class. So how should you do this? Take a high conviction approach. Try and capture the return that's embedded in the asset class, but avoid the downside that has become embedded in people's minds, the behavioral mistakes that people made. So take a top down and bottoms up approach. I call it like a barbell. Anchor of the barbell in high conviction yield. So once you have high conviction yield that comes from your single best ideas, underwrite everything you own, underwrite everything you don't own.

• 5:05Speaker 01

  And what you don't own is equally important. And then when you have high yield, the opportunity cost to move away and make the other mistakes that people have made, which is people tend to buy distressed when it's not distressed and opportunistic when it's not opportunistic and special situations where they're not special. And David, that's because they don't really have the conviction on the other side of the barbell. They don't, and they get shaken out of volatility really quickly. If you don't have conviction, you end up capitulating.

• 5:28David Weisburd?

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• 6:14David Weisburd?

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• 6:58David Weisburd?

  buy an asset. They never want to know the thesis. And the reason that's a problem, best example of this is Bitcoin. If I had come to you in 2011, told you to buy it for $40, it went up to $100, then it went up to $200, and you sold. Great, you would have gone to 5X if you didn't have a fundamental thesis. But if you had held it, if you had a fundamental thesis, you'd be up 1,000, 2,000 X. A lot of people don't think about the second order effects of having a rooted thesis. It's not only, it keeps you from selling when the asset goes down, it also keeps you from selling when the asset goes up. You just have a fundamental view on assets.

• 7:34Speaker 01

  I couldn't believe more. I mean, we call that something different here. We call that planning the trade and training the plan. Right? And so when you underwrite something, you say, this is where I want to buy it. This is where I think there's value. And because of the thesis, this is where I think I should exit it. So what do people typically do? As it approaches their target, they talk themselves out of it, because volatility has made them rethink it. And when it's well below their actual target, they tend to sell too early. So we like to do what I call the happy trade, not the grumpy trade. Plan three levels on the way in and plan three levels on the way out. So what does that mean? I want to own the thing at X. Well, I should get myself some room to own it at Y and Z because there's all sorts of reasons. I'm not smart enough to pick the bottom. But what a lot of investors do is they wait for X.

• 8:19Speaker 01

  X doesn't come and they miss the trade. Right? So for us, it's plan the trade, buy at three levels. If I buy it after the first level and it keeps going down, I'm happy. But if it grips, I'm happy as well. The worst thing is the grumpy trade where you did nothing. And I think that's a derivation of what you're talking about, which is, you know, people took all the risk. They said, I think it's worth X and I should get out at Z. But they change their mind at Y, not because any information changed, they just their psychology changed.

• 8:47David Weisburd?

  You have the job of deploying $7 billion into emerging markets. How do you go about investing that? And tell me about your first principles.

• 8:56Speaker 01

  This is an asset class where you should come in with with high conviction. We like to think about this asset class less about beta and more about how you get returns. You know, it's a place to go and get returns. It's a lonely place. I think people put too much emphasis on liquidity in this market. So the the idea that the safe way to emerging markets is through liquid emerging market debt, liquid fixed income. It's like the gateway drug to emerging markets. And then everybody buys it and what do they find out? One, they didn't really need the liquidity because a lot of allocators, pension funds that have been on your show, what have you. They make a decision, it's strategic, right? We're going to be 2%, 3%, 4% for a long time. And if we change our mind, it'll take two years. But they park all their money in T plus one. Right? So number one is the liquidity is not there when you want it, but the opportunity cost for parking and liquidity when you don't need it is too high. And what do I mean by that?

• 9:42Speaker 01

  Where we see a lot better return potential is in structured private credit in emerging markets, two, three year duration paper, not one year. But you can get 1,000 basis points over what liquid is getting you. And you get more return, you get less risk and you explicitly give up some liquidity, not a lot, and you get handsomely paid for it. I think that to us is what is one of the most interesting opportunities in emerging markets today.

• 10:05David Weisburd?

  Give me an example of this kind of investment.

• 10:07Speaker 01

  If you were buying the index, you would buy Mexico. And one of the things you would buy in Mexico is a company called PEMEX, which is the quasi-sovereign oil and gas company of Mexico. And over the past few years, if you had purchased short-duration bonds in PEMEX, you'd get about 5%, 6% yield. But what do you get and what do you not get? So when you buy a bond, how is it baked? So the way bonds are written in our market is JP Morgan or some bank calls you at 8:15. They say, "We're doing a billion-dollar deal for PEMEX. It's 10 times oversubscribed. How much do you want?" So there's no opportunity to get your DNA on the establishment of that credit at all. And by the way, it comes with a bond trustee, which isn't really there for bondholders, that they're there for themselves.

• 10:53Speaker 01

  And it has a collective action clause. So what does that mean? You don't bake the credit and you don't have the opportunity to work it out because of collective action clause. You get forced into what others want. And for all that, you get 5% or 6% and it's liquid, except for when you need liquidity in these dislocations that I talked about before. An alternative would be, we lend to suppliers of PEMEX, people who lay the pipes or build the platforms or whatever it may be. We get correlated collateral, which is a receivable from PEMEX itself. And then we get uncorrelated collateral, things that have nothing to do with the business, shopping malls, real estate, whatever the family groups may have. And we're coming in at like 1,000 basis points over that, like 16%, 17%. This is 12- to 18-month paper. We're not talking about 10-year infrastructure paper or what have you. It's amortizing, it's not pick, it's cash pay, et cetera.

• 11:39Speaker 01

  So give up 12 to 18 months of liquidity, pick up 1,000 basis points, pick up collateral and pick up uncorrelated collateral. I think that's a trade-off you're supposed to do all day long.

• 11:48David Weisburd?

  Tell me about your philosophy on currency risk. Do you always hedge it out? Is there sometimes times to take it on?

• 11:55Speaker 01

  I'll say that generally that we look at currencies in emerging markets as nothing more than opportunistic. From time to time, there's distress. Now, we run a lot of different return streams. We have fixed income, private credit, special situations, whatever it may be. So if I think about it from a private credit, which we just talked about, the PEMEX loan, we're going to lend in US dollars. And if not in US dollars, it's going to be pesos hedged back to dollars. If one's getting mid-teens returns in dollars and you can mitigate that currency risk, why take it?

• 12:27David Weisburd?

  It just adds another layer of risk that's unnecessary.

• 12:31Speaker 01

  Another layer of risk that's unnecessary? And to your point, what's the thesis? What's the target return? And what's the safest path to that target return? So if target returns mid teens and you can get that in dollars and get collateral, uncorrelated collateral, the currency just becomes noise. And let's talk about private equity in emerging markets. And that's kind of the Turkish example I gave you a moment ago. When you buy private equity in emerging markets, you commit to something for 10 years and you have currency headwind in your face the entire time.

• 13:00Speaker 01

  And over 10 years, why take that risk? When you can lend in dollars, get private equity type returns, like a private equity manager will say, well, I got you a MOIC. They like to talk MOIC, two, three times MOIC. Well, you give me money for 10 years, I'll get you MOIC too, right? But if you look at their IRRs, right? The IRRs that we're putting up, the yields that we're getting in private credit in short duration and then turn it over and over again, well, just keep to give, take our number for 10 years, it's more than three times, right? Why take that extra risk?

• 13:26David Weisburd?

  People talk about assets as if they're priced, but there's always supply and demand dynamics. Once some asset gets really out of favor, the price goes to a price where it's very favorable to come in. You were talking about you, people do the exact opposite. They, they ride momentum versus trying to go in for value. Is that why this trade exists in that there's not many investors that want to own suppliers to PEMEX?

• 13:50Speaker 01

  Couple of things. I mean, I think private credit in emerging markets today, like we've talked about in the, in the case of PEMEX, you're typically, you want to be solving for a market failure and you want to be getting paid for a market failure. And I think that's what developed market private credit was doing in the U.S. in 2009 and 2010. The market failure was the sucking sound of, of capital that left the banks, the proprietary capital that was no longer available to, to be lent out. Well, we've seen that in places like Mexico and Turkey and whatever it may be, which is, you know, if you, if you go to a place like Mexico and PEMEX, you know, the Bond investors are buying bonds. Banks are being told that they have to lend senior secured locally, and they don't really have the capacity for the supplier credit. So lending directly, they use up their entire line on Pemex Direct, not on the Pemex suppliers.

• 14:35Speaker 01

  There's nobody left to lend despite the collateral that's there. If I go to Turkey 2018, we were getting like high teens returns in dollars, LTVs of like 33%, gas stations, shopping malls, land at the new airport as our collateral. And why were we getting that? Because Turkey was in the midst of a financial crisis and banks were being told they can no longer lend. And we were able to find borrowers that had great assets, had mismatches between those assets and the liabilities that they had created for themselves. And we had one borrower, they were a supplier. They would take postdated checks for their product. We call it postdated checks. They call that commercial paper, January, February, March, April. And then they would take all those checks and they would go to a bank and they would factor them. Well, in the midst of a financial crisis, the bank stopped funding.

• 15:20Speaker 01

  So all of a sudden, they've got these liabilities and they can no longer turn their assets into cash. So we're able to turn the assets into cash and rely upon the value of the assets.

• 15:29David Weisburd?

  Start the conversation talking about how absurd it is to group all emerging markets as one trade, Turkey, Indonesia and other countries. But at the same token, aren't each of these markets very specialized, have specific relationship networks, specific diligence? How are you able to have a fund that focuses on all of emerging managers?

• 15:49Speaker 01

  You have to be able to approach the asset class both top down and bottoms up. And the bottoms up for us, which is missing in that question is we have local teams throughout emerging markets. So when I talk about a private credit loan to Pemex, we have a partner in Mexico who's dedicated to us, who has nearly 100 employees on the ground, engineers and what have you, that are focused on the supplier credits that we're dealing in Mexico. Now, we don't give them the investment decision, nor do we simply pay them to source credit. We require that they co-invest alongside with us. So we have lending platforms in places like Mexico, Brazil, Peru, Turkey, Africa, et cetera. And the cool thing about

• 16:28Speaker 01

  Lending platforms and local presence is information in emerging markets doesn't know if it's long only or alternative in nature, it's just information. So one needs to be properly set up to capture that information. So go back to PEMEX's example. When COVID hit and oil went to negative 30 or 40 or whatever it was, well, the bonds at PEMEX that I told you about that were issued at 5, 6%, you know, the longer duration bonds in Mexico went from par to like 50 cents. At the same time, our suppliers were paying us. So we knew that PEMEX was paying our suppliers and our suppliers were paying us. So this wasn't a fundamental issue. There was just something technical going on in the market. Now, our private credit team could just sit on that, but of course, we have an open architecture to capture this information. They're like, hey, by the way,

• 17:11Speaker 01

  we're getting paid on our credits. There's not a fundamental issue in the oil sector in Mexico in 2020. We're getting paid. Well, that's informative to people who are doing other business elsewhere on the platform to understand that what they're seeing in New York is very different than what's happening in Mexico City.

• 17:27David Weisburd?

  Tell me about your team. Are you focused on a couple of countries and how do you deal with the cyclicality of emerging markets? How do you strategically place your team and your relationships?

• 17:37Speaker 01

  First of all, we have four major teams. So we have four different return streams and four teams. And that's different than some alternative credit shops. I mean, we made a decision nearly a decade ago to go from like a founder-led firm with all the investment processing people around the founder to classic CIO PM construct, align the investment teams with the success of their product, the performance of their product and what have you. So within our business, we have four individual strategy groups and four individual businesses. And the cool thing is they tend to be very uncorrelated to each other. So what's going on in public credit can be very different than private credit and special situations are kind of uncorrelated to both. So one is the way that we're organized.

• 18:18Speaker 01

  So each one of those teams will have portfolio managers internally, analysts internally, lawyers internally. I mean, this is a very legal intensive business. But then we also have our platform partners. I mentioned close to 100 in Mexico, 35 in Turkey, another 20 in Peru, whatever it may be, that are essential. But even that's not enough. I think a big differentiator for us is we've been around as a team for 28 years. We've been in EM 35, 40 years, depending on who in the business you're talking to. And we grew up before emerging markets emerged. We were involved when emerging markets was a lesser developed country debt crisis. And so much of the region was in default. And we were, our expertise back then was really on, how do you put Humpty Dumpty back together again?

• 19:00Speaker 01

  Well, in order to do so, you needed a US lawyer, a US financial advisor, a local FAA and a local legal advisor. Well, that network remains with us today. So having a great team in Greenwich, Connecticut, and London, and Buenos Aires, and Mexico City is great. Having great platform partners is great, but having a network of relationships for 35 plus years that can give you color on people. And David, I think one of the big differentiators of emerging market credit versus developed market credit is in developed market credit, you have to figure out where you're in the capital structure. What judge do you get? And what did he or she have for lunch to determine your outcome of bankruptcy? In emerging markets, we have to underwrite people. We have to underwrite all the credit and where you want to be in the capital structure, the structure, what have you. But we underwrite people first.

• 19:44Speaker 01

  Who are we lending to? What's their credit culture? And how they behaved in times addressed in the past to predict how they're going to behave in the future? That's where we start. Because ultimately, of course, contracts matter and structure matters and jurisdiction matters. But it only matters when you get the people wrong. Because if you underwrite people properly, all that secondary that spells is suspended.

• 20:03David Weisburd?

  Why is it that people are even more important than the jurisdiction, the paper, the laws?

• 20:11Speaker 01

  Because credit is about the ability and willingness for someone to pay you. Right? Ability is pretty easy to figure out, right? Financial analysis and da, da, da, da, da. The willingness, like you can work with someone who's lacking ability. You cannot work with someone who's lacking willingness. Right? So you have to have people of good character who have a credit culture that's supportive of credit. Not just jurisdiction, but the way people behave. And then evidence of how they and that culture behaved in times addressed in the past. So we do things like, and maybe we over screen with these biases, but you know, we'll talk about, we think Colombia has a credit culture, a culture of payment. And they pride themselves on the fact that when the rest of Latin America was in default in the 1980s, they were, they paid.

• 20:55Speaker 01

  Mexico has a culture of collection. If you work the credit, you'll get paid. There's all sorts of different levels of how to collect upon that credit. There's other countries where I would say credit is an oxymoron. You know, I'm thinking one in particular where you're not even allowed in the courtroom as a creditor when there's a bankruptcy proceeding and you wake up in the morning and read what you got. I'm just not interested. Right? So that's, that's the people, the people part of it. And I've been doing this for 38 years and a younger analyst will come in and talk about, you know, Mr. or Miss ABC and why country. I'm like, whoa, you know, let me tell you a story. Let me tell you how they behaved in the past. Or let me give you the names of some people locally that we've dealt with who know these people really well, because it matters. I sometimes I wonder if developed market credit is people agnostic.

• 21:40Speaker 01

  We cannot be people agnostic.

• 21:43David Weisburd?

  One of the difficulties of emerging markets and also arguably the opportunity is the geopolitical risk of the specific country. Do you just go risk off on certain countries? Do you, and when do you decide whether you're doing any opportunities in the country? Or is there always an opportunity that you'll take for the right return?

• 22:02Speaker 01

  It's talking about geopolitics, starting to think about the top down, how macro is affecting what we're doing. And we're clearly not a macro shop. I have the good fortune of working with someone who I think is the most brilliant top down decoder in the world. That's Mohammed Larrian. And with Mohammed, we have institutionalized the process to help answer that question, which is we want to make sure that our top down is informing our portfolios, influencing our portfolios, and from time to time imposing a view on those portfolios. And, you know, early on in my career, I didn't have the confidence as the CIO to go and impose and say, you can't be in that country because I think I know it better than you do. Well, when you institutionalize a process for that, it's not about individuals, it's about, about the process. So another way of thinking about this is, you know, when you're strictly a bottoms up

• 22:47Speaker 01

  shop, you need to make sure that you don't buy good homes in bad neighborhoods. So what we do is we marry the top down with the bottoms up. And every so often we impose a view and I can give you one example. At the end of 2019, early 2020, if you recall, everything seemed overbought. Nobody knew what to do with their cash, maybe a little bit like today's environment. So much FOMO, like there's no value, but you know, felt like musical chairs, but not ready to get off yet. And we wrote a piece about the coming dislocation in emerging market debt. And we said to people, you know, batten down the hatches, but don't be afraid to buy the next dislocation in emerging markets. And lo and behold, it came, it was COVID, right? And everybody told us in 2019, thanks, great, give us a call when, when the next dislocation comes, we're ready, we have tons of cash.

• 23:33Speaker 01

  Well, nobody listened to batten down the hatches and nobody listened to March of 2020, I had nothing better to do than, than call them. And they kept saying things like, oh, this sounds great, but you know, we're super busy and we can't get to this till July or maybe the October board meeting and, and they missed everything.

• 23:48David Weisburd?

  I think one of the most underrated things in private markets is LP base. I think LPs can make or break a fund. When you're dealing in something so volatile, like emerging markets,

• 24:02David Weisburd?

  how do you think about your LP base and where have you found product market fit between where you're investing the asset class and also your investors?

• 24:11Speaker 01

  We try not to convince people to buy emerging market risk. We try and convince people who already have emerging market risk to take a better approach to it. So I mentioned like, you know, pension funds, sovereign wealth funds, what have you, they made it, they made the decision to be in an asset class. So you don't have to convince them, you just have to convince them that maybe there's a more intelligent way to do it. So, so that's one. Two, and, and probably, probably, I think it's really important that in order to meet and beat your clients' expectations, you have to set those expectations properly and you have to educate them properly about what to expect when certain, certain things happen. When I think about optimization of LPs, and particularly as we've moved our business more from public credit to private credit over the, the last decade, you have to have a, a client that meets the liquidity provision that, that they're investing in.

• 24:57Speaker 01

  And, you know, I think this is pretty timely, you know, looking at some of the things that are going on domestic private credit today and funds that are being gated or, or what have you. No one's talking about the underlying asset quality, they're talking about a mismatch that you have investors, retail investors who want out yesterday or tomorrow and assets that aren't liquid till the day after tomorrow. So I think as you are constructing partnerships with LPs.

• 25:19Speaker 01

  Don't convince them to buy something that they're not comfortable with. Try and talk to them about how to solve the problems that they've had in the asset class in the past. Make sure that they have the proper alignment between the assets that you're managing for them and liquidity. And I think the bias is really towards institutions, not retail.

• 25:38David Weisburd?

  Two great points. You're not trying to sell emerging markets to LPs. You're essentially selling them alpha. Don't just do beta. Beta is not good enough. Do alpha. There's another, I believe you mentioned, a thousand basis points or 10%.

• 25:51David Weisburd?

  The second aspect is really partnering with your LP base and making sure that they have a prepared mind. And setting the expectations with them ahead of time of what the asset class means, what the fluctuations means, and why that's actually an advantage and not a disadvantage to your strategy. When it comes to your LP base, you've been running this for quite a while. How have you evolved your strategy and what are some lessons that you learned along the way?

• 26:15Speaker 01

  Our evolution has been anchored in the following, which is one, you always have to be responsive to what your clients are asking for today. But you have to think about what they'll be asking for tomorrow or what you think they should be doing tomorrow. And emerging markets is rich with that opportunity to optimize along the way. You have to understand where there's opportunity today and where there isn't. And I think, you know, what we've learned in this asset class, if not all, is that you have to, if you don't evolve, you're going to die, right? And so we started as an emerging market distressed hedge fund in the late 1990s, because that's where the opportunity set really was. It was in the patient going in and out of the emergency room. And how do you put Humpty Dumpty back together again? And if we could take our capital and our expertise, we could create alpha for our clients.

• 26:59Speaker 01

  When the financial crisis hit 2008, we stepped back and we said, the entire world's distressed. Should we just do NPLs in Portugal right now? That's not who we are. We bring nothing to the table in terms of expertise and doing NPLs in Portugal, just because we did them in Mexico or whatever. At that point, we just kind of evolved towards what are our clients asking for? It's no longer just about distress. They're asking for fixed income. Maybe even a way that we don't think makes sense for us, but they're the clients. So we should give them what they're asking for today and say, hey, maybe there's a more intelligent way to do fixed income in the future. So we did things like give them US dollar and local, but we gave them corporate and corporate high yield. And then that gave us the ability to do blended strategies. And then more recently, we said, look, we didn't start doing private credit because Apollo and everybody else started doing it.

• 27:42Speaker 01

  We were doing private credit in emerging markets because we think that's the right way to get returns from emerging markets for the reasons that we've discussed. Give up a little liquidity, get more return, take more risk. So it wasn't about that's where the market's going in the US and maybe we can make it go that way in emerging markets. It's like, that's the way to get returns in the asset class. So we evolved towards that. And then ultimately, you know, our latest, you know, latest and greatest, if you will, is if you have all the return streams, you can partner with your clients in those return streams, or you can run some sort of asset allocation on the top. So we also offer like a single best ideas concept for our clients to partner with us there. And that's not just about asset allocation. We've talked a little bit about asset allocation, but it's about governance. And I think one of the challenges investors have had in emerging markets is they understand

• 28:26Speaker 01

  that being tactical is necessary, but they're not necessarily set up to be tactical. And, you know, the example I gave before, which is, yeah, give me a call. Well, it takes them six months to make a decision. So when you create some sort of single best ideas, multi-asset up at the top, it gives the client the ability to underwrite you and the return streams once, and then hold you responsible for making the right decisions.

• 28:46David Weisburd?

  One of the things I see the smartest managers doing is what I would call a form of structural alpha, which is partnering with specific asset class to create specific products. I've had managers do that in Taft-Hartley Act, pension funds and insurance funds. Have you made specific products for specific verticals? Or is that, is that not something that you do?

• 29:09Speaker 01

  So our private credit and our multi-asset was intended to be customized complement to the emerging market debt that people were already doing. So the plain vanilla, the, you know, the, the entry, the gateway drug that I mentioned before, we're like, look, There's a better approach. We're not telling you to go all or nothing, but you could complement that better, what you're doing with a better approach. So that was tailor made towards pension funds, sovereign wealth funds, long time allocators. You mentioned insurance. More recently, we have developed the rated note feeder, which is a way to get a rating around the risk that you're managing and, and package it in a way that's efficient for the insurance companies. And that's, you know, that closely came out of developed markets and the rated note feeder's been around for a while, but I think we're the first manager to do it in emerging markets

• 29:54Speaker 01

  because we're one of the first to do private credit here. But we try to solve a problem that our clients in the insurance vertical were talking to us about.

• 30:02David Weisburd?

  I've had a CIO of a $20 billion asset management firm talk about the need to have an anchor for a new strategy that they built out. Is that your North Star? If you could get a pension fund or strategic partner to anchor, that's when you know you might have legs in new strategy?

• 30:17Speaker 01

  That's one of the things that you learn along the way, right? When you are myopically thinking about a market and the opportunities in the market, you may think about it very differently than the market, than, than the LP market. So, you know, I think early on, we get so excited about an opportunity or return stream, whatever need, that we would just put it together. And I kind of called it teenage behavior and then we would take it to market, right? And then, and then we grew up a little bit. We matured and we said, hey, and we did this through a strategic, a series of strategic plans. And I remember one of them, we said, we're not going to launch products without anchor investors. Now, that seems like lazy, like, well, of course you shouldn't do that if, if you don't, you know, if you don't have that first investor. But for us, it was like, we wanted the first investor to validate the concept, but to help develop the product. Because like, we

• 31:00Speaker 01

  manage, we manage risk, we manage opportunity, we go get alpha. But I can't tell you that how a state pension fund necessarily has to bring that in on their side. So, a lot of what we've done, whether it was a multi asset SMA forum, the private credit, we partnered with our LPs early on to not only try and increase the probability of our success, but to make sure, certain that we were solving a problem that they were trying to solve for.

• 31:26David Weisburd?

  It's literally a marketplace. You have a strategy that you think is good, and then you need something that has demand and you have to find something, co-centric circles. You have to find something that, that is both good and is good for the customer base.

• 31:38Speaker 01

  David, I think, I think it's a difference between sales and marketing, right? Like, sales, you take what you have and you're trying to sell it to the market. Marketing is you're trying to understand what the market really needs and, and in our case, trying to develop that with them.

• 31:50David Weisburd?

  You mentioned earlier on, you don't look to educate people on emerging markets. Is that a rule you have a break?

• 32:00Speaker 01

  So let me clarify if I said it incorrectly. It's not that we don't want to educate. We don't want to convince them to take a risk that they're not comfortable with. We're all about education and there's so much

• 32:10Speaker 01

  content and so much material that we have on our platform that we probably take for granted that we're trying to purposely go out there and cascade it to our clients. So they understand whether it's a top down macro meeting that's become a weekly for our clients or a quarterly for our clients or whatever it may be. But we definitely want to educate our clients. Again, if you're going to meet and beat their expectations, you have to properly educate them. You have to properly set those expectations. So it's, it's an education that goes from, as we talked about before, not yes or no, but how?

• 32:42Speaker 01

  We have to teach them about the cycles that have been embedded in this asset class. We talked a little bit about that tequila crisis, vodka crisis, company in your crisis. And why once you continue to expect cycles, what the cause and the effect of those cycles have been. And we have to unpack other risks that we talked about, which is in the end, we need to talk about political risk and currency risk and governance and liquidity. So no, I don't want to leave you with the impression that we don't want to educate our clients. I'm uncomfortable trying to convince someone to do something that they're not comfortable with. My point there before was there are hundreds of billions of dollars that are already comfortable with emerging markets and what I would call the suboptimal approach. I'd like to talk to them and educate them about a better approach.

• 33:18David Weisburd?

  It's this thin line between finding people that are sold on emerging markets, but not yet sold on necessarily how you access it.

• 33:29Speaker 01

  Correct. Have it be a compliment and optimization of something you're doing as opposed to something novel that you've never done.

• 33:35David Weisburd?

  When it comes to emerging markets, is there a frequent aha moment where investors like, oh, now I get it? And if so, what is that?

• 33:44Speaker 01

  I think the aha moment that we've seen recently is around this notion of high conviction. I mean, when you talk to people about the last 20 years has all been about moving towards passive, right? And emerging markets got pulled into that as well. And yes, you know, paying 20 basis points is better than paying 200 basis points, or paying 15 is better than 150. But I think the aha moment for people is starting to focus on what's the net return that I'm getting relative to the risk that I'm taking?

• 34:12David Weisburd?

  If you could go back to 1998, when you had just first started grammar C, what is one piece of timeless advice you'd give a younger Robert? That would have helped you either accelerate your career or helped you avoid cost of mistakes?

• 34:24Speaker 01

  If I can only choose one, I would say I would seek mentorship early and often. And you know, I mentor a lot of young people. I mentor mid-level career people. I myself am getting mentored. I wish I had taken that advice much earlier. I think there's this notion that when people graduate from undergraduate or graduate school, that somehow they're baked and they're done and we're supposed to know everything. And the reality is we know very little at that point. And there are always people who have the wisdom and the ability and desire to be mentors. They can help you accelerate what you're trying to do. And you can learn from their mistakes as opposed to make the same mistakes they made. So definitely seeking mentorship early and often.

• 35:04David Weisburd?

  Is that an ego thing? Is that a fear of rejection? Is that a lack of skills? What caused you not to seek mentorship?

• 35:10Speaker 01

  I think it was thinking that I would be annoying people. Like, I probably didn't really realize.

• 35:17David Weisburd?

  Being considerate?

• 35:18Speaker 01

  Being considerate, right? Like, like, does that person really have time for me? And the answer was, yeah, they did. People do want to help, right? And they, particularly when they, like, if you have a story, right? Like, and what did we do? We came into a market, but we were entrepreneurs. We built a business, right? And we had a story behind that business and it had all sorts of fun narratives to that. People, people really got excited about that. And I wish that, you know, I wish that I had sought that mentorship earlier.

• 35:47David Weisburd?

  Said another way, by not seeking mentorship, you're oftentimes robbing the other person from, from their mentorship, from them giving back and giving back to the next generation.

• 35:56Speaker 01

  Yeah, absolutely. And, you know, I mentor a young man today and I learn more from him than he learns from me. We go back and forth and I'm learning about the way that his generation thinks about things and he's learning, getting hopefully some wisdom from me, but I really enjoy it because it's like being on a board. Like you can be on a board, people think you're on a board to, to provide wisdom, but actually when I sit on a board, it's like, wow, like what I learned on board A, I can definitely apply to board B and it probably applies to grammar C as well.

• 36:28David Weisburd?

  Well, Robert, this has been absolute masterclass. Thanks so much for jumping on.

• 36:32Speaker 01

  Thank you. Appreciate it.

• 36:33David Weisburd?

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