Transcript: Robert Koenigsberger – The Large Image




The transcript from this week’s, MiB: Robert Koenigsberger, Gramercy Funds Administration, is under.

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ANNOUNCER: That is Masters in Enterprise with Barry Ritholtz on Bloomberg Radio.

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I’ve an additional particular visitor. His identify is Robert Koenigsberger, and he has a captivating profession in rising market, opportunistic and distressed debt investing. He began at a small boutique earlier than going to Merrill Lynch and Lehman Brothers, and finally launching his personal store known as Gramercy Funds Administration.

When you’re curious about what it’s like investing in rising market debt, how that a part of the funding agency has modified over the a long time because the world itself has modified. He started in South America and Latin America, earlier than investing in locations like Russia and China and Turkey. Thankfully for them, they had been out of Russia lengthy earlier than the latest invasion of Ukraine occurred.

It’s simply a captivating dialog about trying on the world from each bottoms up and top-down, in addition to occupied with what valuations are like, how seemingly are macro occasions, the affect you’re getting not simply the return on capital, however as famously stated in mounted earnings, a return of your capital. It truly is a really, very completely different method than what we consider as typical fairness investing. And it not solely has the benefits of there being inefficiencies, so there’s the potential to generate alpha, however in case you do it proper, it’s fairly non-correlated with in all probability the remainder of your portfolio. I discovered it fascinating, and I feel additionally, you will.

So with no additional ado, my interview with Gramercy Funds Administration’s Robert Koenigsberger.

Let’s discuss a bit of bit about your background, you get an MBA in Wharton, after which a grasp’s in worldwide research and Latin America. Your graduate thesis was on the origins and implications of the Latin American debt crises. It looks like you had been constructed to commerce distressed EM debt.

ROBERT KOENIGSBERGER, FOUNDER, CHIEF INVESTMENT OFFICER, MANAGING PARTNER. GRAMERCY: Inbuilt and fortunate, fairly frankly, , truly return to undergrad the place I did political science and historical past of Latin America, and I used to be requested to do an analogous thesis on — or to do a thesis. And my dad and mom instructed me I needed to discover a job on the identical time. And so I attempted to place the thesis and the job search collectively. And the one difficulty in Latin America, which was my main again in ’86, ‘87 was the Latin American debt disaster.

RITHOLTZ: Certain.

KOENIGSBERGER: So I did my examine on that, and I bought lucky sufficient to fulfill a gentleman who had been the Finance Minister of Peru. He’d been the top of Wells Fargo Worldwide. He lent it, he borrowed it, he defaulted on it, and he had this nice boutique out in California. So I really feel actually lucky to have spent 35 years doing the identical factor in rising markets. And , the gentleman I labored with was only a nice skilled.

RITHOLTZ: So late ‘80s, early ‘90s, you’re a VP for an advisory agency that leads some sovereign debt restructurings and transactions in each South America and Central America. Inform us what that have was like throughout that interval.

KOENIGSBERGER: Rising markets within the late ‘80s was very completely different than the rising markets of 2022. I feel it’s honest to say it was a little bit of the Wild West. , return — the whole — , it was the misplaced decade, proper? The Nineteen Eighties was the misplaced decade in Latin America. Mexico defaults in ’8. Just about, the whole area is in default by the tip of the last decade. So what it was like was, , placing Humpty Dumpty again collectively once more, and coping with nations that had defaulted debt and taking them by what’s now often known as the Brady debt restructuring. And having these bonds that no person actually understood, come out of it. And that, fairly frankly, was the start of the of the asset class.

And I bear in mind, , even like we had been doing — you’d have nations that with shared borders that couldn’t discuss to one another, that one or the opposite, and you could possibly get within the center and do some form of debt swap, or a buyback or what have you ever. And so considered one of my fond recollections was, like, Guatemala, I feel it was a 1989 and I didn’t know what FX was. I didn’t know what letters of credit score had been, and I needed to go get a letter of credit score. I needed to go to Guatemala, I needed to current it. After which we did a buyback, however we bought paid in quetzales, which was the native foreign money. And so my job for principally two weeks was to stand up, go promote as a lot FX or purchase as many {dollars} as I might, after which return to the lodge and sit by the pool.

RITHOLTZ: That’s not a foul gig.

KOENIGSBERGER: No. It was nice.

RITHOLTZ: So that you go from that onto Mom Merrill for 3 years, the place you traded distressed EM. Then you definately’re a VP at Lehman Brothers, and this was late ‘90s, not the Lehman Brothers we type of are accustomed to from the monetary disaster. What was it like at these large retailers, Merrill Lynch and Lehman Brothers, doing distressed EM debt?

KOENIGSBERGER: Certain. I imply, to begin with, they had been nice experiences as a result of, , I began at a really small boutique atmosphere. And once more, I’m Political Science and Historical past main previous to graduate college, in order that I truly get skilled in finance. To guide the financial institution’s efforts in investing in sovereign debt restructurings and to carry our shoppers alongside was an ideal expertise. And I bought to be taught quite a bit about how markets perform or not. And I bought to get his really feel for Wall Avenue politics, which I came upon actually weren’t for me and all of the conflicts of curiosity that one finds in Wall Avenue.

RITHOLTZ: You talked about earlier that the late ‘80s, early ‘90s had been very completely different than the state of EM debt in the present day. How has the business modified? How is EM distressed debt in the present day completely different than it was 30 years in the past?

KOENIGSBERGER: So distressed is completely different, and EM is completely different. , I’d begin with —

RITHOLTZ: Break it down.

KOENIGSBERGER: — , after I bought to Merrill in 1995, and also you seemed on the commerce blotter of who you had been buying and selling with, it was principally banks buying and selling with one another. And every now and then, a consumer would come by. So there was an amazing quantity of proprietary buying and selling, , hedge funds within the again e book, a bit of little bit of a entrance e book. So I might characterize it as little bit of a weird and fewer of a market as a result of, , after I was at Merrill and I might name JPMorgan and I might promote one thing to them. And they’d name Chase, and they’d name Lehman, and it was simply this roundabout and the market would drop 5 factors or what have you ever. So —

RITHOLTZ: Musical chairs, the final one holding bought caught with it.

KOENIGSBERGER: Yeah. And so, , tended to have a — create plenty of volatility, , if everybody needed to purchase or promote the identical factor on the identical time. At the moment, the market is massively bigger. , it was predominantly a sovereign market again then. Now, it’s sovereign, quasi-sovereign U.S. greenback, native corporates, excessive yield, et cetera.

RITHOLTZ: What’s quasi-sovereign?


RITHOLTZ: Like state versus nationwide or one thing?

KOENIGSBERGER: Yeah. So normally — and I normally discuss quasi-sovereign and sovereign adjoining.


KOENIGSBERGER: So sovereign is simply the debt obligation of the nation.


KOENIGSBERGER: Quasi-sovereign is often an entity owned by the state that difficulty —

RITHOLTZ: Like a GSE or something like that.

KOENIGSBERGER: Yeah, like, take Pemex in Mexico versus Mexico, proper?

RITHOLTZ: Bought it.

KOENIGSBERGER: After which sovereign adjoining are fascinating as properly, as a result of they’re not explicitly owned by the state, however they’re so necessary that there’s some form of nexus between the sovereign and that company. However , in the present day, the markets — , take into consideration now, there’s a purchase aspect, ETFs, ‘40 Acts. The purchase aspect is a lot bigger than the road. It was simply the road. Avenue had plenty of steadiness sheet.

At the moment, in case you take rising market corporates for instance, there’s — return 5 years, 10 years, rising market corporates are 5 occasions bigger in the present day than they had been again then. Return proper after 2008, each financial institution made markets. Each financial institution had steadiness sheet. At the moment, you’ve got much less banks, much less steadiness sheet, much less market-making, and a very large purchase aspect. So you’ve got inelastic provide when folks wish to purchase. Like, when you have $1, there’ll be somebody in rising markets that desires to difficulty a bond and take that greenback from you. However when there’s outflows, you don’t have inelastic demand, and that’s the place you are likely to get this volatility and dislocations that we’ve seen.

RITHOLTZ: So let me stick to sovereign adjoining. Within the U.S., as we realized in the course of the monetary disaster, the government-sponsored enterprises like Fannie Mae and Freddie Mac, and by extension, Sallie Mae, you go down the entire record of this stuff, the U.S. authorities’s Full Religion and Credit score, though it wasn’t obligated to those publicly-traded quasi non-public entities, the U.S. authorities nonetheless ended up standing behind them for systemic causes. In order that’s right here in america. Do you’ve got related conditions in Latin America and elsewhere? Or is it simply nation by nation? It’s all utterly completely different.

KOENIGSBERGER: To start with, let’s unpack that. And rising market just isn’t this homogeneous asset class. So nearly something you and I might discuss, it might be completely different. , there’d be dispersion of things. However when you concentrate on, , bailouts of corporates, sovereign adjoining or what have you ever, we’ve definitely seen it in rising markets. And I might say probably the most — , the best instance proper now could be in China property, in case you’ve seen what’s occurring there. So —

RITHOLTZ: Certain.

KOENIGSBERGER: So it began as a disaster for Evergrande, proper? And I feel the Chinese language authorities needed to type of isolate Evergrande after which insulate the remainder of the sector. And now, what we’ve seen is that it contaminated — , the Evergrande simply poured over to even the most effective names just like the Nation Backyard or what have you ever. And so proper after the occasion congress, we’ve simply seen huge quantities of help. I might argue that what we’re witnessing in the present day is the TARP Program in China for the property sector. And you’ll see, , belongings have gone. We had been shopping for performing bonds at 8 cents on the greenback —


KOENIGSBERGER: — that you simply needed to pay for a crude, proper, which is a bizarre idea to —

RITHOLTZ: To pay for a crude?

KOENIGSBERGER: Yeah. So it’s a crude curiosity. So perhaps it’s bought 4 factors of curiosity on an 8 cent bond, that sometimes when one thing trades at 8, folks don’t suppose it’s going to maintain paying. After which as soon as this system got here out, this Chinese language TARP, if you’ll, rapidly 8 cent bonds had been buying and selling at 32. This morning, they’re like 60.


KOENIGSBERGER: Simply on this bailout notion.

RITHOLTZ: How will we get me a few of these? That sounds very enticing.

KOENIGSBERGER: And we’ll discuss later.

RITHOLTZ: So I used to be going to ask you what trades or offers stand out as particularly memorable, that appears to be pretty latest, memorable. Something from the Wild West days that stands proud as — I imply, I really like the thought of simply going out and shopping for {dollars} after which sit in poolside for the remainder of the day —

KOENIGSBERGER: It was enjoyable.

RITHOLTZ: — consuming, , margaritas or no matter they the native drink was. What else actually stands out?

KOENIGSBERGER: , if I am going again to the late ‘80s or early ‘90s, and , you’re asking about distressed then versus distressed in the present day. , I feel one of the crucial fascinating issues in distressed is when individuals are throwing away the keys, you wish to be there to catch them. And I bear in mind one time in — I feel was ‘89 or ’90, we’re proper on the finish of the, , the misplaced decade in rising markets and all of the banks are principally — not all of the banks, however a couple of the banks had been like simply getting out of Latin America. And considered one of them —

RITHOLTZ: Simply get me out. That’s it, full capitulation.

KOENIGSBERGER: That’s proper. So one instance that was plenty of enjoyable, I feel, was ‘89 or ’90. Financial institution of America determined they needed to promote their department in Lima, Peru, and the worth tag was 1,000,000 {dollars}. I’m like 25 years outdated. My boss, this gentleman I discussed had been the Finance Minister of Peru was like, I would like you to go all the way down to Peru and check out the financial institution, do due diligence, proper, 25 years outdated. So I don’t know in case you’ve ever been to Lima, however in —


KOENIGSBERGER: — the middle of Lima, in San Isidro, there was a retorno, like a roundabout, and one large tower. And the highest of the tower says Financial institution of America. We didn’t have cell telephones or what have you ever. So I bought to run again to the lodge and I stated, , Carlos, is the constructing included? He stated sure. I stated it’s bought to be value 1,000,000 bucks.


KOENIGSBERGER: Proper? So we paid 1,000,000 {dollars} for that in 1990, made $3 million buying and selling FX earlier than we bought it. And it was bought for $50 million three years later.


KOENIGSBERGER: And that grew to become the start of one of many largest teams in Peru in the present day. And so quick ahead after graduate college, I’m having lunch with a good friend from college. And Eric says — he’s working for Financial institution of America, and I stated, Eric, properly, what are you guys doing? Oh, we’re pondering of opening a department in Lima, Peru.

RITHOLTZ: Oh, I’ve a constructing for you.

KOENIGSBERGER: Yeah. And one other one actually rapidly, , Russia has been a lot within the information lately.

RITHOLTZ: Certain.

KOENIGSBERGER: And I bear in mind the Wild Wild West in Russia was the Yeltsin period, the ‘90s, the period of default. And I bear in mind going there with a bunch of buyers in — I feel it was June of 1999. Their defaulted debt was buying and selling at 6 cents. And we go into this convention room at Vnesheconombank, which was the obligor, or the export-import Financial institution of Russia. And this dealer walks in and he’s utterly matted, and he goes, I wish to know who’s shopping for again my debt. You guys are getting in my means. I’m attempting to purchase again my debt, best purchase sign that any of us have seen.


KOENIGSBERGER: The issue is we don’t have cell telephones, proper? So it’s a race again to the lodge to see who can name their buying and selling desk quick sufficient to purchase Russia. And in case you look in your Bloomberg display in the present day, on that day, the asset went from 6 cents to 12 cents —

RITHOLTZ: Wow. Doubled.

KOENIGSBERGER: — simply on this assembly. Yeah.

RITHOLTZ: That’s superb. I really like this quote of yours, which now I perceive a lot better, “I’ve been doing rising markets since earlier than they emerged.”

KOENIGSBERGER: Yeah. I imply, , that’s oftentimes what I discuss with shoppers about as a result of, , in case you return to the Nineteen Eighties, it was — I wouldn’t name it an asset class. It was a bunch of financial institution loans in default. It was submerging at the moment, proper? And it was on — I assume you impolitely known as the Third World debt disaster, lesser developed nation debt disaster. However nobody was occupied with placing an index round —


KOENIGSBERGER: — a bunch of defaulted bonds. So I used to be lucky sufficient to be there as we reworked defaulted loans to performing bonds. After which when JPMorgan made the index in 1980, pardon me, 1992, I feel that was actually the start of rising markets debt as an asset class.

RITHOLTZ: Fairly fascinating. So let’s discuss a bit of bit about Gramercy, what led you from large retailers to launching your individual agency? And had been you all the time worldwide debt targeted?

KOENIGSBERGER: Yeah, a couple of issues. I imply, I began in a boutique atmosphere, and I by no means actually thought that I used to be going to remain on Wall Avenue for an extended time period. I all the time needed to do one thing entrepreneurial. Clearly, I needed to remain invested and have a profession in rising market debt. However — so , the components behind beginning Gramercy had been a couple of.

One, , I discussed battle of curiosity on Wall Avenue. And if you find yourself going by a sovereign debt restructuring, that’s only a negotiation. I’m sitting there representing the financial institution, and I’m sitting throughout from the senior debt negotiator from the Russian Federation, or wherever it could be. And I bear in mind on the banks, , on my sides can be somebody from funding banking, somebody from company relations, and so I’m simply pushing to get the financial institution and our shoppers paid. And these guys are occupied with the following —


KOENIGSBERGER: — the following commerce in Russia or no matter it could be. So one is, , I actually needed to have a conflict-free, mission-driven agency. And our mission is basically easy. All we do is give attention to an funding administration. We wish to give attention to the well-being of our shoppers, our portfolio investments of their communities, and our staff members. That’s it. And that’s onerous to do in an enormous, large store on Wall Avenue.

, clearly, eat what you kill. I needed a meritocracy. And Wall Avenue is, fairly frankly, something however a meritocracy due to all of the politics and what have you ever. I bear in mind the day I made up my thoughts to start out Gramercy was on the finish of the ‘97 bonus 12 months, early ‘98. Now return to Lehman, they nearly blew up in Mexico in 1995.


KOENIGSBERGER: We had been principally — I went to work there proper after that. We had no aspirations for P&L in 1996, little or no aspirations so I simply don’t lose cash, proper. That was rising market debt for Lehman and —

RITHOLTZ: So what’s it? Only a service for the banks and shoppers that needed publicity?

KOENIGSBERGER: Yeah. And don’t take plenty of danger and make some huge cash, supposedly, proper? And so I am going into ’97, my e book, the restructuring e book has a $5 million, what do you name it, price range, then they raised it to 10, then they raised it to 30, after which they raised it to 40. So I walked into my bonus dialogue in January or February of 1998 and it begins with, properly, we nearly made it, proper? In order that they had been attempting to — attempt to principally say, because you didn’t get to the 40, , you must anticipate to receives a commission very properly.

So I stated, properly, wait a minute, simply cease proper right here. This dialog is over. I’ll come again tomorrow. You place a unique quantity on the piece of paper, and that was the second that I made a decision I needed to start out the agency. And, , we’re purely there for our shoppers. And if our shoppers do properly, we do properly. And that’s all that issues.

RITHOLTZ: I’ve heard variations of that exact story. I’ve skilled that exact story over and over. Generally the short-sightedness of higher administration on Wall Avenue is stunning. You simply see all of those tremendous worthwhile corporations with probably the most profitable merchants. I’m genuinely shocked when folks say, yeah, then it’s simply not value it.

KOENIGSBERGER: I’ll let you know one other story. I bear in mind after I left Merrill Lynch, so Fed began elevating charges in ’94. We’ve bought the tequila disaster in Mexico. And I resigned, and my boss is Venezuelan and the massive boss is Cuban. And the Venezuelan stated, properly, you bought to go discuss to the Cuban. And they also begin speaking in Spanish in entrance of me. And so they go —

RITHOLTZ: Are you bilingual in any respect?

KOENIGSBERGER: I’m bilingual, however they didn’t know that.

RITHOLTZ: However they don’t know that.

KOENIGSBERGER: I communicate a bit of Turkish too. My spouse is Turkish as properly. However — so I am going upstairs and meet with the massive boss they usually begin chatting in Spanish. And so they go, , you instructed me that there have been no different jobs on the market, that we didn’t should pay this value. Proper? So then he turns to me goes, Robert, , what can I let you know? And I answered him again in Spanish, I stated I simply heard all the things. Thanks very a lot.

RITHOLTZ: By the way in which, how will you do rising market debt? I imply, I do know everyone in every single place kind of speaks English. However isn’t it an unlimited benefit to have the ability to communicate within the native language?

KOENIGSBERGER: Completely. To start with, I imply, plenty of locations we go, English isn’t essentially spoken properly, even on the most senior ranges of presidency. So to have the ability to communicate, search data, persuade others of their language could be very useful. I’m not going to say I do it as properly in Spanish as I do in English. However that’s very useful too.

, rising market is all about assessing folks, proper? So now we have to consider credit score danger like everyone else. However on the finish of the day, rising markets danger is about credit score tradition, folks, how do they behave in occasions of duress prior to now, predict how they’re going to behave sooner or later. It’s useful to have the ability to assess that prediction in that language.

RITHOLTZ: So on the fairness aspect, some folks say you don’t really want boots on the bottom in rising markets. I don’t understand how true that’s, nevertheless it actually sounds prefer it’s not true on the debt or credit score aspect, particularly a distressed circumstance.

KOENIGSBERGER: Now, I imply, boots on the bottom are important, and I might say each inner boots and exterior boots, proper. So now we have our personal folks. We’ve our personal platforms. We’ve workplaces in Argentina, and Turkey, and Mexico and what have you ever. And people individuals are actually necessary for sourcing offers, doing due diligence on offers, doing due diligence on folks. , fairly frankly, considered one of our greatest strengths is on our web site. It’s all of the relationships we’ve had for 35 years with folks in several nations that can provide you good data on folks.

, I bear in mind a narrative in Thailand a couple of years in the past. We had been on the point of purchase the debt of a rustic — of an organization that had come out of debt restructuring. And , our analysis guys did their work. The merchants did the work. We favored the worth. We favored the entry level. Properly, then we went as much as our community, exterior lawyer who had sat within the debt restructuring conversations, and the lawyer says to me, Robert, earlier than you make investments, let me let you know what the debt restructuring seem like. I stated, nice. So it was a patriarch, former army man, had the discussions at his home, not a regulation agency. You had been escorted into the convention room by three ranges of safety.

RITHOLTZ: Actually? Wow.

KOENIGSBERGER: And the gentleman begins the negotiations. He goes, let’s have a toast. Right here’s to my wealth and to your well being. You simply should have folks on the bottom to choose. That’s simply dangerous.

RITHOLTZ: And now, is {that a} native customized, or is {that a} delicate menace? What’s that?

KOENIGSBERGER: I imply, I feel it was a delicate menace. And once more, , I wouldn’t —

RITHOLTZ: Or not so delicate.

KOENIGSBERGER: I wouldn’t make that blanket assertion, , all through rising markets. However fairly frankly, , after I see some child of their 20s or 30s, begin a enterprise. And , there are three or 4 folks round their Bloomberg screens, they usually don’t have the inner analysts they usually don’t have the exterior community, I don’t understand how they suppose they will do it.

RITHOLTZ: That’s actually fairly fascinating. You talked about your store, you’ve got workplaces all over the world, proper? What nations do you’ve got workplaces at?

KOENIGSBERGER: So we’re primarily based in Greenwich, Connecticut. We’ve workplaces in Latin America, in Mexico, Peru, Argentina. We’ve a lending platform, an workplace in Turkey, Brazil, accomplished some stuff in Africa as properly by a lending platform. And , getting again to the native presence, having a platform, having your individual staff available in the market, , has all the apparent advantages. But additionally, it provides you the power to get depth and breadth. And , our enterprise, significantly our non-public credit score enterprise, the place we’re doing asset-backed lending within the nation. And I bear in mind a good friend who does home non-public credit score instructed me as soon as, , Robert, it’s simply as straightforward to do a $400 million mortgage as a $40 million mortgage.

And so what we’re attempting to do with these platforms is get depth and breadth within the completely different areas. So if I am going to Mexico, for instance, the place we’re lending to the suppliers to Pemex, individuals who lay pipes, individuals who construct the platforms, in case you do it on a one-off foundation, you possibly can’t actually scale it. However when you have a platform of devoted folks to that and the controls, it provides you the power to depth and breadth in Mexico to have a look at different industries, now perhaps we will have a look at actual property, but in addition take into consideration the identical business in a spot like Colombia, or no matter it could be.

RITHOLTZ: So I feel I do know the reply to this, however I’ve to ask, you’re long-only. And I might think about there are all kinds of alternatives on the brief aspect the place you possibly can see one thing, beginning to circle the drain and make a wager to the draw back. I’ve to ask, why long-only when there’s so many alternatives on the draw back?

KOENIGSBERGER: Yeah. And let me make clear, so now we have 4 main technique teams inside the agency. One in every of them is long-only, and we do, , 4 subsets there. The opposite is alternate options, the place we will do lengthy, brief, alpha shorts, what have you ever. The third one is what we name capital options, or non-public credit score, or asset-backed lending. And the final one is particular conditions. So I agree with you, generally, , in long-only, the one means you possibly can specific a detrimental view is to not have any publicity.

RITHOLTZ: Sit in your fingers, proper?

KOENIGSBERGER: However after we begin occupied with our different group, we will take into consideration relative worth, we will take into consideration lengthy/brief. We will take into consideration doing issues with derivatives that provide you with type of, , a name on the left tail, so to talk.

KOENIGSBERGER: So is that extra of a hedge or — what I’m listening to is three of your 4 methods appear to be primarily lengthy and one technique has that chance to go brief if you’d like, or debt on the draw back?

KOENIGSBERGER: So our particular conditions group, we do plenty of litigation finance.

RITHOLTZ: Oh, actually?

KOENIGSBERGER: So — and in litigation finance, , probably the most troublesome factor to foretell is the end result of the litigation.

RITHOLTZ: Certain.

KOENIGSBERGER: Proper? Properly, we will truly hedge that. We will truly purchase insurance coverage, proper? There’s insurance coverage firms that may, , give you insurance coverage for perhaps, , if it’s a $800 million declare, and you should buy insurance coverage for $10 million to insure the $10 million litigation, and it prices you $3 million, that’s fairly good asymmetry by way of —


KOENIGSBERGER: — , in case you lose, you lose the three. However in case you win, you’re in for $800 million.


KOENIGSBERGER: So we use hedging and —

RITHOLTZ: However that’s not the identical as, , simply I’m making a directional wager that nation X’s debt goes to get minimize in half.

KOENIGSBERGER: That’s proper. And look, there’s two other ways to do it. In long-only, and it’s dangerous to do it long-only, proper? And so it looks like long-only is the much less dangerous. , you’re going up towards an index. And oftentimes, these indices have very dangerous proxies in them. I imply, let’s discuss Russia and Ukraine difficulty, proper?

RITHOLTZ: Certain.

KOENIGSBERGER: So we — , we had the great fortune to haven’t any Russia or no Ukraine in February of 2022. Our analysts walked in January and stated, I feel there’s a 50% likelihood that there’ll be some form of invasion, and the belongings will drop a bit of. Like, properly, Petra, you bought the primary half proper. But when there’s an invasion with the capital lie or small lie, Ukraine has gone from 80 to twenty, and Russia has gone from par to 50. That’s nice. We missed it. February twenty fourth, we’re out. However it stayed in an index for 2 months.


KOENIGSBERGER: And so what are the riskiest issues we needed to do is sit there and watch Russian debt commerce up and down whereas now we have zero publicity. So though, , you possibly can’t brief it, once you don’t personal an index, you truly — it’s not riskless, proper? In our alternate options, , extra conventional hedge funds, to your level, we will do alpha shorts. We will say and look, we had been lengthy safety towards Russia in February twenty fourth. That was an alpha wager for us. It was like, what, we predict Russia has uneven draw back and we will specific that in that automobile.

RITHOLTZ: And I assume that that labored out fairly properly.

KOENIGSBERGER: It labored out fairly properly.

RITHOLTZ: So let’s stick to Russia for a second. , I seemed out and do not know what the endgame is right here. Can Putin trip this out? Can Russia survive with Putin? And when will that nation change into investable once more? It looks like they’re not, they haven’t been for some time earlier than the invasion. It’s onerous to think about anybody wanting to place up plenty of danger capital with them.

KOENIGSBERGER: Yeah. I feel it is advisable look again on the previous, the final time there was regime change in Russia to have the ability to triage that. And what I imply is Yeltsin, or pardon me, Putin has been round for therefore lengthy, proper? Then you definately bought to return to the Yeltsin period, and I’ve learn and heard so many occasions that, , if Putin simply leaves, all the things will probably be nice, proper? However I do not know what’s behind Putin and Russia.


KOENIGSBERGER: And I bear in mind being in Russia within the late ‘90s and , I might get a name in the course of the night time, say, Yeltsin is within the hospital, and also you’d should triage which hospital. One was for cardiac, for coronary heart assault, and the opposite one was he was simply drunk —


KOENIGSBERGER: — in a sanatorium. And it made an enormous distinction. And it mattered as a result of none of us knew what would occur if Yeltsin handed, proper? And so I’ll take that to in the present day, it’s like, , if Putin weren’t right here tomorrow, I can’t let you know what the politics seem like there. And likewise, how is Russia going to be handled on the opposite aspect of this? Proper? Is it going to be handled like Germany after World Conflict I or Germany after World Conflict II?


KOENIGSBERGER: Proper? , will or not it’s embraced and that, , Putin was a foul man who led good folks astray, and let’s have some form of reconstruction of Ukraine and Russia?


KOENIGSBERGER: Or is it going to be extra like Germany after World Conflict I the place that’s nonetheless a pariah state?

RITHOLTZ: Actually fairly fascinating. Let’s discuss a bit of bit concerning the state of EM in the present day. Valuations, not less than on the fairness aspect, they’re the most affordable we’ve seen in a few a long time. What do you see once you’re trying on the debt and credit score aspect of rising markets?

KOENIGSBERGER: One thing related, and , I feel what now we have noticed, and once more, we’re all credit score not fairness, however over the previous 25 years that we’ve been collectively for a staff, there’s been 11 main dislocations in rising markets.

RITHOLTZ: World wide, completely different nations, 11 occasions?

KOENIGSBERGER: Yeah. And I wouldn’t even name them systemic like we’ve seen in the present day. And so they all have type of seemed the identical, which is peak-to-trough, it’s taken about 5 months. They drop about 20%, 22%. Eight months later, it’s up like 27%. And 12 to 24 months later, it’s up 30% to 50%.


KOENIGSBERGER: So with that type of top-down historic framework, it’s straightforward to see that there’s low cost valuations in rising markets. However , we even have to consider the place we got here from, , like actually low rates of interest, lull liquidity, what have you ever.


KOENIGSBERGER: So we additionally should show out with the portfolios that we construct, that the identical kinds of anticipated returns are there. And , one of many lovely issues about mounted earnings versus fairness is now we have contractual coupons. And so in case you can choose good credit that pay their coupons, that roll down the curve to par, the arithmetic work, proper? That’s why after these large dislocations, in case you can choose a subset of credit score that has coupon, will hold paying, and roll down the curve in direction of par, then you definitely’re going to get all these extraordinary returns. And I feel we’re in that kind of atmosphere in the present day.

Now, after all, there’s plenty of volatility and I feel one must be, , respectful of that volatility in the present day. However, , I proceed to suppose that the anticipated returns within the vacation spot weren’t what could also be a bumpy journey.

RITHOLTZ: So given these kinds of numbers, the pullbacks, recoveries, what kind of correlations are there with different kinds of debt, be it performing or distressed equities and different asset lessons? It seems like this can be a pretty non-correlated group of investments.

KOENIGSBERGER: Yeah. And I feel you possibly can create lack of correlation, dependent about the way you assemble the portfolio. I imply, I feel in case you choose one return stream in rising markets and stick to that return stream, you’re going to seek out much more correlation to markets.

RITHOLTZ: Certain.

KOENIGSBERGER: What I actually like is on high of those 4 return streams that now we have, we type of have a multi-asset, dynamic asset allocation course of. And that’s the place you’re capable of create alpha and that’s the place you’re capable of have actually low correlation to the markets. And , in the future markets are at all-time highs, so not that fascinating to wish to purchase CUSIPs or public debt at that time.


KOENIGSBERGER: After which you’ve got a 22% dislocation. Relative worth has modified. Now, most people don’t have the governance, don’t have the workers, et cetera, to have the ability to make the — I’m going to promote A and purchase B. I bear in mind like 2020, throughout COVID, and , we wrote at Gramercy that we anticipated there might be a dislocation within the fourth quarter of 2019. Markets are actually tightly wound, and folks ought to batten down the hatches. However prepare for the dislocation as a result of when it comes, that’s when the extraordinary alternatives come.

So we name everybody in March and April. So bear in mind, we talked about this. We didn’t know what was going to interrupt the camel’s again.


KOENIGSBERGER: However it’s damaged. And these — we anticipate a — we aren’t certain if it’s going to be a V-shaped restoration, a W-shaped restoration. However we imagine there’ll be a powerful restoration. And we might discuss to our shoppers and prospects, and I’d say, properly, let’s see, it’s March or April. I’d have the ability to get you into the October board assembly. Proper? And in order that’s —

RITHOLTZ: Sorry, we don’t have that point for you. I would like a solution by 5:00.

KOENIGSBERGER: In order that’s what — with our multi-asset technique, we needed to resolve for that downside, which is — I name it a governance downside. , asset allocation I feel in rising markets, one, being dynamic isn’t simply handy, it’s obligatory. And that’s the way you create the dearth of correlation, and that’s the way you create alpha.

RITHOLTZ: Actually fairly fascinating. So the place are we within the current rising market cycle? There appears to be a number of completely different cycles within the area. Ought to we be optimistic about EM right here, or ought to we be worrying about EM right here?

KOENIGSBERGER: Look, I feel we’re cautiously optimistic and we’ve had that decision for a couple of months. I might in all probability say after a ten% rally that we’ve had during the last 5, six weeks, perhaps a bit of extra cautious, however nonetheless optimistic within the medium time period. The explanation that, , now we have this optimism goes again to the arithmetic after these dislocations, proper. And this isn’t a blanket assertion about all rising market debt. However in case you can choose good — and similar to shares, proper, in case you choose — in case you can choose shares properly, you possibly can considerably outperform an index.

And , if I confirmed you a chart of the dispersion of the returns inside the JPMorgan Rising Market Bond Index, you wouldn’t imagine it. I imply, issues down 15, issues up 15. Oil and gasoline on one hand, and , importers of power on one other hand. So we’re cautiously optimistic. We see good returns within the medium time period. One has to consider how do you shield capital after a long term like this. So we’re elevating a bit of bit of money right here, occupied with hedge overlays and what have you ever. However, , we’re someplace nearer to the underside of the cycle than the highest.

RITHOLTZ: The subsequent query is a bit apparent. We’ve seen an enormous uptick in charges right here within the U.S. and all over the world. How do you have a look at EM primarily based on how the central banks of the creating world are postured?

KOENIGSBERGER: Look, I imply, I feel that’s an necessary query as a result of I feel traditionally, , when developed markets get sick, creating markets have gotten to the hospital. And I feel that’s an enormous a part of — , I might say what’s occurred to rising markets in 2022 has been predominantly an exogenous shock coming from elevating charges all over the world.

That’s hasn’t all the time been the case in rising markets. , now we have issues known as the tequila disaster, and the vodka disaster, and the caipirinha disaster, and the tango disaster. These had been endogenous crises created inside rising markets. However this one was — , it’s been about larger charges, much less liquidity in markets. In order that being stated, , I feel the Fed has been signaling slower pause on charges. Once we take into consideration native charges in rising markets, , we felt that when the greenback energy went away, that it is likely to be a great time to start out leaning into native charges inside rising markets.

, we noticed — we had been on the lookout for three issues. , now we have a top-down each month, and we stated, if the 2s go to 450, if 10s go to 4, and the greenback DXY goes to 115, that’s a fairly good place to consider boarding the flight. So test on 450, test on 4, and we hit 114 in three quarters —

RITHOLTZ: Fairly shut.

KOENIGSBERGER: — about six weeks in the past. So , I feel over the previous couple months, that simply type of add period, though charges had been nonetheless predicted. And significantly low greenback value funding grade securities the place you get plenty of convexity, that in case you get a snapback like we had seen in charges, that you simply get to get pleasure from that trip again up.

RITHOLTZ: Some folks have been trying on the robust greenback of the previous two quarters is only a wrecking ball, wreaking havoc in every single place. How do you place the energy of King Greenback into context? And I might share some fascinating tales about among the loopy issues I’ve seen on my aspect of the road. How does it affect rising markets when the greenback is as simply, , as highly effective because it’s been this 12 months?

KOENIGSBERGER: Yeah. And once more, inside rising markets, I feel it’s a dispersion of responses primarily based upon the place you’re. However I feel, , typically, larger charges, stronger greenback has been a headwind for rising markets. , curiously, rising markets have had quite a bit much less wiggle room than the Fed and the ECB and what have you ever. So fairly frankly, whether or not it’s Brazil or Colombia, what have you ever, they had been type of forward of the curve by way of elevating charges. And I feel that’s what made us bottoms-up a bit extra constructive on rising market currencies as soon as the greenback peaked. And once more, I feel maybe we noticed that at 114 in three quarters, , may return to 110 on DXY or what have you ever.


KOENIGSBERGER: Sorry. The U.S. Greenback Index.

RITHOLTZ: Bought you.

KOENIGSBERGER: And , we had been speaking about potential holidays in Europe in the summertime, or what have you ever. And I feel, , with the euro at par and 100 earlier this 12 months —

RITHOLTZ: It’s wild.

KOENIGSBERGER: — it’s fairly good time to arrange the lodge.

RITHOLTZ: Yeah, completely. So let’s discuss some particular nations. We already mentioned Russia. How do you have a look at locations in South America like Argentina and Venezuela, each of which appear to have a disaster nearly on an everyday schedule?

KOENIGSBERGER: Yeah. I imply, let’s begin with Argentina, and that may be a nation that has been fairly cyclical, and the returns have been fairly cyclical as properly. , for us, we’ve checked out Argentina rather more on an opportunistic foundation versus someplace that you simply wish to be on a regular basis. , in case you return, after we began our enterprise in 1998, ‘99, Argentina was 18% of the index. And we had been speaking earlier about —


KOENIGSBERGER: — about how dangerous indices could be, proper? So JPMorgan needed to step 18% of our portfolio in Russia, or pardon me, in Argentina, proper earlier than it defaulted. Quick ahead in the present day, , now we have an election developing in Argentina in October of 2023. We simply had a passing of the baton from Martin Guzman to Sergio Massa. I feel Massa is market-friendly sufficient. I feel he’s accomplished — , what he must do with the IMF, and we anticipate that Massa will have the ability to stabilize the markets earlier than they begin to climb the wall frightened going into the presidential elections in October 2023. So with, , belongings buying and selling at 20 cents —


KOENIGSBERGER: — performing belongings, now they carry out with very low coupons, however they’re performing. I can’t actually think about a debt restructuring situation within the subsequent regime that’s value 20 cents. I can think about buying and selling lower than due to illiquidity and air pockets of dislocation. However we’re beginning to focus extra on — we predict there’s a lightweight on the finish of the tunnel. We predict that’s maybe a change of regime and new authorities that is available in with markedly extra market-friendly insurance policies that the market will like.

RITHOLTZ: And Venezuela?

KOENIGSBERGER: Yeah. Venezuela is extra sophisticated. , to begin with, it’s beneath restrictions in the present day, proper? So U.S. Treasury, the OFAC restrictions. So Venezuela is extra of a theoretical dialog. Now, we had been speaking about Russia and Ukraine earlier than, , it’s fascinating to notice that Chevron is again pumping oil. That’s a direct connection to Russia invading Ukraine. And I feel it was inside days, if not weeks, that the U.S. State Division was already in Caracas after the Russians had invaded.

RITHOLTZ: Which means we’re out on the lookout for oil wherever we will get it to offset curbing Russian exports all over the world?

KOENIGSBERGER: Yeah. I imply, take into consideration two photos that got here out. The primary one was the fist bump with Biden and MBS, after which it was John Kerry shaking fingers with Maduro. Proper? So look, Venezuela has plenty of oil capability. , I feel at their peak, they had been doing 3 million barrels a day. They’re in all probability common 2.4 million barrels a day in the course of the Chavez period. At the moment, they’re like 700,000 barrels. They might in all probability ease (ph) that.

RITHOLTZ: That’s all? That’s unbelievable.

KOENIGSBERGER: That’s it. Properly, , the dangerous information is that they haven’t had the CapEx. The excellent news is all of the belongings nonetheless beneath the bottom. So, , I feel there’s a chance of a thawing (ph). , hopefully, they’ll take the trail of shifting in direction of a extra democratic regime within the upcoming elections. And I feel the U.S. might dwell with a regime the place the Chavistas win, the present authorities, if it’s perceived to be democratic or not less than extra democratic. And we’ve seen that traditionally in Latin America, , the place people who had been ostracized that got here in again by the democratic course of had been capable of run.

RITHOLTZ: So I attempted desperately to keep away from being a macro vacationer. However it seems like, man, if there’s ever a rustic that has immense upside, discuss asymmetrical dangers, what would it not take to make Venezuela actually investable and for them to change into a bit of extra built-in into the worldwide financial system? They’re probably so successful story if they may get out of their very own methods.

KOENIGSBERGER: Yeah. Bear in mind, return to the Nineteen Seventies, the Concorde used to fly to Caracas —


KOENIGSBERGER: — simply to place it in perspective. And I feel you’re proper, I imply, they’d the most important confirmed oil reserves on the planet.

RITHOLTZ: Not the most important exterior of the Center East? The most important bar none.

KOENIGSBERGER: On the earth. Yeah.


KOENIGSBERGER: So greater than Saudi Arabia. So now we all know that, , Saudi Aramco has accomplished an IPO. It’s value a trillion {dollars}. , might Petabase [ph] or Venny [ph] Aramco be value 1 / 4 of a billion {dollars}?


KOENIGSBERGER: It might be. 1 / 4 of a billion {dollars} will go lengthy methods to with the ability to create CapEx.

RITHOLTZ: Quarter of a billion quarter or quarter of a trillion?

KOENIGSBERGER: Quarter of a trillion. Excuse me.


KOENIGSBERGER: Quarter of a trillion. So there’s plenty of potential there. And hopefully, , the — Chevron is step one in direction of a thawing of relations between Venezuela and the West, the U.S. and that they are going to have the power to purchase. It jogs my memory of Iraq, fairly frankly. So earlier than the Marines invaded Iraq, they had been doing about 1,000,000 barrels a day of manufacturing. At the moment, they’re doing 5 million.


KOENIGSBERGER: Their GDP was $25 billion a 12 months. It’s $250 billion a 12 months.

RITHOLTZ: 10x, that’s simply superb.

KOENIGSBERGER: And we will’t say that it’s as a result of it was such a politically steady place. Proper? So , we might think about at Venezuela on the opposite aspect, the place the 700,000 barrels goes again to level —




KOENIGSBERGER: And that might make a distinction in the present day. It might make a distinction not solely to the market, however fairly frankly, the Venezuelan individuals who have suffered immensely beneath this administration and beneath the present contract (ph).

RITHOLTZ: So let’s discuss a bit of bit about China. How do you method China? I have a look at fairness there, it’s basically flat for the reason that early Nineties. When you’re an outsider, it looks like the Chinese language Central Celebration has taken all these positive aspects for themselves. Is China investable? How do you even method a rustic like that?

KOENIGSBERGER: So I feel after we take into consideration investability, one has to consider value, proper, preliminary circumstances. And so I’ll begin with, traditionally, in China, for an extended time period, we’ve been massively underweight or no publicity as a result of it’s been uneven in your face. And what I imply by that’s we’re debt buyers, proper? So debt is a contract, proper? And the contracts that Chinese language firms had within the offshore was principally a chunk of paper, no belongings, and also you needed to depend upon the great religion and the willingness and talent of this company to pay you, after which to pay you. So first to make a dividend offshore and perhaps get China to approve that dividend, after which to pay you. So —

RITHOLTZ: That seems like a horrible setup for funding.

KOENIGSBERGER: It’s. Yeah. So for a debt investor occupied with China at par, China company at par made no sense to us. Now, China property has gone from par, the homebuilders to — we talked about 8 cents, 10 cents, 5 cents. So now, you begin to consider choice worth. And after I have a look at the China property sector in the present day, it jogs my memory of plenty of rising market corporates and sovereigns traditionally, the place one has to tease out — distressed isn’t one thing that’s simply cheaper than it was. It’s low cost relative to an final result that we predict that we will catalyze.

So after we have a look at an 8 cent safety, we’re not listening to from the corporate, we’re not going to pay you, and we’re not seeing insolvency. We’re seeing Bambi syndrome. We’re seeing folks —

RITHOLTZ: Bambi Syndrome?

KOENIGSBERGER: Individuals frozen within the headlight.

RITHOLTZ: Oh, bought you.

KOENIGSBERGER: And I bear in mind one CFO in China, we’re speaking, I bear in mind they’re locked down, proper. And so this poor CFO is doing the convention name in his rest room and the screensaver is his bathe display, proper. And so what you’re seeing is somebody who doesn’t know tips on how to do a debt restructuring. And I’ll simply, , return to, like, I bear in mind Argentina 2009 and assembly with the Finance Minister who not solely didn’t know, finance, however didn’t know tips on how to do a debt restructuring.

So after we have a look at China property at 5, 8, 10 cents in the present day, and we see these people who find themselves expressing willingness to restructure, however a lack of know-how of tips on how to do it, the choice worth appears fairly low cost.

RITHOLTZ: That’s actually fairly intriguing. We talked earlier about Russia. I’ve all the time seemed askance at Russia as a result of there isn’t any respect for personal property, for contract rights, for rule of regulation. Do you’ve got the identical challenges in China, or are they a bit of extra westernized by way of in case you minimize a deal, they are going to honor it?

KOENIGSBERGER: Look, I imply, I don’t wish to in giant generalities or stereotypes, however I feel we noticed the Chinese language authorities plank because it pertains to an important sector, the property sector. And previous to the occasion congress, , in case you learn the chance in China was that they had been going to take all of it. The federal government, , they had been simply going to love, say, if we get you to the offshore bondholders, what have you ever, however I feel they blinked, proper? That is 25% of the GDP of the nation.


KOENIGSBERGER: Proper? So to simply suppose you could have a Lehman second and simply, , allow them to go.

RITHOLTZ: What the hell.

KOENIGSBERGER: They tried that with Evergrande, fairly frankly. Like, let’s simply isolate —

RITHOLTZ: And it didn’t work.

KOENIGSBERGER: It didn’t work. So I feel it’s quite a bit much less dangerous in the present day than it was eight weeks in the past as a result of we’ve seen the brand new authorities, that third, Xi has are available. And we’ve seen that they type of blinked because it associated to this and there’s simply huge assist going into that sector. So does that imply I wish to purchase a par safety in China anytime quickly? No. However will we get extra snug at 10, 15, 20 cents with a Chinese language TARP, and CFOs and CEOs telling us that they wish to restructure, they simply wish to lengthen, they don’t wish to wipe us out, they don’t wish to equitize, they don’t wish to toss the keys? I feel it’s a fairly good wager.

RITHOLTZ: What do you make on the — we’re recording this at first of December. What do you make of the modifications within the COVID coverage over there? And what may that imply for his or her financial system and their debt points?

KOENIGSBERGER: Yeah. I imply, so there’s a social factor to that response, which is, , you possibly can see that the inhabitants has been fed up. I imply, I am going again to, , my children thought three months have been locked up in the home within the second quarter of 2020 was the worst factor ever occurred. I imply, this has been occurring China for almost three years. So you’ve got giant numbers of individuals which have been very sad.

And I’m not stunned, once more, to see after the occasion congress, them tuck or pivot, which is everyone’s favourite phrase lately, and begin to open up the financial system. I’ll take that again to, , I feel that’s going to create extra — what occurred right here, proper, we had the massive closure, after which we had the reopening. And the reopening was gradual and spotty. And now, we’re seeing that the calls for are there and we’re having issue with provide aspect. I might anticipate one thing related in China, however I feel demand for housing goes to be there. The assist is there, and that’s a significant a part of their financial system.

RITHOLTZ: Actually fairly fascinating. So let’s discuss a bit of bit about market effectivity and debt. It appears that evidently EM is extra sophisticated, much less clear, much less environment friendly than developed markets. Is that a part of the supply from whence alpha is derived?

KOENIGSBERGER: Yeah, for certain. I imply, I feel the data asymmetry implies that in case you can manage yourselves so as to have the ability to seize data, and once more, that’s exterior the agency and contained in the agency. , we talked a bit of bit about having platforms that may suck up that data from the areas. But additionally the way in which that we’re organized as an funding staff, 4 completely different technique teams, all collaborating, all assembly each morning, all sitting on an funding committee, sharing like what’s occurring in public debt issues to personal debt.

, we talked about Venezuela earlier. Like, what are particular conditions staff is aware of about litigation, litigation finance in Venezuela and OFAC restrictions was serving to our long-only rising market debt staff take into consideration what it meant for Russia, when these issues got here on. So plenty of alternatives in the way in which that we’re organized to have the ability to create alpha.

, the opposite method to choose — to actually create alpha and benefit from the data asymmetry is thru the dynamic asset allocation that we talked about. , my pet peeve is an investor who picks a return stream for 10 years. And also you talked about earlier than that, , in equities, you could possibly argue the Chinese language equities, no matter it could be, that, , perhaps it’s been lackluster returns. Properly, in case you stick to one thing, whether or not it trades at 150 or 200, you’re simply going to get the common, . However in case you’re capable of transfer round between worth and relative worth, I feel there’s a method to benefit from the data asymmetry and create alpha.

RITHOLTZ: One of many issues I’ve all the time puzzled concerning the distinction between rising market and frontier markets, at first, do you have a look at frontier markets? And second, how do you actually distinguish between the 2?

KOENIGSBERGER: We actually attempt to put the labels apart, and frontier market is a little more of an fairness label than a debt label to start with. That being stated, I might say that, , most any nation that was frontier, now we have invested in, traded and traveled in some unspecified time in the future in our careers. And issues usually go from frontier to rising markets, generally they return. We’re rather more curious about type of the bottoms-up evaluation and what it means. However, , Bulgaria was frontier in ’93, ’94. It grew to become funding grade shortly thereafter. Poland was, , identical factor, it was frontier. So for us within the debt aspect, it doesn’t actually matter. Some frontiers have plenty of debt; some don’t have any debt.

RITHOLTZ: How do you concentrate on China? Are they nonetheless an rising market, or have they emerged?

KOENIGSBERGER: Once more, I feel it will depend on the way you outline rising markets. , within the textbook, , per capita GDP, it’s definitely nonetheless categorized as an rising market nation.

RITHOLTZ: Second largest financial system on the planet, are they actually an rising market anymore?

KOENIGSBERGER: Precisely. And once more, it will depend on whether or not you’re speaking about from a political financial perspective, from a GDP perspective. However, , it’s definitely onerous to simply evaluate it to all different rising markets. And as , on the fairness aspect, not solely is it — , it’s such an enormous part of the Rising Market Index, proper? It’s like once you purchase —


KOENIGSBERGER: While you purchase the EM fairness index, you’re principally shopping for China and some others. I’m unsure that makes plenty of sense going ahead.

RITHOLTZ: No, I couldn’t agree extra. Let’s discuss a bit of bit about your staff. The chairman of Gramercy s the previous CEO of PIMCO, Mohamed El-Erian. What’s it prefer to work with him day-after-day? How did he find yourself as Chairman of Gramercy?

KOENIGSBERGER: Look, it’s been phenomenal. Mohamed began with us as an investor first. And as he bought to know us, he type of leaned in and met the staff. And we had a dialog about him serving to us take into consideration how will we institutionalize the top-down? How will we — , we’ve been very a lot a bottoms-up stock-picking store and credit score, if you’ll, credit-picking store. And we needed to guarantee that we had a great institutional framework.

And fairly frankly, myself because the CIO, I lack the arrogance to go to different portfolio managers and say, look, my view is so robust and so proper that you must get out of that nation or what have you ever. So now, with, , Mohamed moved from an investor to an investor that was an advisor, he helped us actually institutionalize the top-down. After which when COVID hit, he realized, what, I can have an actual affect on the enterprise. I don’t should be there day-after-day —


KOENIGSBERGER: — proper, in particular person. I could be there day-after-day on Zoom. And so he’s with us most each morning on our day by day name. We’ve this top-down name, and —

RITHOLTZ: Full credit score to him, he’s been an entire lot extra proper than flawed on all the things from rising markets to inflation, to charges. He appears to be on a sizzling streak lately.

KOENIGSBERGER: Look, he is a superb top-down decoder. He’s an investor, proper? A variety of economists can discuss to speak, however they will’t essentially stroll to stroll when it comes —

RITHOLTZ: They’re academicians not — they’re not placing cash in danger.

KOENIGSBERGER: So he’s good as a top-down decoder. He understands the funding implications of what he’s simply decoded, and he shares a ardour for rising markets with us. So it’s an ideal match. And to your level, he was properly forward of the curve on COVID. Like, I didn’t know what — he stated to me in the future, like, , this can be a sudden cease and you may’t have a sudden begin.

RITHOLTZ: Useless on.

KOENIGSBERGER: I by no means actually thought of that, proper?


KOENIGSBERGER: What are the implications of a sudden cease and a gradual begin? Provide bottlenecks, proper?

RITHOLTZ: Nonetheless ready for semiconductors to get to new vehicles, so folks couldn’t —


RITHOLTZ: — order one thing and never wait 18 months.

KOENIGSBERGER: Yeah. And , I feel he’s properly forward of the curve on inflation, proper. And so it’s been nice. He’s given us plenty of confidence on the top-down. , what I feel differentiates us is we will take the top-down, and he has actually helped us institutionalize and marry it with our robust bottoms-up and have the ability to differentiate. And , lastly, he’s simply change into an ideal good friend.

RITHOLTZ: Yeah, he’s actually a captivating, charming gentleman. I’m an enormous fan. Earlier than I get to my favourite questions, let me throw a curveball at you a bit of bit. Inform us about Turkey. What’s your relationship to the nation? How usually are you there?

KOENIGSBERGER: So Turkey is a spot — my spouse is Turkish. We’ve been married for nearly 30 years now, so I’ve been touring to Turkey for that lengthy. My daughters each communicate Turkish. So we spent plenty of time there within the summers. And so, , it’s —

RITHOLTZ: Wait. Within the summers, you imply each summer time for the previous 30 years?

KOENIGSBERGER: Just about each summer time for the final 30 years. We needed our daughters to be taught Turkish, so we bought an condominium there. Each summer time, we love going to the seashore down there, down — and Bodrum is like lovely water.

RITHOLTZ: Is that the Mediterranean or the Asian?

KOENIGSBERGER: It’s on the Aegean aspect.

RITHOLTZ: In order that’s spectacular over there.

KOENIGSBERGER: Lovely water, lovely — and nice folks, nice hospitality, superior meals. So , actually loved it.

RITHOLTZ: Signal me up. Wow.

KOENIGSBERGER: And , it’s change into an necessary a part of our enterprise over time too, as a result of I spent a lot time there. Though I’m a Latin Americanist by coaching, I’ve change into very snug in Turkey as properly.

RITHOLTZ: Actually very fascinating. Let’s bounce to our favourite questions that we ask all our visitors. And I’m going to should retire this query considered one of lately, now that we’re principally reopened, however in the course of the lockdown, inform us what you had been doing to remain entertained? What had been you streaming after we had been all caught in the home?

KOENIGSBERGER: So we had been simply speaking about Turkey. And Netflix occurs to have an ideal catalogue of Turkish exhibits.

RITHOLTZ: Actually? In order that they’re in Turkish with English subtitles, actually, actually good plots and drama and what have you ever. So it gave me the power to be taught Turkish language, but in addition be taught Turkish tradition, and be actually entertained within the course of.

RITHOLTZ: Give us the identify of the present.

KOENIGSBERGER: One in every of them that I simply completed is named Atiye in Turkish —


KOENIGSBERGER: — which suggests the reward. And it has a little bit of — I take into consideration 24 episodes and it’s about type of archaeology in Turkey and actually fascinating, actually good actors, actually good scripts, and actually good cinematography.

RITHOLTZ: Sounds fascinating. Inform us about a few of your early mentors who helped form your profession.

KOENIGSBERGER: So by way of mentors, I discussed my first boss Carlos Rodriguez-Pastor, the boutique I labored with in California.

RITHOLTZ: What was the identify of the boutique?

KOENIGSBERGER: CRP Associates, for his initials. And I used to be very lucky to work with Carlos. It was a really small boutique, spent plenty of time with him on a one-on-one foundation. He had an ideal thoughts. He understood the intersection of politics and markets. , English was a second language, however I feel he taught me English by way of written English and Enterprise English and what have you ever.

And I’d say the opposite one, fairly frankly, was my stepfather who was a pilot for United Airways for 35 years. And , he had this guidelines mentality, which seems to be quite a bit like danger administration, proper? Like, all the time occupied with what can go flawed and tips on how to keep away from the catastrophic mistake and the non-recoverable mistake. And so I put these two collectively and say they had been nice mentors.

RITHOLTZ: I really like the thought of checklists. It’s pilots and surgeons wish to guarantee that there aren’t these foolish little errors. It’s avoiding mistake is extra necessary than hitting the bullseye.

KOENIGSBERGER: And perhaps pilots greater than surgeons as a result of they’re on a airplane.

RITHOLTZ: That’s a distinction of pilot. When a surgeon loses a affected person, they’re unhappy. When a pilot loses a airplane, he’s useless.


RITHOLTZ: So it’s a really completely different factor. Inform us about a few of your favourite books. What are you studying proper now?

KOENIGSBERGER: I imply, again to Turkey, , we’ve bought an election developing in Turkey this 12 months as properly. So I’ve been doing a little studying on Turkey and one specifically, it’s a e book known as Turkey Underneath Erdogan. And it type of simply provides you a way of what Turkey has been like during the last 20 years with Erdogan and perhaps take into consideration among the components which may affect the potential regime change in Turkey later this 12 months.

RITHOLTZ: And what are the percentages of that regime change taking place?

KOENIGSBERGER: , they alter day-after-day. And everyone knows that polls aren’t as dependable as they —

RITHOLTZ: Certain.

KOENIGSBERGER: — by no means had been. However after I was in Turkey this summer time, I might have instructed you that the percentages for him profitable had been fairly low. And that’s as a result of if he spoke with — , there’s a little bit of a distress index, , older, retired people who had been getting squeezed by excessive inflation and the foreign money devaluation, however then additionally younger children, proper, that simply felt type of hopeless. And so after I left there in August, I’m like, it’s going to be actually troublesome for him to win.

RITHOLTZ: And now?

KOENIGSBERGER: We had been there — , I had a staff there two weeks in the past. , their name, it’s like 50/50.


KOENIGSBERGER: And I feel, , there’s an actual dispersion of outcomes that would come from whether or not he stays or goes, how he stays, how he goes. So it’s been fascinating to learn on that. After which, after all, I prefer to David Rubenstein books, the interviews, , with the buyers and management.

RITHOLTZ: Yeah. He’s a captivating man as properly. So these are the 2 books you simply completed most just lately?


RITHOLTZ: What kind of recommendation would you give to a latest school grad who’s curious about a profession in rising markets, opportunistic or distressed debt?

KOENIGSBERGER: What’s humorous within the post-COVID period, I might begin with saying that presence issues, and that they need to go to the workplace. And there’s plenty of younger children who, , simply suppose they’re as environment friendly at house, as productive at house. However they overlook that, , God invented buying and selling desk for a purpose. There are open architectures. There’s data flowing, and it’s nice coaching and nice mentorship. So one, I’d say go to the workplace.

And two, I might say, , attempt to make your profession extra linear and vogue, and logical. I see plenty of younger children in the present day, it’s like, properly, I’m going to attempt funding banking, and I’m going to attempt tech, , no matter is sizzling. However in case you’re actually curious about rising markets, or no matter it could be, then persist with it and evolve round that asset class, however don’t hop round.

And the very last thing I’d say with younger children in the present day is we don’t actually care the place your diploma is from. We don’t care about pedigree. We care about who you’re, what you’ve accomplished, and the way you complement the staff. You don’t should emulate the staff. You could be completely different. And with range comes, , higher outcomes. So don’t simply attempt to be like everyone else.

RITHOLTZ: And our last query, what have you learnt concerning the world of rising markets, distressed debt, and investing in the present day that you simply want you knew 30 years or so in the past, once you had been actually first getting your legs on to you?

KOENIGSBERGER: So after I left Lehman in early 1998, , once you began in funding administration in rising market debt, , it was principally you probably did a hedge fund and you probably did a credit score hedge fund, and that’s what we did. , if I might return to 1999 in the present day, after we began Gramercy, I feel actual lengthy and onerous about perhaps we wish to do non-public fairness constructions versus hedge fund constructions, have lengthy -locked capital versus short-locked capital, and find a way to consider multiples of capital over the lengthy interval versus volatility and IRR within the brief run.

RITHOLTZ: Which means power the shoppers to be long run buyers than —

KOENIGSBERGER: Yeah. And I don’t wish to use power, however companion with the shoppers in autos which are extra — , over time, even in our credit score autos, we’re having longer-locked autos that enables one, , in case you’re going to make an asset-backed mortgage and capital options, you possibly can’t give 90-day liquidity, proper?


KOENIGSBERGER: So it’s bought to be extra like a quasi-PE construction, the place you make a mortgage, you’ve got three years to make the mortgage. You might have three years to get it again, after which return the capital in six or seven years. That makes much more sense than, , how do you construct a portfolio not realizing whether or not that portfolio goes to nonetheless be with you in 30 days.


KOENIGSBERGER: That’s difficult.

RITHOLTZ: Hey, it ain’t known as the illiquidity premium for nothing, proper? The entire thought of tying up capital for X variety of years means the brief time period both gates or liquidity calls for aren’t related to the funding thesis.

KOENIGSBERGER: However, , the illiquidity premium in rising market debt, it’s a very necessary idea as a result of I see CIOs, pension funds, no matter it could be, they usually’re like, we’re going to be 3%, 6% rising market debt ceaselessly. That’s our asset allocation. However they stick in liquid in quotations “T plus 3,” , get your a reimbursement in three days. And I’ll return to the Mexico instance. , a 12 months in the past, you could possibly get 3% for a safety for Pemex, or we might lend to Pemex provider at 15%.


KOENIGSBERGER: And it wasn’t that illiquid, it was 9 to 12 months. So in case you’re going to be there for 10, why not choose up that additional 1,000-plus foundation factors?

RITHOLTZ: That sounds prefer it’s value it. Thanks, Robert, for being so beneficiant along with your time. We’ve been talking with Robert Koenigsberger. He’s the chief funding officer and managing companion at Gramercy Funds Administration.

When you get pleasure from this dialog, properly, make sure to try any of our prior 450 interviews. Yow will discover these at iTunes, Spotify, YouTube, wherever you get your favourite podcasts from. Join my day by day reads at You’ll be able to comply with me on Twitter @ritholtz. I might be remiss if I didn’t thank the crack staff that helps put these conversations collectively every week. Justin Milner is my audio engineer. Paris Wald is my producer. Sean Russo is my head of Analysis. Atika Valbrun is my undertaking supervisor.

I’m Barry Ritholtz. You’ve been listening to Masters in Enterprise on Bloomberg Radio.




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