The Exchanges

Q So in markets that are known for having so much volatility, how do you think about the process of risk management?

A One way to think about it is taking this developed market, emerging market dichotomy. In developed markets, you would say, what's my value or risk? What's one standard deviation, two standard deviations, blah, blah, blah. In emerging markets, it is more important to say, if 1998 had happened right now, what would it be? If 2008 had happened right now, what would it be? Scenario analysis is much more important than standard deviations. Because in many of those scenarios, it was a six standard deviation event. I still remember in my time at JP Morgan, I was in charge of commodities, so there was a commodity crash at some point. I was probably 36 years old. They asked me to come to the board to explain what happened. I'm sitting across from Marty Feldstein. That was already a mistake. I then tried to sound smart by saying, well, this was a Six Sigma event that happened in these markets. And Marty Feltzian without missing a beat says, so Nick, we shouldn't expect this in the next 10,000 days, right? Of course, there was another crisis like that a year later. Scenario analysis is more important than the standard deviation stuff, number one. Number two, on public markets, the most important thing from a risk management point of view is to have a currency capability, because currency liquidity almost never goes away in emerging markets. You may have an equity portfolio that is hard to…

AI assessment note: “Scenario analysis is much more important than standard deviations.”

Q As you look today at what you've done since the financial crisis, how many different acquisitions have you done in total?

A We have done around 10 or 11 in total, of which seven are still part of the business today in one form or another. The most recent one you would have read about was in Africa. Two and a half years ago, we took over a business there called Ethos Capital Partners. Very good group of people. I had known them for a long time. It's a love match. Put every effort into growing that business. It was about a 1.6 billion dollar business. One of only half a dozen surviving scale GPs in Africa. Tried four or five different ways of growing the business. Just couldn't get it done. Nobody's particular fault. I wouldn't point a finger. Africa is a tough market for raising money. It's dominated by the development finance institutions, IFC, EBRD, who are particular in the kind of managers and kind of funds they want to back. That's a different chapter entirely. Our typical commercial LPs were not that interested in Africa, so we couldn't get it done. Ultimately, rather than shrink the business to die, The partners there decided to take it back, which we thought was best for the LPs, and best for the business, and obviously, if they thought it, best for them. So that's what happened. But others mostly, if it wasn't clearly an unwind, have stayed with the firm.

AI assessment note: “We have done around 10 or 11 in total, of which seven are still part”

Q What's the breadth of capabilities you have today?

A Today, you should think of us as having three lines of business. We have a public markets line of business, private markets, and a forestry and agriculture business. In public markets, we aren't solely in listed equities, although we have a very strong background in fixed income as well. We have managed local currency debt strategies, we have managed FX strategies, and we have managed inflation-linked bond strategies in emerging markets. Today, we manage Long only equities in three single countries around the world, Turkey, Mexico, and Thailand. Our fourth invests in non-brick EM countries, so mid-sized emerging market countries and frontier, very concentrated, 20 to 30 investments at a time. Our growth is to get up and running, something we've been paper trading for a while now, which is a multi-asset class. EM long only strategy. That is the one-stop approach for emerging market investing. We also are working on a couple of other strategies. One is a carry strategy. One is a equity long short strategy. On the private market side, we invest in private credit, private equity, infrastructure, and renewables. Our biggest presence is in Latin America where we have multiple offices. And Latin America is obviously important to this administration, so I think there will be a lot of strategic capital looking at Latin America right now, for which I think we are well positioned. We have…

AI assessment note: “Today, you should think of us as having three lines of business.”

Q When you thought about how to build a horizontal emerging markets investment firm, How did you think about strategically positioning other than knowing that if you were sitting inside of a bank, you might get silos infringing on what you wanted to do?

A There are two ways to build an asset manager. One is you say, look, this is my activity. This is what I do. I'm a value investor. I'm a momentum investor. I'm a quant investor. I'm a this, I'm a that. Those of you who are interested in this, please come and talk to me. The other way is to say, look, I have these investment capabilities. How can I create a solution for you out of those investment capabilities? In a way, that's what the large asset managers do. It's a supermarket. You want a diet version, you want a full calorie version, you want the low carb version, the vegan version. We've got it all. And people poo-poo the latter. It's not true investment kind of thing. But if you want to build a big firm that is going to outlast you, I was and remain convinced that's what you have to do. I knew I was going to build a solution-oriented firm that was going to work over time backwards from what investors told us. I knew we were going to tailor it to institutional investors because I come out of JP Morgan, I know nothing else. I knew the dedication to EM was going to be the big calling card. That was the thesis. Build an infrastructure that institutional investors will be interested in. Start your first fund with enough capabilities so that you can then spin out different parts as different investors talk to you about them. And that's exactly what happened. The only fund we ever…

AI assessment note: “I knew I was going to build a solution-oriented firm that was going to work”

Q Given the flaws that you see in the various benchmarks across the markets, is there a systematic way that you can approach this benchmark agnostic investing that you think just by structure can allow you to outperform over time?

A Yeah, a smart beta, if you will. Within asset classes, for sure. Let's take local currency debt, because we have done exactly that in the past. I mentioned the flaws. If you say, my benchmark is the Elmia, but I am systematically going to overcome the bond problem by allowing myself to invest in swaps, forwards, and frauds. I am systematically going to Get over this uneven duration by drawing a straight line across at the five-year mark, and that's my benchmark because I can always get an interest rate for that, whether it's in the bond market or other market, and I'm going to have a currency overlay of dollar, euro, yen that is logical for the underlying investment. You can absolutely build something passive that will get you a higher sharp ratio than the underlying index. I have no doubt about that. And I have very little doubt about it, although we haven't done it specifically for the other asset classes. It may have a lower absolute return, to which if you then apply some leverage and a higher sharp ratio, you should be fine. But if the goal is, I want positive exposure to this asset class at a better sharp ratio than the benchmark, it is 100% doable, I'm convinced, in every single asset class. And then is there a systematic or at least thoughtful way of thinking about asset class versus asset class, and when do you emphasize one versus the other? The answer again is yes. I…

AI assessment note: “Yeah, a smart beta, if you will. Within asset classes, for sure.”

Q As you feel this tailwind potentially starting to push, what opportunities are you most excited about?

A The developing a multi-asset class approach in both private and public markets is the key to unlock large pools of capital coming to emerging markets. I really believe that because I don't think we will end up with large pools of capital in traditional strategies sufficient to make a difference either to the investors or to the countries involved. Let's spend a minute on the private market side on this, Ted. As I mentioned, the market for private investing, super fragmented, lots of small managers, very little ability for your typical sovereign wealth fund, large state pension fund, Canadian pension fund to deploy hundreds of millions, let alone billions of dollars into these countries which need hundreds of billions of dollars. The solution is to do so in a structure that allows deployment into all of the private asset classes to the extent possible across as many countries as possible. In other words, diversification on two dimensions. A lot of private credit, plus some private equity, plus some secondary private equity, plus some infrastructure, plus some renewables, let's say for starters. If you have real estate capabilities, fantastic. If you have venture capital capabilities, even better. There is a core that is those first three or four items where if you have the ability to deploy, you can deploy very large amounts. And if you are empowered to do that over at least an …

AI assessment note: “developing a multi-asset class approach in both private and public markets is the key”

Q After 20 years plus of running TRG, what have you seen that helps you understand why no one else has been able to own that space?

A This issue of single asset class stuff, it really prevails. Let's take a look at it through a private market lens as a way of example. The world has imposed a developed market private investing construct on emerging markets, which is to say the vast majority of investment vehicles in emerging markets are mono-asset class. It's either private equity or it's private credit or it's infrastructure. Many of them are regional or sub-regional, and that is a terrible way to invest in emerging markets. It is a terrible way because the deal flow in emerging markets Will not support mono asset class, single country, sub-regional funds, and therefore the people who raise that money end up deploying it badly. Layer into that a 15 year bear market on currencies. You end up with a fragmented market full of failing GPs and two small funds competing with The U.S. leveraged private equity industry. So forget it. Even though you could logically say, no, it should compete with the domestic equity markets. There's a logic to that. Private equity in EM has done better than public equity in EM, but nobody cares because the allocation is coming out of a private bucket. It's not coming out of an EM bucket. The industry has shriveled. There is no real global leadership in emerging market private investing. None. It's a terrible thing. How do we fix that? First, you have to recognize that you have to hav…

AI assessment note: “deal flow in emerging markets Will not support mono asset class”

Q Nick, which two people had the biggest impact on your professional life?

A One was Dennis Weatherstone. Dennis Weatherstone was the CEO of J.P. Morgan after Lou Preston. He's British. Started as a teenager in the trading room, sweeping the floor, literally, and grew to be the CEO of J.P. Morgan, Sir Dennis Weatherstone. Diminutive fellow, soft-spoken, always calm, and a gentleman. He grew up on the trading side of the house. To say that for people who grew up on the trading side of the house is saying something. I love that fact about him. The second was a fellow named Ernie Stern. Ernie was a concentration camp survivor who came to the U.S., ended up as the vice president of the World Bank, and for a time, the acting president of the World Bank. World Bank is one of these places that has one vice president, and Ernie was a legend, an absolute legend at the World Bank. The World Bank would typically have political presidents, but Ernie was the constant. He was absolutely revered. When Lou Preston went to run the World Bank in 1995, Ernie in turn came to JP Morgan and became not my boss directly, but he became the vice chairman of JP Morgan in charge, basically to look after emerging markets. I spent a lot of time with Ernie Stern. Ernie was a great man. Whatever you said, if he agreed with you, he would say, you're absolutely right. Just like that. To have a great man deal with you like that, to me, was incredible. The humility, the accessibility, the…

AI assessment note: “One was Dennis Weatherstone... The second was a fellow named Ernie Stern.”

Q How do you balance the concept of giving investors what they want with what you described as your historical experience, say, in Japan of going somewhere and doing something that other people aren't doing? So those two things usually don't go together.

A Got to give people what they want, full stop. But if you are good enough at it, and you develop enough credibility, and you're thoughtful enough and patient enough, Then you do have some standing to talk to people about doing these things. Thirdly, to your point about Japan, global leadership in EM asset management is an empty space. There is nobody out there who can answer the question for allocators, big or small. How much should I invest in emerging markets? In what asset class? In what region? In what style? With whom? And when? The firm that can answer and execute against that question with quality is going to be a great firm. I am targeting that empty space that Nobody today occupies. And Lord knows we are far from occupying it, but that's the goal.

AI assessment note: “Got to give people what they want, full stop. But if you are good enough”

Q So in your years from there through JP Morgan, there's a lot that happens in emerging markets, both the economies and the markets. What did you take away from all of that experience in the various cycles that you saw?

A Two things are the most important, and they're going to sound contradictory. One is you can't ignore the world, and two is you can't ignore what's going on in a given country. There was a long period of time, 2010 to 2024, when what was happening in the world in terms of interest rates and the US dollar was so important that it overwhelmed what was happening in a lot of countries. Prior to that, call it, 2002 to 2011, 2010, what was happening in the countries tended to be more important than what was happening in the world. It is this ebb and flow between these cross currents that is the most important thing to understand. When is one prevalent versus the other? That is very relevant because today what is happening in the country is at least as important as what is happening in the world. And in fact, what is happening in the world is making what is happening in the countries more important. By that, I mean that this phenomenon of the last decade and a half in which capital has so enormously concentrated its flow into the United States at the expense of Every other geography has not reversed itself by any stretch, but has diminished. The questions that are arising, particularly in non-dollar-based investment jurisdictions about where to go invest, is absolutely leading people to look at emerging markets much more. At the same time in emerging markets, you have so many countries…

AI assessment note: “Two things are the most important, and they're going to sound contradictory.”

Q How does that enhanced American strategic interest impact how you think about investment opportunities?

A Somebody said to me today, gee, if this all works out, it's going to be a great investment opportunity and a great business opportunity, to which the answer is yes. The if is the relevant word here. If you can invest from this level in a country that has the resources and the scale and And the proximity and the strategic importance that Venezuela has. And if you can invest at scale, at these levels, and then have a relatively straight line macro improvement to the point where it looks like Chile or Mexico 10 years from now, you're going to be really rich. Lots and lots of ifs along the way. First of all, you can't invest right now. Although there is money for everything. There will be adventurers who will try to invest right now. I have no doubt about that. They're not going to be the biggest institutional investors around the world. They're going to be family offices, locals, or exiles with money, and development finance institutions and sovereigns doing it for strategic reasons. That's the group that will go in today. Commercial institutional investors, no way will they be in today. If things get better along the way, if the new regime, whatever it is, reinstitutes various institutional frameworks, rule of law, central bank, treasury, constitution, it's a long list, then it's a great opportunity. By the way, Argentina is a great opportunity too, and they're well ahead of wher…

AI assessment note: “Commercial institutional investors, no way will they be in today.”

Q What stage were the Japanese markets in when you were over there?

A This was a time of internationalization of Japan. This was bubble time in Japan. Tons of capital, looking for homes, looking for yield. Big, intelligent institutions, maybe not the most sophisticated internationally day to day, but smart, capable people. It was a big business to help them invest their capital in overseas bonds in different currencies. They were a big provider of capital to corporates and mostly sovereigns and quasi sovereigns around the world. It was an exhilarating time. It was also a time where the foreign community really showed up in Japan. It was comfortable there. It was interesting also because Japan itself, even early eighties, mid eighties, this still almost had a post-war feel to it. The architecture was not the gleaming new infrastructure, gorgeous highways that you see today. None of that. It was still getting there. Everybody spoke English, but haltingly. It was great fun. Be a bachelor at the age of 24 in Asia on an expat salary in your expat apartment. That's a pretty good gig.

AI assessment note: “This was a time of internationalization of Japan. This was bubble time in Japan.”

Q You mentioned earlier the importance in some of the strategies about having a tailwind behind you. There are lots of cycles in emerging markets. How have you experienced the ability to manage both assets and the team through some of the cycles, both expected and unexpected?

A We were trying to build from the beginning, but I didn't fully appreciate the importance of diversifying the business itself. That the way to survive the cycles is diversification. Diversification in asset class, diversification in region, diversification in investment style. Some things are going to work in some years and some things are not. If you are a monoline Mid-sized emerging market manager, public or private. It is not a question of, are you going out of business? It's a question of, when are you going out of business? Because of the question you asked, the cycles. Unpredictable and violent. If you tie yourself to one thing, I'm an equity guy, I'm a LATAM guy, I'm a this person, I'm a that person, and you only get to the scale that that thing allows you to get to because it's a niche market after all. You're going out of business. I'm sorry. It's terrible, and it's terrifying. This diversification in terms of growing the business by region, by asset class, but also by money raising technique, continuation vehicles, GP led secondaries, GP replacements. You have to have this diversification approach, acquiring clients rather than cultivating clients. That's the only way to survive in a market with these characteristics.

AI assessment note: “the way to survive the cycles is diversification. Diversification in asset class, diversification in region”

Q How do you manage sitting next to each other when you have offices around the world in different time zones?

A I've done it for so long now, Ted. It's been since. To me, it's very second nature. Back then it was called the squawk box, the push to talk. Now it's teams, what have you. So people are talking to each other all day, every day. And then as many get togethers as possible in person. So we know each other in person, sometimes harder to do than others and lots of travel. Luckily, I like the travel. I typically travel 10 days a month. It's one of the things that drew me to this industry. Learning about these countries, these cultures, the language, the music, the art in these different places is great. I have friends in all of these countries by now. Everywhere I travel, I can have a social dinner. I've gotten to know a lot of finance minister types and then business leader types in these countries. It's endlessly interesting.

AI assessment note: “Now it's teams, what have you. So people are talking to each other all day”