Lessons Learnt from a West to East Capital Dislocation

[Music] thank you very much uh before we start I just want to thank uh the leadership here at adgm his Excellency Ahmed El zabi the team at adgm and I also want to ask I don't see Zilla in the room who is the Mischief maker who decided to put two guys from New York on a on a conversation together one from Buffalo one from Queens where we have rival NFL football teams I think I need leave so uh yeah this Sparks may fly but but uh I think it'll be fun so you know Dan I always like to get a little bit of someone's backstory and I'm very intrigued how does someone from Buffalo get involved in emerging markets and special situations and how do we get to our Genta well um thanks for the question and good afternoon everybody dly great to see you again and be here with you um well I guess my story goes way back I I was uh I got involved in emerging markets and distressed without knowing that there were emerging markets and distressed it was before they were called Emerging Markets before they were called distressed um so that started in the late 80s um in New York City uh working on the early Brady restructurings um at Mexico Venezuela I was one of the first analysts hired um at one of the predecessors to JP Morgan and um you know you you were at a time where it was just chaos and you know defaulted loans there were no bond markets uh uh you know was Berkeley says I think correctly so information asymmetry I mean there was no internet there was no information so uh it was a very quick learning curve um so what do they call it those days they didn't call it Emerging Markets what was it called uh I'm not going to say it was not not a great term uh I think this Market has grown up right and now you see today where're uh Emerging Markets um is a uh you know it's a sophisticated Global huge uh Market um I agree with the earlier uh comment that you know people call it a market you know 60 plus different countries in in you know in sort of the index um and around the index so I mean it's big it's diverse and it's sophisticated it's grown up but you went from JP Morgan I think then it was Cargill right yeah so so in um in uh' 04 I was running the emergency markets credit trading desk at JP Morgan um we were trading everything uh including distressed uh and one of my customers customers at the time Carill hired me to um to start a hedge fund called Black River where we basically spun out the prop desk and uh and created an asset management company focused on uh em Commodities Global fixed income some other things um and and I I ran the the credit emergeny markets credit trading business and then that became argentum I think right yep eventually um in uh 2015 um um uh led by my largest LP uh we we spun out from Carill working with Cargill um still have great relationship with them amazing company um but they were gracious enough to allow us to do that and that's how we started our G that's great so look the the theme that we were given was uh this west to east migration of capital um and I guess that's also part of the whole investing in the transition and the transition but between both of us I mean you know is this something are you seeing this an immediate migration what do you think are the factors that are leading to that and really what's a timetable in duration I think I have an opinion on that I know you have one too so why don't start with yours I think the um you know the path was clear uh until the FED finally moved right and now you have a very different Dynamic with you know with risk-free rates in the states um uh you know at 5% um you know what does that mean for high grade for high yield High single low double digits uh private credit exploding in um you know in uh in developed markets particularly um in the US so you know this is the first time in quite some time where you've been able to get those returns uh so I think that is drawing a tremendous amount of capital from uh from emerging markets and generally from the East um uh but I think that's short term um and the more medium-term Trends firstly I you know I don't think these rates will last I don't think they can last um so you know probably some sort of a soft landing and lower rates are are coming um but uh if you look at the medium-term Dynamics I mean where is the growth and where's the population growth um if you go back sort of when I started in em or 25 years ago at least um you know I think if you look at China India and Indonesia combined they represented something like 18% of US GDP today they're 80 plus and that trend is not reversing yeah um so and population growth similar right Asia in the East is going to be the center of the investing so maybe for a moment we're having a bit of a blip where the US looks fairly attractive given the interest rates but long-term medium term we're going to still see more opportunity opportunity in the uh in the Emerging Markets I mean my opinion is you know I think while everyone's very comfortable with us Sovereign risk you know I think people are looking at it differently now in terms of duration we have such a big debt overhang and and someday you know that's going to come due and that debt Dynamic is different in Emerging Markets lower leverage you know uh I mean you know what about political risk yeah exactly I mean in the US The Divide is becoming Starker I mean if you're sitting here making a decision today for the next 10 years or 20 years you have to think about what's going to be the change in the political you know sort of landscape in the US um you can't count on the middle of the two parties to set that direction so the volatility it's like em volatility used to be in I think and it also brings us into a place like Abu Dhabi which is almost like a modern Merchant State like Venice as Mr diio said where you can be very opportunistic within the trade wins that we see yeah so let's swing East I mean one thing I think that's very interesting about argentum I know you've done Argentina you've done some interesting stuff in Ukraine there was a case study last year but you've been in China doing Special situations on the ground in China which you know hats off to you I mean when I was doing litigation funding we looked at a lot of things that involved enforcement in mainland China I really couldn't get to a clear path on that for an investor here I think I told you the story there was an asset recovery exercise I flew to Beijing for one day which is a funny story um it was the same day shik Abdullah the foreign minister landed so when I checked into the St regious there were Flags UAE Flags everywhere somewhere in the someone in the on the counterparty side thought that I was part of the delegation so I ended up having a Lobby meeting with 10 people they took me to a karaoke dinner it was probably one of the easiest uh mediations that I was ever involved in but I but that's exceptional so you know look China tell tell us a little bit about China how do you do a special sit situation in China how do you exit it um and I think this one also had a US component of chapter 15 yeah we I mean so we've been um uh active in China uh since starting Black River a little bit after that so you know mid 2000s um in you know in our current fund um so the way we're structured we only do special situations we only do emerging markets and we primarily focus on corporate um situations so we don't really get involved in Sovereign um and everything that we do in terms of funds they're private Equity sty funds so our most recent iteration we started in January of 2020 perfect timing um but we've done seven investments in the fund in China um I think we've exited half them um and it's about firstly you have to avoid the major flags of Fraud and and avoid the these pitfalls it's a lot more important to get the downside right than it is to get the upside right um and you know we've got a great team great Network fortunate to you know to have done that um and picking win-win situ situations I think you know uh uh there's probably few people in this room that have been doing as merging markets as long as I have some of the folks from Loy are one of them um and win-win situations in in EM I mean that is the Playbook um and to figure out what is a win-win it's different in every country each country has its own Dynamics in different provinces or states or what have you and I think um you just got to navigate that and and do your homework well in advance know who the players are know where you are um in terms of the priorities of the regional government the you know the the federal government so is it a matter of spending time on the ground building relationships and then you know what we would call more technically a consensual restructuring yes right trying to preserve the relationship ship um as opposed to the long arm of the law and forcing somebody into court Etc yeah I think you have to go in with a defensive mindset but if your strategy is you know is you know the the aggressive um us style you know loan to own I mean it's it's going to take longer it's going to be a lot more expensive and you probably don't want to be in court in that town where maybe that owner yeah you know employs 20% of the population no I agree with you so yeah so when I worked with a hedge fund at a Dallas we had a phrase the Texas Showdown and we would always go in you know with saying well if we don't resolve this now it may get contentious and I know there's a phrase in Arabic only the warrior can make peace so yes you're there to make peace but I do think people have to know that if you have to go the legal route and that could be contenti um it it you have to be prepared to do that 100% even even if it means you know losses expenses what whatever it means whatever it takes you have to do that what about Indonesia I know that you've also you know you've been doing things in China and you've done quite a few deals there what about Indonesia um similar very different but similar and um I you know it's one of my favorite places to invest uh um you know we've been I would say almost as successful areas in China um a little bit more competition in uh in in Indonesia than in China um we like berries to entry and complicated situations it tends to create a much less competitive uh nature but we have um uh uh one situation or two situations actually in Indonesia where you know one of them [Music] um initially was not contentious turned out to be contentious and we saw it going that way um and um uh recognized how defensive we needed to be figured out a legal strategy did the the investigative and forensic work behind the scenes without really know anyone knowing that we were doing that and slowly but surely you know the bad guy Playbook was to pick off you know Bond holder by Bond holder uh we waited that out until we were close to the last man standing and then you know litigated and put our cards on the table and you know they they caved this was one of the most uh formidable families in that country that you know usually they don't cave um we also I think probably got at least 3x more than than last guy who sold um but importantly um and there are reasons why we're able to do that um um specific to that situation but other companies in that sector knew that case very well so we didn't face those kinds of problems um interesting in any other situation in that sector you know on the China deals have returns been similar 3x well um if you look at what we've done in China in our um not just our current fund but um we've two two of the exits I think were high tw's multiples 2.6 2.7 but if you look at since the beginning of argentum our China track record and you compare it to and this is not Apple St apples but if you compare it to the SBI China high yield Benchmark taken from the same time you would have lost 50% of your money in China so your multiple would have been 05 and on all those Investments that we've done our multiples 2.5 wow that's great so now argentum has offices I think what New York is it Milwaukee you have uh Minneapolis this is a real New York bias we don't know anything sort of West of of the Hudson River uh so you got Cargill Minnesota that's true okay and then Argentina Argentina London and and adgm well congratulations and welcome so why adgm so happy to be here why why Abu Dhabi why adgm um man there's so many reasons as the capital of capital and everybody will say point2 okay there's a lot of money here obviously that's true um and that was a factor but you know there's capital in many places in the world um we wanted a regional headquarters outside of the the US time zone was an issue um for us um uh but here I mean the infrastructure the access to so many markets um what adgm and Abu Dhabi is building here is a finance Center sophisticated um uh proactive um in terms of you know regulatory um Frameworks and you know listening to you and saying you know I think it's the first time sitting with the adgm folks they said well what are the problems that you have in other places and how can we make those issues easier for you to do business here um and I mean just a revelation honestly and and there's other very important thing thing um so one of the things that we do when we go into these situations we're um industry agnostic but we have our preferences and usually those relate to strategic objectives right and when we looked that you know what is what are the Strategic objectives of Abu Dhabi uh in the UAE um you know energy transition food security um Logistics things in that nature the a lot of the assets that we get involved in fit that bill so um and oftentimes we go in we you know there's a mess of whatever is created it we will fix that mess clean it up um but we're not long-term owners of assets but we end up having influence maybe control over strategic assets and we thought this is a very very logical place for us to not just get LPS but strategic partners for those assets and especially if we know going into assets the objectives of the specific strategic Partners um it's back to the win-win theme yeah no I I think that's a really good point and I and I think and I would advise all the managers coming in too is you know it may look initially that like the sovereigns are sort of a million miles away and we're all here building an ecosystem from the ground up but I will say that you know once they start to know you have an expertise in a certain area or you may have the ability to help navigate the waters um I am seeing that distance actually compress quite a bit and the and the desire to tap into some of that intellectual Capital right many of the managers are looking for Capital but the funds are also the sovereigns and the allocators are realizing there's a lot of intellectual Capital that has been brought in and I I think there's going to be a real dynamic between the two and that'll really you know make what we do out of Abu Dhabi really exceptional for all of us for sure I mean we're uh we're learning as we go but you know it's been a tremendous experience we partnered with adio super grateful for their support they've been just an amazing partner for us you know along with the the folks at 0gm you think you'll see yourself doing something within the near region uh over the next 12 months or yeah I mean eventually I think 24 yeah I think so um you know we've we we haven't been very active historically in India um we've been looking to do more in Africa we haven't done much in terms of special situations investing here um but I mean you um you need to be ready and positioned you know the these markets where you look in the mirror and consider yourself a tourist with what we do don't do that yeah right so um and you know you have to be very patient very persistent and have the right mindset and if that means not doing something don't do it that's smart that's really smart so we've got a few seconds last question who's going to have a better record this year the Bills or the Jets is that a question oh man all right well I think we're out of time we'll see all right next year thank you