Gramercy Says Private Is Way to Go in Emerging Markets
Jan 30, 2025
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Robert Koenigsberger, founder and chief investment officer of Gramercy Funds Management, shares insights on the exciting trajectory of private credit in emerging markets. He discusses significant opportunities arising from high rates and decreased bank lending, emphasizing that we're only beginning to explore this market. The conversation includes the nuances of credit risks, strategic partnerships, and the evolving landscape of real estate investments in regions like Mexico and Turkey, while addressing the challenges posed by volatile economies and geopolitical factors.
Robert Koenigsberger highlights that active management and understanding credit risk are essential for successfully navigating the complexities of emerging market investments.
Emerging markets offer unique private credit opportunities, particularly in Latin America and Turkey, due to lower competition and high yield potential.
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The Public vs. Private Credit Markets Debate
Robert Koenigsberger expresses strong views on the comparison between public and private credit markets, highlighting that many investors misunderstand or mishandle emerging market investments. He points out that, despite historical challenges and dislocations in emerging markets, the fundamental returns have been compelling. Investors often mistakenly group vastly different economies under the same emerging market label, leading to poor outcomes. By suggesting a more nuanced approach, he emphasizes the need for active management and caution against relying solely on index-based strategies.
Emerging Markets and Direct Lending Opportunities
Emerging markets, particularly in Latin America and Turkey, present unique opportunities for direct lending due to lower competition and high yield potential. Koenigsberger emphasizes that many companies in these regions need capital but are overlooked by larger banks, creating openings for private credit investors. By developing dedicated lending platforms in various countries, firms can tap into repeatable origination methods and build diversified portfolios. This strategy allows investors to potentially achieve higher returns while managing risks effectively.
Liquidity and Risk Management in Emerging Markets
The podcast underscores the ongoing concern regarding liquidity in emerging markets, with Koenigsberger arguing that liquidity often presents a false sense of security. He emphasizes that understanding credit risk and borrower behavior is crucial, as real security lies in collateral rather than perceived market liquidity. This mindset shifts the focus from merely seeking liquid investments to ensuring the quality and stability of the underlying assets. By prioritizing robust underwriting practices, investors can navigate the complexities of emerging market investments more successfully.
As rates stay high, bank lenders retreat and volatility rises, Gramercy Funds Management sees significant growth in private credit to developing nations. “We’re just scratching the surface in emerging markets,” said Robert Koenigsberger, the firm’s founder, chief investment officer and managing partner, referring to private debt. “It’s really exciting to go deeper and broader in EM as an asset class with the tools that have proven to work already,” he tells Bloomberg News’ James Crombie and Bloomberg Intelligence’s Tolu Alamutu, in the latest Credit Edge podcast. Koenigsberger and Alamutu also discuss EM private debt returns, default risks, real estate investment strategies, US tariffs and trade policy, as well as recent deals in Mexico and Turkey.