- Broken correlation means taking country-specific views
- Argentina’s investor optimism justified after underinvestment
Emerging-market assets have reached their bottom over the past year and offer great opportunities in private equity as well as fixed income, said Nicolas Rohatyn, chief executive officer of New York-based Rohatyn Group.
Rohatyn, who oversees $4.8 billion in assets, said he sees “huge opportunities” in local-currency bonds and emerging market currencies, while private equity has been “radically under-invested” in some developing countries, including Argentina. The correlation between emerging markets and global drivers such as oil and the Standard & Poor’s Index is breaking down, requiring investors to trade based on country-specific issues, he said.
“We’re back to old-fashioned emerging-market investing, and that means either understand the market yourself or invest with somebody who does,” Rohatyn said in an interview in Buenos Aires. “There are still great opportunities in public markets as well as private equity.”
Rohatyn founded the hedge fund in 2002 after spending 19 years at J.P. Morgan & Co. where he led the emerging-market sales, trading and research team and worked with current Argentine Finance Minister Alfonso Prat-Gay and Finance Secretary Luis Caputo.
Emerging market currencies have “very good prospects” over the next two or three years, and he also sees opportunities in private credit to small- and medium-sized companies that offer “very high yields” and have been under penetrated after banks cut lending. Corporate and dollar bonds “have a trickier road to run” after an issuance glut and because they will be hurt most by a shift in the U.S. interest rate cycle, he said.
In China, “I find it hard to bet against a 30-year trend of macroeconomic management,” he said. “I don’t see a hard landing. Of course it’s going to slow -- it’s getting bigger.”
The secondary market for private equity may be active, Rohatyn said, adding that investors have successfully exited less than a third what was raised between 2005 and 2008.
“There’s a big overhang of stuck positions in emerging-market private equity that is asking for a solution,” he said. “This area holds a lot of promise.”