From Investing in Emerging Markets to Deleveraging Evolving Markets
Published: Thursday, February 26, 2009
Updated: Tuesday, September 21, 2010 11:09
In a tumultuous time for investors, it always helps to stop and take a moment to understand what is going on around them.
The Association of Investment Management and Research's 8th annual conference, held on Friday, February 20, provided the perfect opportunity for this reflection. Originally planned to take place in the Kimmel Center, the conference was moved to the Kaufman Management Center at the last moment because of the Take Back NYU protest.
Over 100 current and part-time students, alumni, professors and distinguished guests attended the conference. This year's theme was "Investing in Evolving Markets", and participants were treated to two keynote speeches, as well as panels on emerging markets, credit default swaps, and alternative energy.
After opening remarks by AIMR co-president Cedric Silas and an introduction from Assistant Dean Pamela Mittman, the conference kicked off with a keynote from Barry Gill, head of the North America Fundamental Investment Group at UBS.
Gill presented three views that he was relatively sure would play out in the economy and markets: first, the belief that we are past the worst of things. Second, a secular bear market in United States equities is oncoming. And third, a prolonged and painful deleveraging will take place in the consumer and the system as a whole.
He also made the point that consumer spending has historically led us out of recessions in the past, but this time things could be different because consumers are overleveraged. Gill told participants to focus on the actions of unlevered players, such as the government and emerging markets consumers, when making investment decisions.
Gill's keynote was followed by a panel on investing in emerging markets, moderated by Professor David Backus. Panel participants included Darshan Bhatt from Glovista Investments, Jim Iseman from Smith Barney, Manuel Mejia from Bladex Asset Management, and Lucas Ramirez from Merrill Lynch. Panelists discussed how the rise in commodities prices and the fall in sovereign credit spreads caused a huge bull market in emerging markets stocks, which has now reversed.
Mejia gave participants some career advice, pointing out that even with 10% unemployment, 90% of people are still employed. He said that the key is to look beyond traditional jobs and think about what is needed. Ramirez concluded the panel saying that the key mistake people make when looking at emerging market stocks is that they assume the emerging market will become like a developed market. He has found that rather than emerging, some countries like Ecuador and Venezuela have become "submerging" instead.
Next on the agenda were lunch and the afternoon keynote address from Adam Seessel, General Partner at Gravity Partners, a hedge fund in New York. Seessel emphasized his fund's focus on capital preservation, and its ability to outperform during bear markets. He also expressed his fund's focus on value investing, and finding net-nets, a term used to describe buying a stock at a discount to current assets minus all liabilities.
"It's great to hear that Benjamin Graham is still alive," first year MBA student Fabio Noronha said, referring to the father of value investing.
Seessel then dived into some case studies of stocks that he has invested in. He bought Apple in the early 2000's when it was trading at $6 a share while also having $6 per share in net cash on the balance sheet, essentially getting the franchise assets for free. Other examples included Intrawest and American Italian Pasta.
"The lunch keynote was the highlight of the conference for me," first year MBA student Matt Lynam said. "He spoke in layman's terms, but he also gave examples where he put it to use. Understanding his methodology of how he looked at companies as a value investor was really helpful."
After lunch, participants listened to a panel on credit default swaps, moderated by Professor Stephen Figlewski. Panel participants included Amy Koch, CFA, from Standish, Mikhail Foux from Citi, Sherri King from JP Morgan, and Bradley Visokey from Deutsche Bank. Panelists described some of the problems and issues they have faced with the CDS markets and their opinions on the need for a centralized CDS exchange to alleviate counterparty risk and increase liquidity. Visokey gave the audience firsthand insight on his experiences with CDS counterparty risk: when Lehman filed for bankruptcy, he had to work around the clock to replace his $200 million position in AIG CDS that was facing Lehman.
"I had no idea about the workings of CDS," first year MBA student Kuan Wu said. "So that was really interesting to find out about - it's all over the news but I only have a cursory understanding of it. These guys went over it in a lot more depth."
The conference concluded with a panel on energy and alternative energy, moderated by AIMR co-president David Paz. Panelists included Scott Thomas from Neuberger Berman, Ryan Nunes from Credit Suisse, and Chris Hunter from Climate Change Capital. Panelists touched upon the themes of government regulation, carbon trading markets, and the investment opportunities that could arise.
The conference was made possible by AIMR's sponsors: UBS, Goldman Sachs, Credit Suisse, Barclays Capital and Gravity Partners. The conference planning team included Amy Klug, Kristin Heitmann, Sushant Koduru, Jessenea Leon, Janet Schreiber, and Richard Tseng.