aligned there could be a danger that some may not. It is an asset class we ignore at our peril.


There are some interesting opportunities out there but I am not jumping in yet because a lot of investors are “tourists”. They like the yield, they like the story but they jump out at the


first bad headline. Alejandro Arevalo, Jupiter Asset Management


downside. People are now taking stock and wondering if it is sensible to compartmentalise the growth phase rather than sub-contract the portfolio to an asset manager who can move the money around.


Where it may have a role to play in defined contribution land is when we move into consolidation and drawdown. There is a need for diversification and income, which has the prospect of growing during a lengthy retirement period. In defined benefit (DB) land, most of us are close to risk trans- fer. There are many entities to whom we can transfer the risk, and these assets can be viewed as an alignment as we move towards the de-risking process. One has to be careful of how long the timeframe is, how liquid the markets are and how vol- atile they are. If you want to transact when all the stars are


Krzysztof, you attended an emerging market debt roundtable of ours before Covid struck. How has your portfolio changed? Krzysztof Lasocki: We have a similar allocation as a percentage of our growth assets. There are reasons to hold emerging mar- ket debt, even though the short-term picture is concerning. Fundamentally speaking, the emerging market story is still that it is the powerhouse of the world’s growth. There are reasons to worry that the growth differential between emerging and developed markets could disappear, which could limit the attractiveness of EM debt in a growth portfolio. Certain factors, such as demographics, make me optimistic from a long-term perspective but you have to be selective. There will be winners, there will be losers. Demographics are not the same in India as they are in China, for example. There will be corporates and countries that might suffer in the next six to 12 months. It is risky now to be super bullish, but we maintain our posi- tion. We have never considered divesting due to poor perfor- mance. We have a diversified portfolio of more than 80 strate- gies. Emerging market debt has a place in our portfolios and it is there to stay. Alejandro Arevalo: I agree about being selective. A big miscon- ception with emerging markets is that in moments of stress the correlation tends to be one. You can have a diversified port- folio, but because of stress in the market everything goes down. However, we need to break it down. At every point of the cycle there will be winners and losers. We try to provide investors with the companies and sovereigns that could push through the cycle. That is where the value of investing in emerging markets will come. If we take a blanket approach to EM against other markets, that differentiation comes down. But 10 years ago we were talking about BRICS, which was five countries. We do not use that ter- minology anymore because there is a wider group of sover- eigns pushing growth. It is not only China, which is slowing down.


When we compare EM to DM, we need to focus on what is in that pool. We cannot generalise. On the point of the dollar, it tends to be a risk in a sovereign emerging market context. Debt sustainability can be an issue, especially in markets where sovereigns rely on cheap financing and international investors to continue issuing debt. A big mistake in a low-rate environment is that for many coun- tries it is easy to issue debt. I do not know how many times Argentina has defaulted, but it has been able to come to the market again and again. Frontier markets that have problems offered attractive yields three years ago of around 7%. Now we


September 2022 portfolio institutional roundtable: Emerging market debt 9


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