Krzysztof Lasocki


“I would never invest passively in emerging markets. This is an area where good active, benchmark agnostic managers can add value.” Krzysztof Lasocki, Royal Mail Pension Plan


PI: Such as? Lasocki: You can engage in derivatives, which would hedge you from less obvious angles that are indi- rectly affected by currency fluctuations. Then there is soft hedging, where you look at the currency risk exposure of the countries you invest in. So here you are indirectly protected from adverse currency fluctuations, which might impact those countries and conversely your investments. Mordezki: Even if you go for a hard currency option you are still holding credit risk that is related to local currency movements, especially when a company you have invested in has revenues denominated in local currency. Now, this ‘balance sheet mismatch’ or ‘income statement mismatch’ has been shrinking significantly – we saw that in the absence of defaults following substantial devaluations in many countries – because currency derivatives have evolved for companies and issuers, allowing them to hedge in a way that was not present 20 years ago. We can see a deeper, much less expensive and longer maturity market developing in Brazil, for instance. I am not saying that credit risk related to currency disappears. It is part of the investment landscape and your investment may be affected by it, but it will not lead to default as was the case 20 years ago.


June–July 2019 portfolio institutional roundtable: Emerging market debt 17


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