Bloomberg Audio Studios, Podcasts, radio News. This is Masters in Business with Barry Ritholts on Bloomberg Radio.

Bloomberg Audio Studios, Podcasts, radio News. This is Masters in Business with Barry Ritholts on Bloomberg Radio.

This week on the podcast, I have another extra special guest, Christine Philpotts of Acial Investments, has specialized in emerging markets and frontier markets for most of her career. She has been around the world, and if you name a hotspot investing place, she's been there. South America, Asia, Africa, Sub Saharan Africa, and Middle East, as well as Southeast Asia and Asia. She's a boots on the ground type of investor who focuses and specializes in emerging market value. What makes that style of investing so interesting and different is simply market inefficiencies. You know, the US markets are so efficient large cap tech stocks, it's really hard to have an edge in that space. But when you look at emerging markets and when you look at value, the opportunity for alpha is much much greater than it is in traditional large cap growth stocks in the US, and a lot of managers in that space actually beat their benchmark. You can't say the same for US large cap stocks. I thought this conversation was really informative and fascinating, and I think you will also with no further ado aurial investments. Christine Philpotts, thank you for having me. So that's a really fascinating background. I'm curious. I didn't even talk about the grass roots business fun. We'll get to where you work at JP Morgan. But economics bachelors from Columbia, NBA from Harvard. Was finance and investing always part of the plan.

This week on the podcast, I have another extra special guest, Christine Philpotts of Acial Investments, has specialized in emerging markets and frontier markets for most of her career. She has been around the world, and if you name a hotspot investing place, she's been there. South America, Asia, Africa, Sub Saharan Africa, and Middle East, as well as Southeast Asia and Asia. She's a boots on the ground type of investor who focuses and specializes in emerging market value. What makes that style of investing so interesting and different is simply market inefficiencies. You know, the US markets are so efficient large cap tech stocks, it's really hard to have an edge in that space. But when you look at emerging markets and when you look at value, the opportunity for alpha is much much greater than it is in traditional large cap growth stocks in the US, and a lot of managers in that space actually beat their benchmark. You can't say the same for US large cap stocks. I thought this conversation was really informative and fascinating, and I think you will also with no further ado aurial investments. Christine Philpotts, thank you for having me. So that's a really fascinating background. I'm curious. I didn't even talk about the grass roots business fun. We'll get to where you work at JP Morgan. But economics bachelors from Columbia, NBA from Harvard. Was finance and investing always part of the plan.

The quick answer is no, So I pretty much tripped into finance when I was in middle school. In high school, I wanted to be a concert pianist. So actually, oh really, yeah, So I spent probably ninety percent of my time outside of school on the piano, practicating and playing at concerts. Wow, And essentially decided to pivot from that original plan because it became clear to me as I got older that to really make a living as a concert pianist, you need to be the top one percent in the world.

The quick answer is no, So I pretty much tripped into finance when I was in middle school. In high school, I wanted to be a concert pianist. So actually, oh really, yeah, So I spent probably ninety percent of my time outside of school on the piano, practicating and playing at concerts. Wow, And essentially decided to pivot from that original plan because it became clear to me as I got older that to really make a living as a concert pianist, you need to be the top one percent in the world.

And I was good. That might not be my name point one point.

And I was good. That might not be my name point one point.

One exactly, And so I was told that I was very good. But that's a pretty high bar.

One exactly, And so I was told that I was very good. But that's a pretty high bar.

So do you still play?

So do you still play?

I don't, actually, but my kids are taking piano lessons, so I'm being inspired to kind of restart. So then I decided to explore other options, but finance was not one of them because I just had no exposure to finance whatsoever. And so the way it came across finance is when I was in high school, I was applying for scholarships for college and I came across the Thomas Kila Breck Smart Start Scholarship that was run by Chase Bank. So it's a program that selects New York City high school students who are going to university in New York City, and it offers a four year, full tuition paid scholarship to college as well as a paid internship full time during the summer part time during.

I don't, actually, but my kids are taking piano lessons, so I'm being inspired to kind of restart. So then I decided to explore other options, but finance was not one of them because I just had no exposure to finance whatsoever. And so the way it came across finance is when I was in high school, I was applying for scholarships for college and I came across the Thomas Kila Breck Smart Start Scholarship that was run by Chase Bank. So it's a program that selects New York City high school students who are going to university in New York City, and it offers a four year, full tuition paid scholarship to college as well as a paid internship full time during the summer part time during.

The school year.

The school year.

Wow.

Wow.

So I came across that opportunity, I applied and I was lucky enough to get it. And then I said, Okay, now I need to figure out what finance is actually all about. And luckily, as I started my internship when I was eighteen, over the years, you know, throughout college, I learned more and more about the different areas of the bank and became really intrigued with investment management specifically. But if it was not for that program, I may not be in this industry.

So I came across that opportunity, I applied and I was lucky enough to get it. And then I said, Okay, now I need to figure out what finance is actually all about. And luckily, as I started my internship when I was eighteen, over the years, you know, throughout college, I learned more and more about the different areas of the bank and became really intrigued with investment management specifically. But if it was not for that program, I may not be in this industry.

Huh. Really, interesting, and I noticed in your background you spend some part of your undergraduate playing around in the psychology department. Tell us a little bit about the thinking there.

Huh. Really, interesting, and I noticed in your background you spend some part of your undergraduate playing around in the psychology department. Tell us a little bit about the thinking there.

Yeah, that's right.

Yeah, that's right.

So I decided to become an economics major and a psychology minor. I always had this interest and just understanding how people think and what drives just people's reactions, emotions, behaviors. That was just always a side interest of mine, and in particular as a psychology minor, I had an opportunity to work with a Columbia professor on an independent study specifically focused on cognitive psychology, and I found that sub segment really interesting because we did studies on kind of decision making biases, human biases like loss, aversion and other biases that impact otherwise what should be rational decisions and make them less than rational. And so doing that in college, that independent study really opened my mind up to what eventually I learned to be the behavioral economics and finance area. But I didn't even know what it was called or that that was an area back then. So the interestect of psychology and economics became really interesting.

So I decided to become an economics major and a psychology minor. I always had this interest and just understanding how people think and what drives just people's reactions, emotions, behaviors. That was just always a side interest of mine, and in particular as a psychology minor, I had an opportunity to work with a Columbia professor on an independent study specifically focused on cognitive psychology, and I found that sub segment really interesting because we did studies on kind of decision making biases, human biases like loss, aversion and other biases that impact otherwise what should be rational decisions and make them less than rational. And so doing that in college, that independent study really opened my mind up to what eventually I learned to be the behavioral economics and finance area. But I didn't even know what it was called or that that was an area back then. So the interestect of psychology and economics became really interesting.

Very much.

Very much.

So.

So.

The fascinating thing is when I was in college, even when I was in grad school, there really wasn't an need such thing as behavioral finance, but it was pretty clear economics had a fundamental flaw, like the base concept of humans as rational, profit maximizing decision makers. Hey, that doesn't seem to be what happens in the real world. I think they've kind of squared that circle. Now, do you get to use any of your the work of behavioral economics in your day job?

The fascinating thing is when I was in college, even when I was in grad school, there really wasn't an need such thing as behavioral finance, but it was pretty clear economics had a fundamental flaw, like the base concept of humans as rational, profit maximizing decision makers. Hey, that doesn't seem to be what happens in the real world. I think they've kind of squared that circle. Now, do you get to use any of your the work of behavioral economics in your day job?

Absolutely so.

Absolutely so.

As an investor, we constantly need to be aware of our own human biases because we're humans, so we are prone to the risk of making irrational decisions as well. But it's also really interesting to think about how these biases at the market level really creates interesting opportunities. Right, it's because of these biases that we have inefficiencies in the market that we can then exploit as active investors. So if the markets were perfectly rational, arguably there'd be no opportunities. So it's just interesting to think about again, as an investment or, how do you handicap your own biases?

As an investor, we constantly need to be aware of our own human biases because we're humans, so we are prone to the risk of making irrational decisions as well. But it's also really interesting to think about how these biases at the market level really creates interesting opportunities. Right, it's because of these biases that we have inefficiencies in the market that we can then exploit as active investors. So if the markets were perfectly rational, arguably there'd be no opportunities. So it's just interesting to think about again, as an investment or, how do you handicap your own biases?

And we do that through several ways.

And we do that through several ways.

For example, we use some quantitative tools and approaches to help offset those natural biases, but also thinking about at the market level as a whole. I was thinking about the aggregate market participants, how we can exploit some of those biases to generate.

For example, we use some quantitative tools and approaches to help offset those natural biases, but also thinking about at the market level as a whole. I was thinking about the aggregate market participants, how we can exploit some of those biases to generate.

Offham really really interesting. To round out your background, you spend time at Alliance Spernstein, JP, Morgan Asset Management, and Morgan Stanley. Were you at Morgan right heading into the financial crisis? Is that right?

Offham really really interesting. To round out your background, you spend time at Alliance Spernstein, JP, Morgan Asset Management, and Morgan Stanley. Were you at Morgan right heading into the financial crisis? Is that right?

I was, yes, So that was a very fascinating experience. So I participated in an MBA fellowship program at Morgan Stanley. So when I resigned from JP Morgan to pursue my MBA at Harvard, I applied to and got accepted into Morgan Stanley's NBA Fellowship within the Investment Bank. So that involved two years full tuition paid for business school as well as a summer internship within the investment bank. And so I'm an investor through and through, but I thought it was an interesting opportunity to look at the other side of the house and to join the cell side and kind of see how the other side operates, you know, from the inside. And so I decided to join the Capital Markets group, and specifically I was part of the Convertible Debt group, which was interesting because I actually started my career at Jpmortonesset Management in the high yield and investment grade credit research team, and then I moved on to the equities team afterwards. So it was kind of an interesting way to combine my debt and my equities experience. And I did a lot of options math, which I that was interesting and I just learned a tremendous amount. But summer of two thousand and eight, as you can imagine, was a really interesting time, particularly for the convertible bond desk, because we were the busiest desk as other parts of the market were close literally shutting down. The convertible debt market was one of the last ones to remain open before September two thousand and eight, and so that's we ended up. I ended up working on about a billion dollars worth of new issues, so I actually got a chance to work on a lot of new convertible debt deals before that window closed. So it was just a really interesting timing and learning experience.

I was, yes, So that was a very fascinating experience. So I participated in an MBA fellowship program at Morgan Stanley. So when I resigned from JP Morgan to pursue my MBA at Harvard, I applied to and got accepted into Morgan Stanley's NBA Fellowship within the Investment Bank. So that involved two years full tuition paid for business school as well as a summer internship within the investment bank. And so I'm an investor through and through, but I thought it was an interesting opportunity to look at the other side of the house and to join the cell side and kind of see how the other side operates, you know, from the inside. And so I decided to join the Capital Markets group, and specifically I was part of the Convertible Debt group, which was interesting because I actually started my career at Jpmortonesset Management in the high yield and investment grade credit research team, and then I moved on to the equities team afterwards. So it was kind of an interesting way to combine my debt and my equities experience. And I did a lot of options math, which I that was interesting and I just learned a tremendous amount. But summer of two thousand and eight, as you can imagine, was a really interesting time, particularly for the convertible bond desk, because we were the busiest desk as other parts of the market were close literally shutting down. The convertible debt market was one of the last ones to remain open before September two thousand and eight, and so that's we ended up. I ended up working on about a billion dollars worth of new issues, so I actually got a chance to work on a lot of new convertible debt deals before that window closed. So it was just a really interesting timing and learning experience.

I have a vivid recollection of the summer of eight and I remember saying to one of the traders I was working with, I just kind of channeled Robert Duval from apocalypse now, where he turns to Martin Sheen and says, you know, son, someday this war is going to be over. And uh, because you were in the middle of just the craziest market experience you can have, and I wanted people to just remember what's going on now because this ain't ever happening again in your lifetime. And uh, like I assume you had a very similar experience at Morgan Stanley. It had to be just bonkers.

I have a vivid recollection of the summer of eight and I remember saying to one of the traders I was working with, I just kind of channeled Robert Duval from apocalypse now, where he turns to Martin Sheen and says, you know, son, someday this war is going to be over. And uh, because you were in the middle of just the craziest market experience you can have, and I wanted people to just remember what's going on now because this ain't ever happening again in your lifetime. And uh, like I assume you had a very similar experience at Morgan Stanley. It had to be just bonkers.

Yeah.

Yeah.

It was just literally there were headlines coming out on a daily basis.

It was just literally there were headlines coming out on a daily basis.

Tick by tick, every minute.

Tick by tick, every minute.

It was.

It was.

It was it seemed like every every time you turn around there was some other insane news and it just built and built.

It was it seemed like every every time you turn around there was some other insane news and it just built and built.

Snowballed absolutely.

Snowballed absolutely.

And so by the time I got back to Harvard in September eight, right, I mean, obviously the Lehman collapse occurred, and really just the bottom fell out, and we're all kind of looking at each other saying, well, on the one hand, I guess it's good that we're in school as opposed to, you know, being on the street and having just been laid off. But I vividly remember later that year the dean of Harvard Business School indicating to us that comparing us the class that graduated during the Great Depression, and his message was basically like, they turned out just fine eventually over time. And we were like, okay, well this puts it into perspective.

And so by the time I got back to Harvard in September eight, right, I mean, obviously the Lehman collapse occurred, and really just the bottom fell out, and we're all kind of looking at each other saying, well, on the one hand, I guess it's good that we're in school as opposed to, you know, being on the street and having just been laid off. But I vividly remember later that year the dean of Harvard Business School indicating to us that comparing us the class that graduated during the Great Depression, and his message was basically like, they turned out just fine eventually over time. And we were like, okay, well this puts it into perspective.

Well thanks for the cheerful, you know, halftime speech to get everybody enthusiastic. Hey, just think about it, the folks and the Great Depression, they turned out just fun. Yeah, oh my god, let's talk a little bit about International Finance Corporation. Tell us about the fund that you help them establish.

Well thanks for the cheerful, you know, halftime speech to get everybody enthusiastic. Hey, just think about it, the folks and the Great Depression, they turned out just fun. Yeah, oh my god, let's talk a little bit about International Finance Corporation. Tell us about the fund that you help them establish.

Yeah.

Yeah.

So I graduated from HBS in summer of two thousand and nine, and I was fortunate enough to join the Grassroots Business Fund, which had been a division of the International Finance Corporation and literally spun out first half of two thousand and eight. So what was really unique about that is is one of the few funds that actually had a fresh pool of capital to deploy.

So I graduated from HBS in summer of two thousand and nine, and I was fortunate enough to join the Grassroots Business Fund, which had been a division of the International Finance Corporation and literally spun out first half of two thousand and eight. So what was really unique about that is is one of the few funds that actually had a fresh pool of capital to deploy.

Aw so they weren't dealing with legacy things that were upside down.

Aw so they weren't dealing with legacy things that were upside down.

No, they were able to enter a pretty compelling time in terms of having fresh capital to deploy. And so that fund's focus is on businesses, small and medium sized, privately held companies that not only have good growth prospects and could generate healthy financial returns, but that are also providing economic opportunities to the base of the economic pyramid, so providing affordab goods and services to customers, incorporating individuals in supply chains and productive manners. So it was an impact oriented private equity private credit fund.

No, they were able to enter a pretty compelling time in terms of having fresh capital to deploy. And so that fund's focus is on businesses, small and medium sized, privately held companies that not only have good growth prospects and could generate healthy financial returns, but that are also providing economic opportunities to the base of the economic pyramid, so providing affordab goods and services to customers, incorporating individuals in supply chains and productive manners. So it was an impact oriented private equity private credit fund.

And where was that focus? What geography did they focus in?

And where was that focus? What geography did they focus in?

So the focus was on emerging markets more specifically Sub Saharan Africa, Latin America, India, and Southeast Asia.

So the focus was on emerging markets more specifically Sub Saharan Africa, Latin America, India, and Southeast Asia.

So are you traveling all of the world to kick tires of these private companies or what's that like?

So are you traveling all of the world to kick tires of these private companies or what's that like?

Yeah?

Yeah?

Absolutely, So during my time there, I was probably employee number four or five. So I joined soon after the spin out to help really establish our investment processes as an independent entity, provide the game plan for where we're going to invest, and ultimately help recruit other investment professionals as we were building out the team, and ultimately investigate deals and structure deals and invest in portfolio companies. So my original focus was Sub Saharan Africa. I did spend a summer between JP Morgan and HPS in Kenya with a microfinance organization, so I had some experience in Africa that was able to leverage for this role. And so to answer your question, I spent probably three to four months out of the year on the ground. So I was based in DC as a member of the management team, but I would go for a month at a time, really working with the entrepreneurs that we had invested in, looking at diligence, working with partners, kicking the tires, as you said, which really provided a great experience to understand emerging markets on the ground and a lot of the nuances, particularly for smaller and medium sized companies.

Absolutely, So during my time there, I was probably employee number four or five. So I joined soon after the spin out to help really establish our investment processes as an independent entity, provide the game plan for where we're going to invest, and ultimately help recruit other investment professionals as we were building out the team, and ultimately investigate deals and structure deals and invest in portfolio companies. So my original focus was Sub Saharan Africa. I did spend a summer between JP Morgan and HPS in Kenya with a microfinance organization, so I had some experience in Africa that was able to leverage for this role. And so to answer your question, I spent probably three to four months out of the year on the ground. So I was based in DC as a member of the management team, but I would go for a month at a time, really working with the entrepreneurs that we had invested in, looking at diligence, working with partners, kicking the tires, as you said, which really provided a great experience to understand emerging markets on the ground and a lot of the nuances, particularly for smaller and medium sized companies.

And give us the timeframe. What years were you doing this, because I want to put you a text of what was going on in the US at the time.

And give us the timeframe. What years were you doing this, because I want to put you a text of what was going on in the US at the time.

Yeah, So I joined in August two thousand and nine, and I loved to join Layin Spernstein in late twenty twelve.

Yeah, So I joined in August two thousand and nine, and I loved to join Layin Spernstein in late twenty twelve.

So what were emerging markets like in that post financial crisis period?

So what were emerging markets like in that post financial crisis period?

Well, what was interesting is particularly for the segments of the markets the fund was focused on, which because really smaller mid cap private equity and private credit, they were pretty unaffected by the global financial crisis. Because these are companies and in some cases countries that were never really fully integrated into the global financial system, and so as the global financial markets were in a tailspin, they were actually very resilient, and so we had really attractive opportunities. For example, that was a time period where mobile banking and mobile payments was starting to emerge, So we had a couple of investments in that arena. We had off grid clean energy investments. We had really interesting agribusiness and agroprocessing companies, consumer product companies, so companies that really were targeting the local markets and customer bases and supply chains that just were not at all impacted by the global financial crisis. So to me, that was the definition of uncorrelated asset.

Well, what was interesting is particularly for the segments of the markets the fund was focused on, which because really smaller mid cap private equity and private credit, they were pretty unaffected by the global financial crisis. Because these are companies and in some cases countries that were never really fully integrated into the global financial system, and so as the global financial markets were in a tailspin, they were actually very resilient, and so we had really attractive opportunities. For example, that was a time period where mobile banking and mobile payments was starting to emerge, So we had a couple of investments in that arena. We had off grid clean energy investments. We had really interesting agribusiness and agroprocessing companies, consumer product companies, so companies that really were targeting the local markets and customer bases and supply chains that just were not at all impacted by the global financial crisis. So to me, that was the definition of uncorrelated asset.

Yeah, to say the very least. So it's interesting the theme across all of your work, or most of your work is is emerging markets in frontier markets. What led you to that particular focus.

Yeah, to say the very least. So it's interesting the theme across all of your work, or most of your work is is emerging markets in frontier markets. What led you to that particular focus.

Yeah, So when I was at JP Morgan, I was covering US tech stocs. I was a research associate on the by side, working with senior analysts looking at software the two thousand Yeah, from basically four up until I went to business school, which was seven.

Yeah, So when I was at JP Morgan, I was covering US tech stocs. I was a research associate on the by side, working with senior analysts looking at software the two thousand Yeah, from basically four up until I went to business school, which was seven.

So the recovery following the dot com implosion had already begun already started, yes, right, but we hadn't quite run into the bus of oh eight or nine exactly.

So the recovery following the dot com implosion had already begun already started, yes, right, but we hadn't quite run into the bus of oh eight or nine exactly.

So basically by the time I mean looking back, I left at the peak of the market. Obviously I didn't perfectly time it, but when I was leaving close I remember my colleagues telling me, well, why are you going to business school? That's going to be a waste of time. I mean, the markets are doing very well. Why why are you doing this to your career? And let alone you're going to Africa to do micro finance, Like, what's going on?

So basically by the time I mean looking back, I left at the peak of the market. Obviously I didn't perfectly time it, but when I was leaving close I remember my colleagues telling me, well, why are you going to business school? That's going to be a waste of time. I mean, the markets are doing very well. Why why are you doing this to your career? And let alone you're going to Africa to do micro finance, Like, what's going on?

They thought? I think they thought I'd a quarter life crisis.

They thought? I think they thought I'd a quarter life crisis.

So get high sight sair life crisis. I love that, but.

So get high sight sair life crisis. I love that, but.

Hindsight, it's twenty twenty. But what's interesting is to answer your question about the pivot to emerging markets, what really drew me was a couple of things. So one is the idea of being focused on less efficient part of the capital markets was very compelling. I tend to be the type of person that if everyone's going in, you know, Route one, I want to go into Route two, three and four just to kind of not be with the herd and to see what else is happening that people may be overlooking, and you know, with large cap tech stocks, if the CEOs caught a cold, there'll be twenty cell side notes about the fact that the CEO caught a cold. That's very well covered markets, whereas in emerging markets and pritulian markets like Africa, they were just not really being talked about. And so I was very interested to look behind the hood, see what's happening and be in an arena where I could. I thought I could add more value you and have more of an edge by doing research and areas that other people ignored. From a personal standpoint, my parents are originally from Haiti, so I was born and raised in New York, but I'm first generation, and so there was a lot of conversations around the dinner table around why are poor countries poor? What could be done about it? Talks about economic development and the intersection with you know, political reform and just how that affects developing countries more broadly. And so that was also, from a personal standpoint, a really strong interest of mine that led me to want to pursue emergent markets.

Hindsight, it's twenty twenty. But what's interesting is to answer your question about the pivot to emerging markets, what really drew me was a couple of things. So one is the idea of being focused on less efficient part of the capital markets was very compelling. I tend to be the type of person that if everyone's going in, you know, Route one, I want to go into Route two, three and four just to kind of not be with the herd and to see what else is happening that people may be overlooking, and you know, with large cap tech stocks, if the CEOs caught a cold, there'll be twenty cell side notes about the fact that the CEO caught a cold. That's very well covered markets, whereas in emerging markets and pritulian markets like Africa, they were just not really being talked about. And so I was very interested to look behind the hood, see what's happening and be in an arena where I could. I thought I could add more value you and have more of an edge by doing research and areas that other people ignored. From a personal standpoint, my parents are originally from Haiti, so I was born and raised in New York, but I'm first generation, and so there was a lot of conversations around the dinner table around why are poor countries poor? What could be done about it? Talks about economic development and the intersection with you know, political reform and just how that affects developing countries more broadly. And so that was also, from a personal standpoint, a really strong interest of mine that led me to want to pursue emergent markets.

So I'm hinting at a question that's going to come a little later, but my general senses. You know, develop mature economies have fairly efficient markets, very hard to generate alpha because markets are so efficient, I'm going to assume the same is not true in either em and especially in frontier markets. Yeah, what do you thought?

So I'm hinting at a question that's going to come a little later, but my general senses. You know, develop mature economies have fairly efficient markets, very hard to generate alpha because markets are so efficient, I'm going to assume the same is not true in either em and especially in frontier markets. Yeah, what do you thought?

That's that's absolutely the case and the data proves it out. So, for example, if you look at the last ten years of returns, the media and active e manager across style so value growth and core has outperformed the benchmark or passive strategies over the last decade. That is not the case when you look at US large coop.

That's that's absolutely the case and the data proves it out. So, for example, if you look at the last ten years of returns, the media and active e manager across style so value growth and core has outperformed the benchmark or passive strategies over the last decade. That is not the case when you look at US large coop.

One hundred percent. In fact, I think the number is NETA fees ten years out, it's like ninety three percent underperform the benchmark in US, not even big cap, just US period. It's pretty amazing. So let's talk a little bit about what you did before you joined Ariel. You were Alliance Bernstein, a very well regarded firm for about ten years, and you managed a couple of different projects and funds. Tell us a little bit about your experiences at Alliance.

One hundred percent. In fact, I think the number is NETA fees ten years out, it's like ninety three percent underperform the benchmark in US, not even big cap, just US period. It's pretty amazing. So let's talk a little bit about what you did before you joined Ariel. You were Alliance Bernstein, a very well regarded firm for about ten years, and you managed a couple of different projects and funds. Tell us a little bit about your experiences at Alliance.

Yeah, absolutely so essentially decided to leave grossroots business fund really to be able to go back into the listed equity space and to join a larger investment platform, and so at the time that I was considering potential opportunities, I came across the team that I joined and the fact that they were interested in launching a frontier and small emerging markets equity fund, which really paired well with my experience in small and frontier funds, and so I joined in early twenty thirteen and specifically joined initially to cover Sub Saharan African stocks and also to help launch this new fund, which was called the Next fifty Emerging Markets Equity Strategy, and the idea was to have a fund that specifically focused on frontier and small emerging markets that were even less efficient, So one of the least efficient markets in an already inefficient part of the caval markets, which is emerging market.

Yeah, absolutely so essentially decided to leave grossroots business fund really to be able to go back into the listed equity space and to join a larger investment platform, and so at the time that I was considering potential opportunities, I came across the team that I joined and the fact that they were interested in launching a frontier and small emerging markets equity fund, which really paired well with my experience in small and frontier funds, and so I joined in early twenty thirteen and specifically joined initially to cover Sub Saharan African stocks and also to help launch this new fund, which was called the Next fifty Emerging Markets Equity Strategy, and the idea was to have a fund that specifically focused on frontier and small emerging markets that were even less efficient, So one of the least efficient markets in an already inefficient part of the caval markets, which is emerging market.

So let's just define some terms a little bit. I think listeners know what developed markets are a developed x US, which would be things like Europe and Japan. What's the difference between frontier funds and emerging markets? Like, how do you just define those two geographies?

So let's just define some terms a little bit. I think listeners know what developed markets are a developed x US, which would be things like Europe and Japan. What's the difference between frontier funds and emerging markets? Like, how do you just define those two geographies?

Yeah, that's a great question.

Yeah, that's a great question.

A lot of times the lines can be blurred and countries could go from one to the other and back. So we use the MSCI benchmark definition, so they have specific criteria on differentiating between what's in the emerging markets benchmark and what's in the dedicated frontier benchmark. So parameters around, for example, liquidity, market mechanisms, and other criteria depth of the markets that will determine what's emerging what's frontier. But I think the broader sense that we focus on is really again around this notion of efficiency or lack thereof, and opportunities and markets in which we can get an edge through active management. And I would say the benefits of the inefficiencies and emerging markets are that much more magnified for frontier markets.

A lot of times the lines can be blurred and countries could go from one to the other and back. So we use the MSCI benchmark definition, so they have specific criteria on differentiating between what's in the emerging markets benchmark and what's in the dedicated frontier benchmark. So parameters around, for example, liquidity, market mechanisms, and other criteria depth of the markets that will determine what's emerging what's frontier. But I think the broader sense that we focus on is really again around this notion of efficiency or lack thereof, and opportunities and markets in which we can get an edge through active management. And I would say the benefits of the inefficiencies and emerging markets are that much more magnified for frontier markets.

But there are.

But there are.

Reviews icicles in which countries get upgraded to emerging markets or downgraded to frontier markets depending on how some of those market characteristics evolve.

Reviews icicles in which countries get upgraded to emerging markets or downgraded to frontier markets depending on how some of those market characteristics evolve.

So let's let's put some specific geographies to test. Where does China fall into this? Is it still emerging not quite developed? What about South Korea?

So let's let's put some specific geographies to test. Where does China fall into this? Is it still emerging not quite developed? What about South Korea?

That's a great question.

That's a great question.

So South Korea, for the MSCI definition, is emerging, is that it should be developed?

So South Korea, for the MSCI definition, is emerging, is that it should be developed?

I mean south guest.

I mean south guest.

If Japan is obviously a developed nation, is South Korea all that far behind Japan? In terms of their maturity of their markets.

If Japan is obviously a developed nation, is South Korea all that far behind Japan? In terms of their maturity of their markets.

So there's I guess there's two parameters there.

So there's I guess there's two parameters there.

So one is, you know, from the economic standpoint, if you look at economic characteristics and criteria, that's one layer within which to categorize countries between developed and emerging. The other is really around just how the equity markets function, the depth in terms of depth, liquidity market rules, and other criteria. That will then cause another layer of differentiation between emerging and developed and frontier.

So one is, you know, from the economic standpoint, if you look at economic characteristics and criteria, that's one layer within which to categorize countries between developed and emerging. The other is really around just how the equity markets function, the depth in terms of depth, liquidity market rules, and other criteria. That will then cause another layer of differentiation between emerging and developed and frontier.

So when I think about let's say the Middle East, you have Egypt, you have Saudi Arabia, you have Dubai and Qatar and the Emirates. Are these all still considered emerging?

So when I think about let's say the Middle East, you have Egypt, you have Saudi Arabia, you have Dubai and Qatar and the Emirates. Are these all still considered emerging?

Yes they are, So they're except Egypt, for example, would be categorized as frontier.

Yes they are, So they're except Egypt, for example, would be categorized as frontier.

Oh really yes, But Saudi is emerging right because.

Oh really yes, But Saudi is emerging right because.

You think again, you think Saudi is like a fairly develop I mean, granted, it's a kingdom and a lot of there's a lot of poverty as well, there's a lot of wealth there.

You think again, you think Saudi is like a fairly develop I mean, granted, it's a kingdom and a lot of there's a lot of poverty as well, there's a lot of wealth there.

Yeah.

Yeah.

So I think for us, the way we think about it for our emerging market strategy is we have the ability to invest across emerging and frontier markets, So.

So I think for us, the way we think about it for our emerging market strategy is we have the ability to invest across emerging and frontier markets, So.

It doesn't matter what we label them exactly.

It doesn't matter what we label them exactly.

We do have a limit on what percentage of the portfolio could be in what's classified as frontier, but ultimately we're looking across all of these markets. I mean, there's fifty plus countries in the emerging markets world that have listed equity markets, so that's a big pool to draw upon, and ultimately we're looking for the sixty stocks that we think have the best upside potential toake into account liquidity and other parameters of risk.

We do have a limit on what percentage of the portfolio could be in what's classified as frontier, but ultimately we're looking across all of these markets. I mean, there's fifty plus countries in the emerging markets world that have listed equity markets, so that's a big pool to draw upon, and ultimately we're looking for the sixty stocks that we think have the best upside potential toake into account liquidity and other parameters of risk.

So I was going to ask about the structural differences between emerging markets and front team markets, but it sounds like it's a pretty technical definition. So let me go to what you just referenced. In terms of selecting stocks. Do you approach that process from a top down country by country basis? Is it a bottom up analysis company by company or a little bit of both.

So I was going to ask about the structural differences between emerging markets and front team markets, but it sounds like it's a pretty technical definition. So let me go to what you just referenced. In terms of selecting stocks. Do you approach that process from a top down country by country basis? Is it a bottom up analysis company by company or a little bit of both.

So we're bottoms up investors at the end of the day, we're picking stocks. If you look at our sources of active risk, about fifty to sixty percent of that consistently is from idiosynchronic or stock specific drivers. That being said, and just to put that in context, country would contribute about ten to fifteen percent. That being said, neighborhood matters, particularly in emerging markets, and so we cannot disentangle top down considerations from our bottoms up analysis because as we determine what discount rate to discount the free casualows of specific company, we need to think about the risk premium of that country, how the sovereign yields are likely to unfold, what are the currency risks. As we think about the growth potential of a specific stock, we need to put that in the context of the growth potential of that country. And so these top down considerations are ultimately really critical to consider as we look at specific individual stock opportunities. So, like real estate, neighborhood matters, and it also helps determine where we lean into or out of in terms of where we place our focus. We want to make sure that we have an alignment of interest, particularly as minority shareholders. That alignment is not just relevant to the specific stocks in terms of the management teams and the equity holders or the majority shareholders of the companies we invest in. We also think about alignment at the country level. What is the government looking to achieve, how is that evolving, how is that changing? And our very simplistic criteria is to not get in the way. If there's a country where we think the economic direction is moving in the wrong direction and where there's not that alignment with what the government's looking to achieve, we don't need to be invested in that country. There's other places for us to fish.

So we're bottoms up investors at the end of the day, we're picking stocks. If you look at our sources of active risk, about fifty to sixty percent of that consistently is from idiosynchronic or stock specific drivers. That being said, and just to put that in context, country would contribute about ten to fifteen percent. That being said, neighborhood matters, particularly in emerging markets, and so we cannot disentangle top down considerations from our bottoms up analysis because as we determine what discount rate to discount the free casualows of specific company, we need to think about the risk premium of that country, how the sovereign yields are likely to unfold, what are the currency risks. As we think about the growth potential of a specific stock, we need to put that in the context of the growth potential of that country. And so these top down considerations are ultimately really critical to consider as we look at specific individual stock opportunities. So, like real estate, neighborhood matters, and it also helps determine where we lean into or out of in terms of where we place our focus. We want to make sure that we have an alignment of interest, particularly as minority shareholders. That alignment is not just relevant to the specific stocks in terms of the management teams and the equity holders or the majority shareholders of the companies we invest in. We also think about alignment at the country level. What is the government looking to achieve, how is that evolving, how is that changing? And our very simplistic criteria is to not get in the way. If there's a country where we think the economic direction is moving in the wrong direction and where there's not that alignment with what the government's looking to achieve, we don't need to be invested in that country. There's other places for us to fish.

So I look around the world and I think about the various hotspots. I mean, hold aside Russia, which is essentially become uninvestable. But Argentina and Venezuela went through their issues. In Turkey obviously has had some problems, and to say nothing of what's going on in the Middle East. Do you have to have boots on the ground. You have to actually go visit these countries and get a sense of, hey the headline are overblown or hey this could be potentially worse than we realize. How often are you traveling to different places to get a feel for risk factors there?

So I look around the world and I think about the various hotspots. I mean, hold aside Russia, which is essentially become uninvestable. But Argentina and Venezuela went through their issues. In Turkey obviously has had some problems, and to say nothing of what's going on in the Middle East. Do you have to have boots on the ground. You have to actually go visit these countries and get a sense of, hey the headline are overblown or hey this could be potentially worse than we realize. How often are you traveling to different places to get a feel for risk factors there?

Absolutely so we travel quite often. So our team.

Absolutely so we travel quite often. So our team.

Just to talk about our team structure, six of us have been working together, have moved from Alliance Burnstein to Ariel, and our team has been working together for over a decades, so no less than twelve years specifically, and throughout that time, even though we're based in New York, we understand the importance of visiting all the different countries were actively invested in, and so to that point, for example, last year, I spent in aggregate four weeks in China to really not only meet with the management teams of listed companies, but to meet with their competitors privately held and publicly held, To meet with local contacts, to meet with domestic investors, to meet with other key contacts and players, where you can get more insights by having a face to face conversation oftentimes than you may be able to get on Zoom or even via text. And even doing site visits right going to the malls, visiting real estate sites, going to the auto manufacturing plants, visiting battery plants, really gives you a more concrete sense of what is occurring and to your point, what is beneath the headlines and what the market could be missing really interesting.

Just to talk about our team structure, six of us have been working together, have moved from Alliance Burnstein to Ariel, and our team has been working together for over a decades, so no less than twelve years specifically, and throughout that time, even though we're based in New York, we understand the importance of visiting all the different countries were actively invested in, and so to that point, for example, last year, I spent in aggregate four weeks in China to really not only meet with the management teams of listed companies, but to meet with their competitors privately held and publicly held, To meet with local contacts, to meet with domestic investors, to meet with other key contacts and players, where you can get more insights by having a face to face conversation oftentimes than you may be able to get on Zoom or even via text. And even doing site visits right going to the malls, visiting real estate sites, going to the auto manufacturing plants, visiting battery plants, really gives you a more concrete sense of what is occurring and to your point, what is beneath the headlines and what the market could be missing really interesting.

You know, I haven't brought up China partly because it feels like China has become sort of uninvestable to outside companies because of their A shares and their foreign B shares. I'm curious, as a professional EM investor, how do you look at the opportunity and risks in China. Can we have a legitimate fair investment in China given the way things are structured, or how do you think about China?

You know, I haven't brought up China partly because it feels like China has become sort of uninvestable to outside companies because of their A shares and their foreign B shares. I'm curious, as a professional EM investor, how do you look at the opportunity and risks in China. Can we have a legitimate fair investment in China given the way things are structured, or how do you think about China?

So we think the opportunity in China today is meaningful largest country weight in our portfolio, it's about thirty percent of our portfolio today, and we think that the opportunities are very attractive. I think there's a couple of reasons for that. And by the way, we didn't always have such a large weight in China. For many years were underweight China, but we moved to an overweight position last year in large part because from a bottom up standpoint, we were seeing companies that started treating at single digit multiples so six to eight times forward pe, that can generate double digit earnings growth, and that are returning more capital to shareholders, that are actually improving their capital allocation for the first time in decades. That is not being reflected in valuations from a top down standpoint, even though the macroeconomic situation in China is challenged, we're not debating that. For us, we're less interested in the absolute level and more in the second derivative. So, for example, for the real estate sector. What is the directionality of inventories. There's still too much inventory, but is it going up or is it going down? And we're seeing evidence of inventories declining. Just as an example, new starts have declined over sixty five percent from the peak, So even though demand has declined, new starts has declined even further. In the latest data, we're saying for secondary prices and primary prices there's still a decline, but the level of decline is lower than it had been. So we think the evidence indicates that when looking at cycles, looking at that second derivative tends to be more correlated with how equity prices perform as opposed to focusing just on the absolute levels.

So we think the opportunity in China today is meaningful largest country weight in our portfolio, it's about thirty percent of our portfolio today, and we think that the opportunities are very attractive. I think there's a couple of reasons for that. And by the way, we didn't always have such a large weight in China. For many years were underweight China, but we moved to an overweight position last year in large part because from a bottom up standpoint, we were seeing companies that started treating at single digit multiples so six to eight times forward pe, that can generate double digit earnings growth, and that are returning more capital to shareholders, that are actually improving their capital allocation for the first time in decades. That is not being reflected in valuations from a top down standpoint, even though the macroeconomic situation in China is challenged, we're not debating that. For us, we're less interested in the absolute level and more in the second derivative. So, for example, for the real estate sector. What is the directionality of inventories. There's still too much inventory, but is it going up or is it going down? And we're seeing evidence of inventories declining. Just as an example, new starts have declined over sixty five percent from the peak, So even though demand has declined, new starts has declined even further. In the latest data, we're saying for secondary prices and primary prices there's still a decline, but the level of decline is lower than it had been. So we think the evidence indicates that when looking at cycles, looking at that second derivative tends to be more correlated with how equity prices perform as opposed to focusing just on the absolute levels.

Really interesting. You know, you mentioned you were underweight China for a while. When we look at the returns dating back to an't I want to say the early nineties hasn't really stinguished itself despite incredibly rapid economic growth, which really raises an interesting question. Do we invest in emerging market countries because their economies are growing, or do we invest in those countries because their companies are generating growth in profits at a rapid clip.

Really interesting. You know, you mentioned you were underweight China for a while. When we look at the returns dating back to an't I want to say the early nineties hasn't really stinguished itself despite incredibly rapid economic growth, which really raises an interesting question. Do we invest in emerging market countries because their economies are growing, or do we invest in those countries because their companies are generating growth in profits at a rapid clip.

I think that's a really critical point specifically with China. So, as you pointed out, if you look at the history over decades, despite very strong GDP growth, EPs growth lag that GDP growth, partly because of management decision making, equity issuance, and capital location decisions.

I think that's a really critical point specifically with China. So, as you pointed out, if you look at the history over decades, despite very strong GDP growth, EPs growth lag that GDP growth, partly because of management decision making, equity issuance, and capital location decisions.

We're starting to.

We're starting to.

See the reverse now happen, where GDP growth is slowing and it's never going to match what the GDP growth has been like for the last decades, and BPS growth is going to actually exceed that GDP growth because of some of the behaviors I mentioned of a steep exc toleration and share repurchases, more judicious use of capital exiting non core businesses, redeploying that in higher incremental returns generating ventures, and so the relationship between EPs growth and GDP growth in many cases there's a strong correlation, but in other cases you really need to pay attention to the company specific drivers for the EPs growth and free casual generation because that's ultimately what determines share price moves, not overal GDP growth.

See the reverse now happen, where GDP growth is slowing and it's never going to match what the GDP growth has been like for the last decades, and BPS growth is going to actually exceed that GDP growth because of some of the behaviors I mentioned of a steep exc toleration and share repurchases, more judicious use of capital exiting non core businesses, redeploying that in higher incremental returns generating ventures, and so the relationship between EPs growth and GDP growth in many cases there's a strong correlation, but in other cases you really need to pay attention to the company specific drivers for the EPs growth and free casual generation because that's ultimately what determines share price moves, not overal GDP growth.

Really fascinating, what about the risk I have a vivid recollection of a couple of years ago when some of the senior executives at big tech companies fell into disfavor from the let's be blunt, the Central Communist Planning Group and folks disappeared for a while. The head of ten Cent, the head of Ali Boba, the head of a couple of other companies just suddenly disappeared, or at least temporarily. How much of a risk is there when you're investing in China that you don't know what the Chinese government is going to do? And to be fair, hey, I have no idea what the American government's going to do either, but it seems to be a very specific risk that's foreign to American investors.

Really fascinating, what about the risk I have a vivid recollection of a couple of years ago when some of the senior executives at big tech companies fell into disfavor from the let's be blunt, the Central Communist Planning Group and folks disappeared for a while. The head of ten Cent, the head of Ali Boba, the head of a couple of other companies just suddenly disappeared, or at least temporarily. How much of a risk is there when you're investing in China that you don't know what the Chinese government is going to do? And to be fair, hey, I have no idea what the American government's going to do either, but it seems to be a very specific risk that's foreign to American investors.

Yeah, and I think that goes back to this idea of trying to understand the incentive structures of the government, having a view on what they're looking to achieve, and not getting in the way. So to use the example of the tech crackdown, and I'll extend that to also the education sector crackdown that preceded it. He Heeping had been I would argue pretty clear on some of the issues he had with private sector, with private education, with how tech companies had evolved and the role, the disproportionate role they were playing in the economy, and the relationship with merchants and ultimately some of the concerns around and common prosperity or that going against the common prosperity agenda. And so I think there was that tension already in place. It was a surprise about how the government decided to go about resolving that tension, but the tension was there. And so I would argue based on our framework of really trying to understand what are the problems the government's looking to solve and lead into the companies that could be solutions to those problems, as opposed to the companies they're viewed as obstacles to solving those problems. Is a way to reduce the resk. So you want regulatory intervention, You.

Yeah, and I think that goes back to this idea of trying to understand the incentive structures of the government, having a view on what they're looking to achieve, and not getting in the way. So to use the example of the tech crackdown, and I'll extend that to also the education sector crackdown that preceded it. He Heeping had been I would argue pretty clear on some of the issues he had with private sector, with private education, with how tech companies had evolved and the role, the disproportionate role they were playing in the economy, and the relationship with merchants and ultimately some of the concerns around and common prosperity or that going against the common prosperity agenda. And so I think there was that tension already in place. It was a surprise about how the government decided to go about resolving that tension, but the tension was there. And so I would argue based on our framework of really trying to understand what are the problems the government's looking to solve and lead into the companies that could be solutions to those problems, as opposed to the companies they're viewed as obstacles to solving those problems. Is a way to reduce the resk. So you want regulatory intervention, You.

Want to align your investments with things that the central planners are in favor with, and so when you're investing with a company that also has the backing of the government, you're much less likely to have those sort of kind of surprising one off risks that we saw a few years ago.

Want to align your investments with things that the central planners are in favor with, and so when you're investing with a company that also has the backing of the government, you're much less likely to have those sort of kind of surprising one off risks that we saw a few years ago.

Yeah, and I think just going to the big tech companies today, they are now proactively managing how they engage with merchants and making sure, for example, that the split of value is I would argue more favorable to merchants today than it was during the period of the crackdowns. There's also an element of making sure that the entrepreneurs are not outshining party officials. And so there's a lot of different elements that are being explicitly taken into account that one needs to be aware of as we think about again, what are those potential risk and pressure points, how do we mitigate them? And ultimately, we're looking to build a sixty stock portfolio across twenty plus different markets, So we don't have to be in all countries, and we certainly don't have to be in a whole sectors if we think that that misalignment exists.

Yeah, and I think just going to the big tech companies today, they are now proactively managing how they engage with merchants and making sure, for example, that the split of value is I would argue more favorable to merchants today than it was during the period of the crackdowns. There's also an element of making sure that the entrepreneurs are not outshining party officials. And so there's a lot of different elements that are being explicitly taken into account that one needs to be aware of as we think about again, what are those potential risk and pressure points, how do we mitigate them? And ultimately, we're looking to build a sixty stock portfolio across twenty plus different markets, So we don't have to be in all countries, and we certainly don't have to be in a whole sectors if we think that that misalignment exists.

So final question about this topic. Now, you know, pretty much the past decade, everybody lagged what the US did, and I've been hearing lots of people throwing the towels and saying, hey, if you can't beat them, join them. Is now the wrong time to capitulate? Is now the wrong time to give up on emerging markets? In frontiers? Tell us what opportunities are out there looking forward?

So final question about this topic. Now, you know, pretty much the past decade, everybody lagged what the US did, and I've been hearing lots of people throwing the towels and saying, hey, if you can't beat them, join them. Is now the wrong time to capitulate? Is now the wrong time to give up on emerging markets? In frontiers? Tell us what opportunities are out there looking forward?

Absolutely so, if you look at the history of EM equity performance relative to US equities performance, there's a clear pattern over the last couple of decades of very long cycles of outperformance and underperformance, and clearly we're in a very long cycle of over a decade of EM and quite frankly, anything outside of the US underperforming the US. The reason why I think now is the wrong time to capitulate is for a couple of reasons. One is, if you think about EM equity valuations versus the S and P, the EM index's trading at ten to eleven times forward PE, the S above twenty times, so the discounts from a price to book standpoint is over sixty percent price to earnings about forty percent discount. That's the widest discount we've seen ever. But key valuations are necessary, but not sufficient condition for an opportunity to be attractive.

Absolutely so, if you look at the history of EM equity performance relative to US equities performance, there's a clear pattern over the last couple of decades of very long cycles of outperformance and underperformance, and clearly we're in a very long cycle of over a decade of EM and quite frankly, anything outside of the US underperforming the US. The reason why I think now is the wrong time to capitulate is for a couple of reasons. One is, if you think about EM equity valuations versus the S and P, the EM index's trading at ten to eleven times forward PE, the S above twenty times, so the discounts from a price to book standpoint is over sixty percent price to earnings about forty percent discount. That's the widest discount we've seen ever. But key valuations are necessary, but not sufficient condition for an opportunity to be attractive.

Right.

Right.

You also want to see what is the catalyst to that valuation discount closing, and we see several of those catalysts and emerging markets. One is emerging market's earnings this year and for the next few years are expected to accelerate. EPs growth for some of the reasons I mentioned earlier is expected to accelerate and be higher than the arguably lofty EPs growth expectations. Out of the US, and that's written by nonway economic drivers, but also fundamental company specific drivers. I think the other standpoint you think about is in terms of flows, the US dollar is at close to twenty year highs in a period where the US deficit running at six percent arguably is going to widen at a period where rate policy is TBD. Our thesis is not premised on the US dollar massively weakening, but we think that there's increasing probabilities of dollar weakness given the starting point that we're in, and that from a flow standpoint, should be an additional upside driver to flows into emerging markets.

You also want to see what is the catalyst to that valuation discount closing, and we see several of those catalysts and emerging markets. One is emerging market's earnings this year and for the next few years are expected to accelerate. EPs growth for some of the reasons I mentioned earlier is expected to accelerate and be higher than the arguably lofty EPs growth expectations. Out of the US, and that's written by nonway economic drivers, but also fundamental company specific drivers. I think the other standpoint you think about is in terms of flows, the US dollar is at close to twenty year highs in a period where the US deficit running at six percent arguably is going to widen at a period where rate policy is TBD. Our thesis is not premised on the US dollar massively weakening, but we think that there's increasing probabilities of dollar weakness given the starting point that we're in, and that from a flow standpoint, should be an additional upside driver to flows into emerging markets.

Huh really really interesting. So after a decade at Alliance Bernstein, you land at Ariel about a year ago. Tell us what that transition was like from what's a giant investment house to something that's a little more of a boutique.

Huh really really interesting. So after a decade at Alliance Bernstein, you land at Ariel about a year ago. Tell us what that transition was like from what's a giant investment house to something that's a little more of a boutique.

Yeah. Absolutely, So Ariel was seeking to launch a dedicated emerging market equity strategy. Ariel has a forty plus year history of value investing in equity markets, starting in the small and mid cap segments in the US. The firm launched in international and global strategies about twelve years ago, and so emerging markets was actually a natural extension as Aerial focuses on investing in the less efficient parts of global capital markets, because you imagine US small cap is also relatively less efficient compared in the context of the US equity markets. Our team had an opportunity to join to help build the emerging markets business at Aerial, and this is really extremely exciting opportunities. I mentioned, our team has been working together for no less than a decade. We've had an investment process, an investment style that has been deployed for decades, and to me personally, it was really exciting to have the opportunity to be an entrepreneur and to really launch a new business with the backing of such an established and well respected platform like Ariel. And I had been following Ariel and John Rodgers and Melodie Hopson since my analyst days at JP Morgan, so I was particularly excited to join a firm just given the really strong track record and reputation.

Yeah. Absolutely, So Ariel was seeking to launch a dedicated emerging market equity strategy. Ariel has a forty plus year history of value investing in equity markets, starting in the small and mid cap segments in the US. The firm launched in international and global strategies about twelve years ago, and so emerging markets was actually a natural extension as Aerial focuses on investing in the less efficient parts of global capital markets, because you imagine US small cap is also relatively less efficient compared in the context of the US equity markets. Our team had an opportunity to join to help build the emerging markets business at Aerial, and this is really extremely exciting opportunities. I mentioned, our team has been working together for no less than a decade. We've had an investment process, an investment style that has been deployed for decades, and to me personally, it was really exciting to have the opportunity to be an entrepreneur and to really launch a new business with the backing of such an established and well respected platform like Ariel. And I had been following Ariel and John Rodgers and Melodie Hopson since my analyst days at JP Morgan, so I was particularly excited to join a firm just given the really strong track record and reputation.

One of the things I find interesting about Ariel is the insignia of the firm, which is a turtle holding a trophy, and like the sash says slow and steady wins the race. What does that say about their philosophy of investing and their emphasis on long term goals.

One of the things I find interesting about Ariel is the insignia of the firm, which is a turtle holding a trophy, and like the sash says slow and steady wins the race. What does that say about their philosophy of investing and their emphasis on long term goals.

Well, that's one of the many elements that made joining Ariel so incredibly attractive. First of all, in terms of their investment philosophy. It really is across all of the investment strategies at Ariel having a fundamental, bottoms up value oriented style that really thinks about the long term. So we're not looking to call quarters. We're really thinking about the longer term trajectory of a business and owning businesses that are treating at meaningful discounts to their intrinsic value. We're able to look at that longer term horizon and take advantage of market dislocations that often focus too much on short term noise as opposed to long term trajectory, and we take advantage of that discrepancy. But it not only reflects how they invest, it also reflects how Aerol thinks about building the business and growing the business. So we were strategy number four at Aerial. This firm started in the early eighties, so you could say that Aerial's adding a new strategy once a decade. That's very different than other firms, particularly larger asset management firms. Where there's often pressure to add more and more new strategies in a much more diversified fashion. And so I think the focus on value investing, the discipline to really just focus on expanding and adding strategies where it's a fit with the culture and the investment philosophy of the firm is really attractive. And for us as a new team, their longer term horizon is also attractive because they're thinking about emerging markets in the long haul. They're not saying, Okay, we need this to work after six months. They're thinking about building this business from a longer term horizon, which, again as a team, was extremely attractive for us.

Well, that's one of the many elements that made joining Ariel so incredibly attractive. First of all, in terms of their investment philosophy. It really is across all of the investment strategies at Ariel having a fundamental, bottoms up value oriented style that really thinks about the long term. So we're not looking to call quarters. We're really thinking about the longer term trajectory of a business and owning businesses that are treating at meaningful discounts to their intrinsic value. We're able to look at that longer term horizon and take advantage of market dislocations that often focus too much on short term noise as opposed to long term trajectory, and we take advantage of that discrepancy. But it not only reflects how they invest, it also reflects how Aerol thinks about building the business and growing the business. So we were strategy number four at Aerial. This firm started in the early eighties, so you could say that Aerial's adding a new strategy once a decade. That's very different than other firms, particularly larger asset management firms. Where there's often pressure to add more and more new strategies in a much more diversified fashion. And so I think the focus on value investing, the discipline to really just focus on expanding and adding strategies where it's a fit with the culture and the investment philosophy of the firm is really attractive. And for us as a new team, their longer term horizon is also attractive because they're thinking about emerging markets in the long haul. They're not saying, Okay, we need this to work after six months. They're thinking about building this business from a longer term horizon, which, again as a team, was extremely attractive for us.

If you go to the website today, it specifically says active patients. Yes, So a new strategy once a decade that seems fairly patient approach to investing. What was it like rolling out their fourth strategy.

If you go to the website today, it specifically says active patients. Yes, So a new strategy once a decade that seems fairly patient approach to investing. What was it like rolling out their fourth strategy.

It's been incredible.

It's been incredible.

I think going in, we clearly had high expectations going in, or else we wouldn't have made the move. But our experience there's been a lot of upside surprise to use the term of an investor, relative to the already higher original expectations. So it's been incredible. I think the port we've received from the organization has been phenomenal. And again I'm talking about from the you know, from the leadership on, you know on throughout the organization, because ultimately we are the fourth strategy.

I think going in, we clearly had high expectations going in, or else we wouldn't have made the move. But our experience there's been a lot of upside surprise to use the term of an investor, relative to the already higher original expectations. So it's been incredible. I think the port we've received from the organization has been phenomenal. And again I'm talking about from the you know, from the leadership on, you know on throughout the organization, because ultimately we are the fourth strategy.

We're not one of two hundred strategies.

We're not one of two hundred strategies.

And so what also made makes it a very exciting opportunity, and it really scratches my entrepreneurial itch, is that we are really able to have a meaningful impact on the firm. We're not a drop in the bucket. So if we succeed, which I know we will, we can really move the needle and that has a lot of impact and that does an incredible amount to increase level of motivation.

And so what also made makes it a very exciting opportunity, and it really scratches my entrepreneurial itch, is that we are really able to have a meaningful impact on the firm. We're not a drop in the bucket. So if we succeed, which I know we will, we can really move the needle and that has a lot of impact and that does an incredible amount to increase level of motivation.

One of the strategies that you guys manage is Emerging Markets Value X China. Tell us a little bit about that strategy.

One of the strategies that you guys manage is Emerging Markets Value X China. Tell us a little bit about that strategy.

Yes, So what's interesting is the impetus for launching that strategy, which we launched a month after our Emerging Markets Value strategy, was because several allocators indicated that they had an interest in an ex China strategy, not because they don't want to invest in China, but because they already have dedicated China allocations. China is a very large and an efficient market where allocators. Some allocators decide to invest in local managers and have dedicated China allocations.

Yes, So what's interesting is the impetus for launching that strategy, which we launched a month after our Emerging Markets Value strategy, was because several allocators indicated that they had an interest in an ex China strategy, not because they don't want to invest in China, but because they already have dedicated China allocations. China is a very large and an efficient market where allocators. Some allocators decide to invest in local managers and have dedicated China allocations.

So for those.

So for those.

Managers, some of them have decided, you know what, I want my global emerging markets equities manager to focus on everything else outside of China, to not necessarily double up my China exposure. But it is not to date, has not been a reflection of a desire to not invest in China.

Managers, some of them have decided, you know what, I want my global emerging markets equities manager to focus on everything else outside of China, to not necessarily double up my China exposure. But it is not to date, has not been a reflection of a desire to not invest in China.

So we've talked about lots of different parts of the world. The one area we haven't spoken about is India, which has had some pretty good, pretty robust performance over the past few years. Give us an update what's going on in India? How attractive is that? Has that gotten ahead of it it self? Share your thoughts on the subcontinent of India.

So we've talked about lots of different parts of the world. The one area we haven't spoken about is India, which has had some pretty good, pretty robust performance over the past few years. Give us an update what's going on in India? How attractive is that? Has that gotten ahead of it it self? Share your thoughts on the subcontinent of India.

Yeah, absolutely, So.

Yeah, absolutely, So.

India has been the standout outperformer within emerging markets, and I think that it's a market that will continue to have a strong economic growth outlook. That started with the rise to power of Modi, who implemented a number of reforms that really helped unlock economic growth. We see the growth being powered by infrastructure investments which will unleash some productivity improvement by consumer, by credit growth. So there's a lot to like with the India economic story. The challenge is that we think that's already priced in to the equity markets. So the market trade is above twenty times.

India has been the standout outperformer within emerging markets, and I think that it's a market that will continue to have a strong economic growth outlook. That started with the rise to power of Modi, who implemented a number of reforms that really helped unlock economic growth. We see the growth being powered by infrastructure investments which will unleash some productivity improvement by consumer, by credit growth. So there's a lot to like with the India economic story. The challenge is that we think that's already priced in to the equity markets. So the market trade is above twenty times.

For pees not cheap at all.

For pees not cheap at all.

We think it's price to perfection, and so for us as value investors, we prefer to invest in a market like Southeast Asia, which has similarly attractive economic growth six to seven percent real GDP growth over the next few years at a fraction of the multiple. You know, Vietnam and Philippines are training at tental eleven times.

We think it's price to perfection, and so for us as value investors, we prefer to invest in a market like Southeast Asia, which has similarly attractive economic growth six to seven percent real GDP growth over the next few years at a fraction of the multiple. You know, Vietnam and Philippines are training at tental eleven times.

For specifically, as so it's it's Vietnam, It's Philippines, Indonesia, uh huh.

For specifically, as so it's it's Vietnam, It's Philippines, Indonesia, uh huh.

Yeah.

Yeah.

And we think it's a really interesting time in the emerging markets universe because we think it's one of the few opportunities I've seen in the last few decades where you don't have to choose between.

And we think it's a really interesting time in the emerging markets universe because we think it's one of the few opportunities I've seen in the last few decades where you don't have to choose between.

Value and growth.

Value and growth.

You can get growth at extremely compelling valuations. India is not one of those markets in our opinion, but there are plenty of markets that fit that criteria.