YouSaid · the spoken record

Tina Vandersteel

lines on the record: 76
first: 2022-01-21
most recent: 2022-01-21
sittings or episodes: 1
sources: podcast

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“And that simple choice turned out to be fatal for one and not the other. And so that was what led me to be interested in GMO. I thought, wow, gosh, these guys are smarter than those Nobel laureates. You know, they're very simplistic 20-year-old view of the thing.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, here is how I experienced it. So I'm a 20 something year old kid producing these relative value analytics, which is a lot of math, but not a lot of practical experience, right? I'm just a Wall Street strategist. And the salesperson who covered GMO also covered long-term capital. And he would say, oh, I need a trade sheet for this pairs trade that you're recommending. And I'm like, okay, well, who's it for? And the choice there was how it was going to be levered. And GMO used very conservative leverage because we cared about, well, they cared now, I care about default risk. And long-term capital would use a lot of leverage because they were trying to hedge market risk.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“There is one of each flavor, and believe you me, we make sure the documentation for whatever we're hedging is airtight with respect to whatever we're trying to hedge. So to take an interesting example from the 90s actually, when Russia defaulted and devalued the ruble, those who had hedged their ruble exposure in Chicago found out that that hedge was worthless because it was a non-deliverable currency and the Russians could just manipulate that market independent of the actual ruble spot exchange rate. So we are very careful to make sure whatever asset we own, however the fixing mechanism is for that lines up with our hedge. We don't want to have any basis risks.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“On top of that, if it's a corporate, it can have idiosyncratic corporate risk. And if it's a local currency bond, then it has interest rate risk. And up to two types of currency risk. So currency volatility risk, that's the one you see crawl across your Bloomberg screen. But currency convertibility risk is a very serious one. What if I take my foreign investors' dollars or euros or Swiss francs and I convert them into Argentine pesos, to take a recent example, and then Argentina says, I'm sorry you can't get them out at the official rate. You have to go to the parallel rate. And that's 100% depreciated from the official rate. These are serious risks, and we price each one of them independently and we take and hedge the risks that we don't think are priced appropriately.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So, local currency debt investing is a really fascinating one. It's, I'd say, the largest bundle of risks that we analyze. So when we think about positioning, it's always with respect to, well, what risk are we addressing? And it's any collection of credit risk, right? All of them have sovereign credit risk embedded within that there's the question of selective sovereign default. So a sovereign can choose, okay, I'm in a corner, I'm only going to default on my foreign currency debt, or I'm only going to default on my local currency debt, or I'm going to default on them all. And we've seen examples of both. In fact, our sovereign analyst just went to a fascinating conference at Georgetown this week about the possibility of selective domestic debt default. There's a whole very interesting topic.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“But are you going to buy or sell something based on those opinions in the presence of, by the way, very high transactions cost? The weighted average price bid offer of bonds in my market is $75 basis points. These aren't treasuries. So you better have a real sharp view and you better hope that that view obtains for period of time because otherwise you're going to cross that bid offer twice. So we really try to avoid that. I think we are not only the lowest turnover manager of any of the active managers. Our turnover is lower than the ETF. So we buy and hold arbitrage like positions”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, from an investment perspective, the value is generally low, right? I mean, we can all sit around and have opinions about things.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And now that I work at GMO, I find how unusual it is because people approach us and say, wow, what you've just described is totally different than what other people describe. And so what is it that we do differently? It's really this emphasis on relative value. So trying to find cheap securities, thinking about it from a long short perspective, and emphasizing that rather than emphasizing what most managers emphasize, which is the fun stuff to talk about, right? What do we think about Venezuela to your earlier point? Or what do we think about Brazil or what do we think about the Fed or any of these other very, very challenging questions to ask and answer? And it's not that we don't try, by the way. We have some extremely experienced people thinking about those questions, but we all collectively agree that”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would say that GMO takes a very unusual approach. And I knew that when I worked at JPMorgan, because as I think I said earlier, I did relative value arbitrage. And so as a strategist, the salespeople want to take you around and visit clients. And after a while, they realized that the big asset managers weren't interested in hearing my spiel if for no other reason than they were so big that the 10 by 10 million trade that I proposed was rounding error for them. So, the only people who are really interested in this were GMO and a small set of hedge funds, among them long-term capital, which is its own interesting, fascinating story.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So what do they care about? They care about value, diversification, and alpha. And so we describe in the paper, well, how do you determine if something represents value? How do you think about the spread you earn on a sovereign relative to losses you might experience or on a corporate? Or how do you think about currency risk in local currency denominated debt? So that's the value section. Diversification is how do these sub-asset classes present with respect to developed markets, if you think about a portfolio optimization, how does this new asset play with respect to your existing assets? And then finally, Alpha, which is the most fun space, the alpha in this asset class is very high. The median manager beats the benchmark. So it's a super inefficient asset class, and that's one of the reasons. But we really like it”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sure. I think every asset manager eventually has to produce something along these lines. It asks why emerging debt? Like what's the purpose of this thing? And so this was our shelf piece to describe to a hypothetical allocator what they should be on the lookout for. And I would say GMO takes a very, very standard traditional approach to thinking about an allocator's problem. If for no other reason than GMO is most famous for its AST allocation division headed by Ben Anker and founded by Jeremy Grantham. Sure.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“That is a fair statement. The way we think about corporate debt within EM is that the sovereigns are the very powerful agent. Doesn't matter if you're emerging or developed. The sovereigns are the powerful agent. And so the corporates are really a compound risk with respect to their sovereign. So a corporate in the US with rule of law and all of that and transparency is not that risky. But a corporate in Ghana where the assets are in Ghana subject to Ghana law doesn't matter if the bond is a US law bond in UK or in the US the assets are still in Ghana. So we think of them as a compound risk.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So taxonomy It varies so we distinguish between emerging countries and emerging markets. So classically the definition of emerging countries, which includes Frontier countries are those countries that are either low or middle income countries and therefore may run out of the money to pay you back or have defaulted in the past and have demonstrated that they are willing to default on you. So those are what we refer to as emerging countries. Emerging markets has much to more to do with the accessibility by foreigners into a market. Can you access the local market? What are the tax implications of being a foreigner in the local market? So for example, you might have a Ghanaian bond in dollars, which is from an emerging country, but it clears in euro clear, so it's a developed market emerging country bond, as opposed to its local currency bonds, which are emerging country emerging markets.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“What I mean by that is we work in default sensitive markets, right? Sure. Every year we get a default or two And usually the way that works out is the classic Hemingway way, which is how did you go? Bankrupt gradually and then suddenly, right? People refuse to roll over your debt at reasonable prices and then you either go to the IMF or you default or whatever it is Venezuela ran out of money in 2014 and continued to pull oil out of the ground and starve its population to pay foreign creditors for four more years. Crazy. So, you know, could we have predicted that they would have done that? Of course not. I don't think anyone would have predicted anyone would do something so insane.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, I would say in the way we invest and the way we approach emerging debt markets, we try to de-emphasize needing to know anything about the country. So my background is in relative value analysis, in arbitrage analysis, and it's kind of a widget way of looking at things. It's independent of whatever the country is or the company is or whatever that is. And what's nice about it is imagining that the same risk is priced differently in two markets and trying to arbitrage that difference of opinions for that same risk. That's a lucky thing to be able to do because otherwise you would have to have some knowledge or be able to come up with an opinion about places like Venezuela. And I would say that's very, very, very hard to do. I mean, Venezuela is an interesting case insofar as they did something that no other country has ever done”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“First draft of history, that's right. Financial markets where you get a price and the price has a lot of information content in it. So you don't really need to hear about market color or interpretations. You just have to witness the price.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“So I took away from that article that you know what? It's very rare, especially if you think about news. News is happening real time and what's the old adage. We don't even know the genesis of the French Revolution. So how could you expect that anybody in real time has the correct interpretation about anything? So, you're better off, I think, just not reading most things.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Yes, I definitely discount it. There's a wonderful article by Michael Crichton called Why Speculate. And in it, it talks about this idea, and he's probably not the only person who's thought about this or talked about this idea of gel man amnesia. So imagine that you're an expert in your field and you open up today's newspaper, whatever it is. You read something online and you realize that what's being written there is completely false. Absolutely. You know firsthand that what's written there is just wrong. And then you turn the paper, you turn the page, and you read the next article, and you've completely forgotten what you've just experienced, right? So the next article is about something you don't really know anything about, and you just trust the source.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“There is a very vibrant press in Brazil. There were five daily newspapers worth reading. There were two weekly magazines that were also worth reading. And of course they only brought you the most pessimistic version of anything that was happening. Cardoso, he was going to fail and inflation was going to come back. It was just this constant parade of bad news that may sound familiar. That's true everywhere, right? The internet makes it worse, but it's true everywhere. And the only exception that I've found to that is briefly we had a fellow who worked for us who eventually he was Chinese and he eventually moved back to China, unfortunately, so we didn't necessarily had to move on. But he was super optimistic about China. And I thought to myself, well, maybe that's really related to the fact that press freedom in China is poor”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, one thing I can say, and I've only lived in Brazil as an emerging market, is that the locals are the most pessimistic. I've often wondered why is that the case? And I have a theory, and the theory is part of my journalism background, which is I remember back in journalism school, we used to say, if it bleeds, it leads. Fire rape incest film at 11, right? So whatever was the most tragic, the most awful thing, that was what you were going to learn about. Now this is the 19th.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“And some people are probably aware that Brazil has a very unusual interest rate compounding system. So whereas we here in the US use simple interest because inflation interest rates are low. In Brazil, they use daily compounded interest because their history is that inflation is very high. There's a very sophisticated financial system there. I'm not surprised at all.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, it's been several locations actually since then at the time that I moved there, this center was actually in Centro, like the actual center of the city, but had already moved to Avenida Paulista. And since I moved has now moved to a new section of S ⁇ o Paulo called Sari Alima. And I think it was pretty clear if you got to know any of the Brazilians at that time, many of them are very famous even today for Adam and Fraga and a whole bunch of people, they're very, very smart people. If you think about how crazy hyperinflation is and the uncertainties of investing in hyperinflation, these people were crack. I mean, to give you a sense, if I wrote a check in Sao Paulo, it cleared the next day, where back in the US it would be several days, and that was because inflation was very high.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“The whole constitutional reform effort, which is actually still ongoing today. And all of the votes that went on in Congress were super important to the future of the country. So I would get to know the Congressmen, figure out which way the vote was going to go, fly back to Sao Paulo, get on the Hoot and Holler, tell JP Morgan's worldwide clients how that was going to go. And at the time, I guess that was really the origins of sales color, which is something I don't read these days, but at the time, I guess I was in charge of producing sales color, which I think is pretty funny.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Sao Paulo was amazing. If I had been the kind of journalist that Michael Lewis was, I would have written a whole book just about that experience. I mean, if you think about it, it's 1995, so Plan Areal, Fernando Hicicardo was elected president. He introduces Plan Ajal, which he had devised when he was finance minister. It ended hyperinflation, introduced the new currency that is still the currency to this day, which is quite an achievement for Brazil. And as an employee of JPMorgan, they gave you just a crazy amount of power. So I'm in my mid-20s. My job at the time, my name job was to be a strategist, which I didn't really know what a strategist was, but apparently what it meant was I would take my little vice president card and I would travel up to Brasilia and I would get to know the congressman because this was during”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Couple of them to Goldman and JP Morgan and landed a job with both, but my dad convinced me I should definitely take the JPMorgan job. The lesser earnings, notwithstanding, he said the culture would be more of a fit for somebody like me. And so that's how I got there.”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source
“Well, that one is an easy one. My dad set my expectations early in life that he would pay for my existence through undergraduate or 21 years old, whichever came first. So I graduated at 20 and I figured that a path in economics had higher lifetime earnings potential. And I wanted to live in New York City. So I chose that path. Of course, at the time, if you think about emerging debt, This is 1990, so the fall of communism. We had just finished an economic studying Nanker Olson's famous comparative economic systems. So now is here a chance to really get to know some of the countries that we had been studying. And my economics professors had said, listen, you get kind of a free MBA if you join any of the Wall Street banks and go through their training program. And free sounded like a good thing. So I applied to...”
2022-01-21 · Masters in Business · Tina Vandersteel on Emerging-Country Debt (Podcast) · IDENTIFIED FROM THE TRANSCRIPT · source