Why Emerging Markets Are Finally Outperforming Developed Markets | Robert Koenigsberger | Gramercy

Why It Matters

The resurgence of EM debt and private‑credit provides investors with high‑return, lower‑volatility options, reshaping global diversification strategies as reliance on U.S. policy and dollar assets wanes.

Key Takeaways

• EM central banks acted faster than DM during post‑COVID inflation.
• EM assets now resemble DM in risk‑adjusted returns and diversification.
• Debt markets offer equity‑like returns with lower currency and volatility risk.
• Private credit in EM presents “gold‑rush” opportunities amid capital repatriation.
• US policy influence wanes; EM benefits from diversification away from dollar.

Summary

In this episode of Other People’s Money, Gramercy CIO Robert Koenigsberger explains why emerging markets have finally outperformed their developed‑market peers. He traces the evolution from a niche, crisis‑driven arena in the 1980s to a mature asset class that now mirrors many characteristics of traditional developed‑market investments, driven by proactive central‑bank policies and a fundamental repricing of relative value. Koenigsberger highlights several drivers of the recent rally: EM central banks moved decisively to curb inflation before many DM counterparts, a shift that restored confidence; a swing from fear‑driven outflows (2021‑25) to a new wave of FOMO, amplified by investors seeking diversification away from the U.S. dollar; and a split in last year’s returns, roughly half from local‑currency appreciation and half from credit‑rate gains. He also notes that EM debt, especially structured private‑credit deals, can deliver equity‑style returns with senior‑secured, dollar‑denominated collateral, offering a lower‑risk alternative to volatile equity exposure. Specific examples underscore the narrative: Mexico and Brazil acted ahead of the Fed in taming inflation, reinforcing the view that EM policy frameworks have matured. Local‑currency bonds outperformed, and private‑credit opportunities are likened to a gold‑rush, with smaller suppliers in the GCC and other regions needing financing as capital flows back after geopolitical shocks. Koenigsberger warns that while DM private‑credit faces liquidity mismatches and eroding standards, EM private‑credit remains insulated due to disciplined, institutional‑only structures. For investors, the takeaway is clear: emerging markets are no longer a peripheral, high‑risk satellite but a viable core component for diversification. Debt instruments can capture high double‑digit returns without the equity‑style volatility, and private‑credit offers a niche yet scalable avenue as capital seeks alternatives to the dollar‑centric DM landscape. This shift suggests a longer‑term rebalancing of global asset allocation toward EM fixed‑income and credit solutions.

Original Description

This episode is sponsored by Pictet Asset Management and its AI-enhanced equity ETFs.

Pictet AI Enhanced US Equity ETF (PQUS):

https://etf.am.pictet.com/pqus/?utm_campaign=usetf&cid=2826077237&utm_source=jfmv&utm_content=pquslp&utm_medium=podcast_02&utm_term=noterm

Pictet AI Enhanced International Equity ETF (PQNT):

https://etf.am.pictet.com/pqnt/?utm_campaign=usetf&cid=2715538577&utm_source=jfmv&utm_content=pqnt&utm_medium=podcast_02&utm_term=noterm

Emerging market outperformance is turning investors’ heads and in this episode of Other People’s Money, Robert Koenigsberger, CIO and founder of multi-billion dollar EM alternative asset manager Gramercy, explains why the macro environment has emerging markets looking more developed than some developed markets, particularly in how swiftly their central banks acted to combat inflation. He also explains how passive index investing can do damage to an emerging market portfolio and why the typical EM approach focusing on exposure is all wrong. Koenigsberger also dives into the structural advantages of emerging market private credit over its developed market counterparts, emphasizing the importance of local networks, senior secured collateral, and having a positive influence on corporate governance.

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Timestamps:

00:00 Intro

00:36 Pictet AI ETFs

01:54 How EM Investing Evolved

02:48 Why EMs Outperformed

04:08 Debt vs Equity Returns

06:09 Policy Convergence EM vs. DM

08:33 Diversifying Beyond Dollar

11:30 EM Private Credit

14:57 Pictet AI ETFs

16:32 Why Borrowers Choose Private

21:06 Defining EM Alpha

25:23 Index Construction Pitfalls

28:57 True Distress and Asymmetry

33:14 China Property Deep Value

35:15 Picking Winners at Five Cents

38:33 Sovereign Timing Checklist

40:07 Sanctions and “Uninvestibility”

43:37 Structuring Downside Control

44:58 Creditor Groups Collaboration

48:55 Restructuring Deal Template

50:23 Warrants Windfalls Risks

53:19 Governance in Private Credit

59:02 Underwriting People Networks

01:02:43 Hedging Without Shorting

01:05:49 Allocator Case for EM Credit

01:08:40 Liquidity Myths and Cycles