From US Dominance to Global Dispersion: Nick Rohatyn on the New EM Cycle

Nick Rohatyn is the founder and CEO of The Rohatyn Group, and one of the architects of emerging markets as a modern asset class. Having built JP Morgan’s emerging markets business from an eight-person desk into a 600-person global platform, Nick has spent more than four decades investing across cycles, crises, and continents. In this return episode, he reflects on why emerging markets may finally be entering a new phase after more than a decade of underperformance, and why dispersion, not beta, will define returns going forward.

In this episode we cover:

• (00:00:00) Nick’s journey into emerging markets
   From JP Morgan’s early derivatives desks and a formative stint in Tokyo to discovering emerging markets through Mexico’s debt restructuring and the Brady Plan, and why solving large systemic problems can be both profitable and meaningful.
• (00:08:40) The three phases of emerging markets as an asset class
   Strong outperformance from 2002–2011, a brutal 13-year underperformance driven by US exceptionalism, and why 2025 may mark the start of a new cycle as capital slowly diversifies away from the US.
• (00:14:59) Push and pull factors reshaping global capital flows
   How US political uncertainty, dollar dynamics, and eroding assumptions about American exceptionalism are pushing allocators outward, while policy shifts, trade realignment, and regional themes are beginning to pull capital into select emerging markets.
• (00:21:49) Why benchmarks fail and why multi-asset EM investing matters
   How MSCI and debt benchmarks distort exposure, why single-asset mandates perform poorly in emerging markets, and why the future lies in flexible, multi-asset strategies that move across equities, debt, currencies, and private markets.
• (00:34:48) Extreme dispersion as the defining opportunity
   Why countries like Korea and Turkey can diverge wildly in the same year, how geopolitics, interest rates, and underinvestment amplify volatility, and why skilled active managers can thrive in this environment.
• (00:25:32) Private credit, local capital, and development
   Why underpenetrated credit markets in Latin America and parts of Africa offer compelling opportunities, how domestic pension systems are becoming critical sources of capital, and why local-currency investing changes the game.
• (00:43:01) Doing well by doing good at scale
   Rohatyn Group’s work in sustainable forestry and agriculture, why real assets matter for climate and food security, and Nick’s advice to young professionals seeking careers that combine finance, impact, and global relevance.

Find us on Apple, Spotify, Amazon, and Youtube.

Transcript

00:00:00 Nicholas Lall: Welcome to the Insead Emerging Markets Podcast. I'm your host, Nick Lall, and I'm joined today by a guest that I am very excited to welcome back, Nick wrote and founder and CEO of The Rohatyn Group. The first podcast that he joined us on a couple of years ago has been one of the most popular conversations we've had on this podcast, and a lot has changed since then, so I'm sure there will be quite a bit of interesting stuff to talk about.

00:00:21 Nicolas Rohatyn: Yeah, it's been an interesting two years, Nick. I looked at, I think it was June of twenty three, right, that we had our conversation.

00:00:27 Nicholas Lall: Right. I think that's right. I can't believe it's been that long that we've even been doing this podcast. But you had a lot of ideas. Then they turned out, I think, largely to be the right ideas about where things were going. but before we get into those predictions and where you think emerging markets are going right now, maybe we could just go back. For those who may not have listened to the first episode, would be great if you could give a quick overview of who you are and what the routing group does, and how you came personally to devote your career to emerging markets.

00:00:56 Nicolas Rohatyn: Sure, sure. And yeah, as I listened to the first one, that was the first question too. So I'll try to get to answer slightly differently so that if you put the two together, you get a fulsome picture. I was born in New York City, born and raised here of to a half. French parents went to bilingual school here before going to high school and then university. And as a result, I've always been interested in sort of all things internationals coming out of university. I joined JP Morgan. Back then it was called Morgan Guaranty Trust Company. It was a bank and they had a a training program that was a sort of highly academic training program. I'm sure some professors from Insead have probably taught in that training program through the years. I spent the first couple of years here in New York working on one of two PCs in the entire building back then with floppy disks, and my job was to try to code and do a simulation of currency swap exposures, since we had no idea what currency swaps really were. And it was just at the moment. This is nineteen eighty two when derivatives started to show up, or at least this form of derivatives, interest rate swaps and currency swaps. I was in New York for two years in a capital markets function doing this capital markets analysis, if you will. And then they sent me to Tokyo. It was a big shock to be asked to go to Tokyo. I was reluctant for about twenty four hours. And then I realized, you know, I'm twenty four. I need to get out of my comfort zone. I'd never been to Asia. So I picked up and I got on a fourteen hour flight with seats that didn't go back all the way on Japan Airlines, which at the time was the sort of the equivalent of Emirates today and landed in Japan in eighty four. We were building our business there. I spent four fantastic years in Tokyo and traveling around Asia and building big capital markets and trading business in Japan for JP Morgan. And then out of the blue, I noticed a transaction JP Morgan did in Mexico in nineteen eighty eight. They were called the Morgan Mexico Bonds. It was the first voluntary loan for debt exchange ever done. And it was the predecessor really in architectural terms, for the Brady Plan. And when I saw that Nick kind of the penny dropped for me, that first of all, in emerging markets there are profound problems. Number one. Number two, those are spread over a large number of countries and a large amount of money. And therefore, number three, if you solve large problems affecting large amounts of money, A you will be doing something good for the world and B you'll be doing something profitable. And that's how the penny dropped for me about emerging markets and ever since, really since nineteen eighty eight, since that summer of eighty eight, I came back in July, I have been devoted to emerging markets. I love the topic. I love traveling around the world. I love different languages, different music, different cultures. And doing that through business is a fantastic way to learn about the world. I forgot the my firm. Yes, that was your next question, I assume. So I built at JP Morgan. I built I took over in nineteen eighty eight, a very small group, eight people. They were trading defaulted loans. You know, JP Morgan had syndicated a lot of these loans. We knew who owned what. So it was a natural. There were about eight or nine firms that did this. But as it was the advent of the Brady Plan, all of a sudden the business transformed into a proper capital markets, enterprise underwriting, sales trading, research, derivatives, proprietary trading, you name it. Look like a proper fixed income business mostly. And that happened over the next number of years. And with that, my bosses at JP let me grow that group from eight people to a group of about six hundred people by nineteen ninety five. It was a very big business, and it was a big industry, and we helped form the industry in that. We started also the trade association that represented the industry. It's called the Emerging Market Trade Association. And that trade association, of which I was the chairman for the first few years, promulgated standards, codes of conduct, standard documentation, sort of, you name it, a transparency about volumes, everything that you need in order to grow an industry. And our thesis then was we need to grow the pie. Let's not be penny wise and pound foolish here at JP about trying to take a bigger slice of a smaller pie. Let's let's have the pie grow and participate in that activity. And from there I then went on and, and those six hundred people that I had were in fifteen countries around the world. So fast forward to two thousand and one. By then I had been managing other areas at JP, but most importantly, in nineteen ninety nine, we merged with Chase Manhattan Bank. And as is often the case in mergers, the amount of overlap is enormous. And so it really afforded me the opportunity to step back and say, you know what, I want to go back to the one thing that I love, which is emerging markets. I'm going to go and try to be entrepreneurial. You know, a lot of people in big firms think they are entrepreneurial in a big firm because they're building a business there. But the truth is, being entrepreneurial in the real world is a lot harder. And I wanted to give it a try. So I left in two thousand and one, started this firm in two thousand and two, launched our first fund in two thousand and three. And I brought, obviously, as you would expect, many of the learnings from my experience at JP. My nineteen years there, building out this emerging markets effort into thinking about how to build a buy side firm for emerging markets.

00:07:43 Nicholas Lall: yeah, thanks for that. And I really enjoyed the overview of the firm and how you got it last time. And if anyone didn't listen to it, definitely go back and check it out because it was quite an interesting story, how Nick started from scratch and really grew it into what it is. And I guess this time I might be interested in learning a little bit more about your thoughts on emerging markets as an asset class, the asset class of emerging markets. You've been there pretty much from the beginning when they first really were defined as a separate class to invest in and know that you have played a very big role in the asset class. So I know that you've spoken a lot about different phases that emerging markets have gone through in that time. We've gone through sort of a bear run for the last fifteen years or so, and it seems that we may be hitting a turning point today. So would love if you could just maybe break down phases that you've seen in your journey in emerging markets where they have been over the past several years and where they may be going today.

00:08:40 Nicolas Rohatyn: Sure. And yeah, you're right. It's we did not quite have the straight line up that I was kind of banking on when I started this firm in, in oh two. Nick. But certainly the first eight or nine years emerging markets performed very, very well. So call it two thousand and two to twenty eleven. Emerging markets was doing well. The dollar was weak, China was emerging. Lots of flow coming into emerging markets and emerging markets outperformed. If you look at the equity benchmark, for instance, by about one thousand basis points a year for those ten eleven years. But then twenty eleven call it to to just the end of last year. So thirteen full years emerging markets underperformed. And that really came from the outperformance of the US, if you will. So much capital came to the US on the back of legitimate innovation in the US on the back of lower interest rates and a secular bull market in rates on the back of a stronger dollar, you name it. And so E.M. has had a very, very hard time of it since twenty eleven as, as you point out, underperformance by roughly the same amount as actually about eight hundred basis points for thirteen years And now the question is having had a very good year so far in twenty twenty five where emerging markets has outperformed, there's a legitimate question of okay where does that leave us. And are we now at a third phase of emerging market performance. Is this a trend or was this just a blip, if you will? And I think there are some pretty good reasons to think that this is a trend. If you look back at twenty twenty five, at the beginning of the year, I would say most global allocators were patting themselves on the back to congratulate themselves for having an eighty percent exposure to the US and an overweight in virtually every category to the US, that private equity, private credit, global equities, you name it, everybody. I would say universally was had a high concentration in the US. And then along comes Liberation Day, which was only one of several things that happened and continue to happen during the year, all of which have served, frankly, to undermine faith in some of the most basic tenets of American exceptionalism and of why capital came here. Not all of the tenants, you know, the the the economy is still incredibly vibrant and dynamic. Our system works. ET cetera. ET cetera. But when you have fiscal policy making, when you have judiciary under attack, free press under attack, it starts to look a lot different for international investors. It may not look. It'll look different for domestic investors, too. But domestic investors are domestic investors. International investors have more of a choice. And so during the course of this year, you've seen, first of all, this push element of not not capital flowing out of the US in some massive way, because that's clearly not the case. But at the margin, the allocations are looking more diversified and more international. At the margin, there is hedging of currencies and a slightly weaker dollar has helped the argument. But it's been interesting to note that in the second half of the year where the dollar has stabilized, emerging market equities have continued to outperform and keep their torrid pace. So we have the push element. Now. We have to see some of the pull elements starting to show up in a bigger way. And that will be things like policy adjustments in different countries, rearranging trade trade arrangements, intra region changing tax regimes to make investment more attractive in different countries. And these are starting to happen, but it's been mostly pushed. It's going to need to be pulled to go the rest of the way. I would say number one and number two, we have had a big beta trade in twenty twenty five, right? You didn't have to think too much in equities to do well. M equities globally were up thirty percent this year. Now valuations are at the high end for sure for M equities among other things. I wouldn't say the same about currencies but equities yes. And what it points out to me is that for investors, they have to start thinking much more aggressively about idiosyncratic active management. Picking your spots. And the good news is there are a lot of spots in emerging markets, right. We represent emerging markets, represents most of the globe, a huge number of countries, each country with its own equity market, local debt market, hard currency debt market, each country with its own story and point of evolution. So there are a lot of spots to pick from. There's all kinds of money still to be made in emerging markets, but now you have to know a little bit more about exactly where to look and how to deploy.

00:14:38 Nicholas Lall: Super interesting and definitely is an exciting time for emerging markets. You spoke more about some of the push factors that are US political issues and the dollar stabilizing. I'm wondering on the pull side, if you're seeing anything from these emerging markets that gives you hope, that makes you think that this could be sustainable and secular long term trend.

00:14:59 Nicolas Rohatyn: Yeah. Look, I think I come back to these these pull factors. This was such a shock for the for the world that now you do have countries adjusting their policy to the reality of a less dominant us on every dimension, frankly. And in some areas, let's take Latin America, potentially a more dominant US or a more engaged us. So everybody is adjusting, right. And. The shift towards more business friendly policies, for instance, in Latin America, with a schedule of elections next year that are all sort of tipping rightward, if you will, and Latin America are now being clearly in the sphere of influence notion of this administration, their willingness to back people like President Miller in Argentina. Those are some of the pull factors that will continue, I think, to to evolve. Secondly. Excuse me, China being back sort of in the middle of this seesaw, now having been the darling, then the ostracized one, and now somewhere in the middle as an economy, as a an investment destination, if you will. This is healthy for emerging markets, right? It is healthy for China to be back as part of the equation. You can like it or not. You can invest in it or not. You can decide that it's a trade and not an investment. You can't ignore it one way or another and it does play a part. So a functioning and engaged economic engine that is China is going to help India, of course the same. So you see more and more that countries are making these adjustments. And I think that is going to allow this trend to continue. But I think there's a there's a big issue that investors will be looking at when they think at the end of this year, they'll look back on this year and they'll say, oh, I was underexposed to emerging markets and that's why I underperformed. Now what should I do? Right. In the past, they would have said I was underexposed to emerging markets, thank God. It would have given me diversification, but it wouldn't have given me any return in twenty twenty five. You definitely got diversification and you got return. So now I have to look at it, because I have to explain to people that I was underexposed and they're going to say, well, what are you going to do about that now? And when investors start to think about that, they are going to see as they look at, for instance, the equity markets in emerging markets, that simply taking a typical developed market approach to emerging markets, for instance, in equities to say, look, I'm going to I'm going to invest in a global fund of some sort. That's an emerging market equity fund. It's global. It's got a benchmark which is the MSCI. And that's how I'm going to get my exposure to emerging markets. Well seventy seven percent of that index is for four countries. So you're not getting exposure to emerging markets. You're getting exposure to North Asia, basically. And similarly, if you look at local currency debt or hard currency debt, those benchmarks have flaws as well. So I think this and I think this is true, by the way, in private markets too. The the imposition of a developed market mentality and methodology for investing in emerging markets yields you, I think, very poor results, generally speaking, because of this structural problems in the markets and in the benchmarks themselves. So and I would distinguish it as vertical investing versus call it a horizontal investing or single asset class versus multi asset class. That's probably the more descriptive way of thinking about it. And in public markets, what it means is there are going to be opportunities in each country depending on its investment cycle. Where it is, is it a high inflation? Is it low inflation? Is it an environment that should be good for equities or better for fixed income or what have you, where you can with some confidence, say, I think for Brazil today local rates is the best asset class for Argentina today. There are big questions but. Probably hard currency bonds would be your bet because the US is backing it. In other countries. You can pick one of the three if you will, and there will be for sure countries where equities are the best asset class. And if you look at the dispersion across countries and then the dispersion across time, and then the dispersion across asset classes within country, across time, it's just enormous. And that creates a great opportunity for somebody who can be nimble enough to jump from currencies to equities to fixed income and back across multiple countries. It's very hard for an investment committee to do that. But I'm convinced it's the best way to invest in emerging markets if you can do it. And it's not that we have that methodology in place today. I would love to eventually. I'm sure we will. But right now, multi-asset class investing is a very, very small part of the universe of investment management in in emerging markets and in the world. So in developed markets, you can get multi-asset class funds that have one hundred billion dollars under management. The biggest one in emerging markets, in public markets has about eight hundred million dollars under management. And you can say the same thing on the private market side as well.

00:21:32 Nicholas Lall: So what would you say is needed? Is it just more funds? I mean, a lot of institutions, as you mentioned, are definitely constrained by benchmarks and governance frameworks. So how could they practically introduce multi-asset m exposure without blowing up their benchmarks?

00:21:49 Nicolas Rohatyn: Yeah, you're asking the right question. I think somebody some brave souls will need to venture out into this landscape and show over the next two, three, five years that this is a way to build a strategy that has exposure to the upside of emerging markets, but can be more defensive in the in the down years. And within that, I think for our industry, we are going to need to see some consolidation of the emerging market asset manager landscape because it's still as big a market as it is. It still looks small relative to developed markets. So the big guys, they are never going to focus on emerging markets because it just doesn't cut it in terms of scale. But our market buy now because of thirteen years of underperformance is so fragmented and so small that we don't have the medium sized players. I'm not talking about us. I'm talking about medium size should be twice as big as we are or three times, you know, fifteen, twenty, twenty five billion under management who can accept a billion dollar allocation from somebody that is the universe that needs to be created inside of emerging markets.

00:23:09 Nicholas Lall: Definitely makes a lot of sense. Going back to the returns we talked about, I think part of the story there is that valuations have rerated towards around fourteen x earnings. I was wondering if you think that's sustainable. Could it stall out. Any thoughts there would be really appreciated.

00:23:23 Nicolas Rohatyn: Well, as I said, I think we are at the expense of end of things, right? So on a beta basis. But again, if you look within countries, if you look at single companies, you can find plenty of value in emerging markets. You know, one theme that we have consistently looked at is, for instance, technology in emerging markets. You know, people don't realize that we have decent sized countries in our universe, right? Indonesia is a couple hundred million people. Egypt is one hundred million people. I don't even let alone the India. Right. But the big guys in technology, be it Amazon, be it PayPal, be it a lot of these kind of companies are not paying attention to emerging markets because they'd rather get bigger and faster in the big markets. So entrepreneurs in these markets are building out similar entities that can gain a fair amount of scale. Eventually to be consolidated into the big guys. But this notion of frontier technology, if you will, is definitely there in emerging markets. And you can go all the way back to, you know, the sheep herder in Africa getting his mobile phone so he would understand when to take his sheep or cows to the market. As an example of technology helping some of these countries leapfrog in their own development.

00:25:02 Nicholas Lall: Definitely. I think a lot of places like Brazil or India or elsewhere in Asia, you see the digital infrastructure in these places. And it does give a lot of hope and excitement and makes you feel that there are fundamentals in these countries that are sustainable. another area that I guess we've seen globally, but especially in emerging markets, is private credit. It seems to be especially booming in these emerging market countries. So I was wondering if you have any thoughts on it and what could be driving it where you're seeing the fastest growth in private credit today?

00:25:32 Nicolas Rohatyn: Yeah. Look what's driving it is very simple. It's under penetration of credit in these economies. If you look at the US, I think the loan to GDP ratio of the United States is something like two hundred percent. Argentina is nine percent. She lays one hundred percent. Brazil is, I think sixty percent. So the the level of credit penetration in these countries is low. The banking systems, generally speaking they exist, but they're kind of plain vanilla commercial banking systems. So they are not used to longer dated loans, structured loans, that sort of thing. And so there's all kinds of room for people to deploy into that need, whether it's as a direct loan to a small or medium sized enterprise, whether it's backing a non-bank financial company, like a payday lender, for instance. These specialty lenders are popping up all over Latin America. There's all kinds of opportunities there. And the returns can be quite attractive. The. It is a little bit it's quite a bit region specific. So Latin America huge under penetration attractive returns Africa huge under penetration. Less attractive returns. And that is because the development finance institutions are subsidizing credit in Africa. You can argue as they should Okay, I'm not saying it's a bad thing for Africa, but it's it doesn't encourage commercial investors. Let's put it that way. And then Asia has much more credit penetration in general. So it's more competitive. Rates are lower. There are still things to be done there, but it tends to be more in the structured area or the special situations area. Now contrast that with what was what has been happening in the US for the last call it four or five, six years, which is this absolute usher of private credit that is basically going into investment companies to take loans off of banks. Right. This is basically what's going on. Yes, there is direct lending. There is other stuff. But basically the regulators are imposing these capital ratios on banks. They're not imposing them on the investment firms. And so there is this partnership that has been formed at the industry level. Banks source. Private investors invest. Everybody's happy. And the US is an enormous credit market. So you had the floodgates opening a few years ago to the point where people were raising individual thirty, thirty five billion dollars private credit funds here in the US. Inevitably, the supply has met. Demand standards, of course, will be lowered and there will be wobbles. I'm not suggesting there is a gigantic problem in this industry. Just there will be wobbles and there are wobbles, as we've seen with with a few names. And so now you do start to see and all of this flood into the US with good returns. That was a problem for emerging market private credit, right? Because even if you could generate fourteen fifteen percent in Latin America, that wasn't that much higher than what you were generating in the US. And people definitely want a premium for emerging market private credit. Today, you are starting to see definitely a drift into private credit from some of these international investors and and a more acute interest in emerging markets. But the other thing, Nick, and I think this is a very important development in, in a way, in, in a globalizing world to a certain extent, is there is also a deglobalization of investors. And by that I mean, you see more and more domestic pension fund systems, sovereign wealth funds, insurance systems, what have you growing quickly by regulatory fiat or by commercial necessity. But more and more domestic capital, more and more of which is being directed to domestic investment like domestic private credit or domestic private equity. And so today we are seeing much more interest by these local pension fund systems in deploying private credit into their local economies, which I think is terrific, right. It's one thing is that they do it in local currency, so that risk is eliminated and the cost of hedging that risk is eliminated. And obviously it's a good thing in the development of these countries.

00:30:49 Nicholas Lall: Absolutely. I think as we spoke a lot about last time, and I know that you are really driven by this. There is the aspect of doing good and doing well by investing in emerging markets, and there's certainly a lot of opportunity in these places, but pretty much by definition, by investing in emerging markets, you were also helping the countries develop. And I suppose this is just one other arm of that strategy, maybe going to some specific countries and what you see happening in them. You've talked about the impacts of what's happening in the US and how it's helped make emerging markets a more attractive asset class. I was wondering if you see any US political issues that may be impacting the returns that we see in particular markets, rather than emerging markets in general? For example, Nearshoring has been really big in Mexico. They've clearly been a winner because of that strategy. but do you see that continuing if US politics shift or are there any other issues like that that may or may not be dependent on US political policy?

00:31:52 Nicolas Rohatyn: the spectrum is broad for what's going on in different countries and what themes therefore are going to stick. Nearshoring is based on a solid fundamental rationale right around cost. Cost of labor. Other costs of putting up businesses versus proximity to markets. So I don't think that logic is going away. So nearshoring will remain a theme. Things like energy transition will remain a theme, especially with the energy needs that AI and data centers are creating around the world. Private credit, as you said, remains a theme. And to the single country narratives, Nick, the way I tend to think of it is we are generally watching the same movie. We're just coming into the theater at a different point in the story per country, right? So maybe Argentina is like the the opening of a James Bond movie, right? Where you have the crazy action for a little while and, and then you get to a point where now things start to settle out and we get into the next phase of the story. Argentina. Mexico is in a different place. Brazil is in a different place. But I don't really think of, hey, I like this country versus I don't like that country. It is more where does what's happening in that country intersect with themes that make sense overall? Is the southern cone of South America a logical place for energy, for instance? Is Central America, Panama, Costa Rica, etc.? You know, we have a forestry and agriculture business, right? Is that a logical place for certain types of forestry and agriculture activities and why? So it's not so much oh, do I love Panama? Do I love Costa Rica? It's how does that fit with these themes? Eaves, and if so, is there something we can do there? So that's how I tend to think about it.

00:34:16 Nicholas Lall: Sure. maybe just a quick follow up on that. Given that, as you said, there are general themes, at the same time as there being local issues, your team highlighted to me before our call that one of the things that you're looking at is that there is an extraordinary dispersion within emerging markets right now across sectors, asset classes and countries. so, I was wondering if you could talk a little bit more about that. Why is that dispersion so high right now. and maybe it would be helpful to understand it if you could give some examples of where we are seeing that huge gap.

00:34:48 Nicolas Rohatyn: Let's talk global equities for a second. Korea is up eighty percent. Turkey is down seven percent okay. These are both considered emerging market countries Korea obviously benefiting from all things technology. Turkey obviously a very complicated place. And next year I'm not I would not think that Turkey will be up eighty percent in Korea will be down seven. But I'm pretty confident that the difference between these two countries next year in terms of equity performance is going to be less than half what the difference between these two countries was this year. Brazil has real rates at seven and a half, eight percent, very high real rates relative to other countries. I'm trying to think of, well, certainly in places like Korea again or in North Asia, you're going to have very low real rates. South Africa has its own issues, which it is dealing with, by the way. You know, people have again, here is a case in point of a country that was very vulnerable, very exposed to U.S. behavior that is reacting right. They've reacted. The energy system has rebounded mostly on the back of private sector investment. The government is running much more orthodox policy because they know they have to. And so it's really that sort of thing, Nick. And if you look again at country by country and just think again of picking on Korea just because it was such an outlier. But it's a pretty large emerging economy, right? It's a pretty liquid equity market actually. So the notion that that one is up eighty percent in a year tells you a lot about how volatile things can be. And next year, I guarantee there will be one or two that are up forty, fifty, sixty percent. So and I can't tell you today which one it is. If I could, maybe I wouldn't be running a business, but running a family office or something. But the reasons why this dispersion is so enormous. One is the retreat of the US, two is the retreat of the secular rally and interest rates in the US. I think this is a hugely important point where we are only two and a half, three years past that inflection point of a twenty five thirty year bull run in US interest rates, which underpinned all kinds of risk assets in a very uniform way. Now, if you are going to borrow money to make an investment and it's going to cost you four and a half, five percent or higher to make that investment, you have to think very differently about it. And so this era of just throwing money at risk assets is over. Third, geopolitics more broadly than the US has gotten more complicated. China got more complicated, for sure, as we were discussing. So you have a lot of legitimate reasons why markets are diverging pretty violently. And the technicals support that too. Right. Emerging markets is under-invested because of its poor performance for fourteen years. So it doesn't take a lot to move these markets. So once people decide that, hey, I like that country or I like that equity market or I like that company, you start to see these moves and then you even see, for instance, in a place like Turkey, we were talking about it yesterday. This phenomenon that was invented here in the US of meme stocks has arrived in Turkey, right? People are driving up the price of sort of nonexistent stocks or very kind of underwhelming companies in these kind of group bull runs. So all of these things are adding up when you put them across a universe of thirty, forty, fifty countries. You're going to get a lot of movement.

00:39:12 Nicholas Lall: Just a quick follow up to that perhaps, given that, as you mentioned, part of this is just that it doesn't take a lot to move these markets. I was wondering if you see this dispersion narrowing as more capital into emerging markets or is this dispersion kind of a more long term normal that emerging markets may be entering.

00:39:30 Nicolas Rohatyn: It should narrow. You're absolutely right. But I think it's going to take a lot of time and a lot of capital for that to happen, because the fundamentals are still there and are still very dispersed, if you will. Right. So you can have fundamentals that are widely dispersed and then a flow of capital that is widely dispersed. And the dispersions will narrow to a certain extent when capital is coming in sort of broadly across the board. And then we'll only narrow further after that when policies are less, less disperse.

00:40:08 Nicholas Lall: It makes a lot of sense. So I guess when dispersion is this high, Would you say that diversification is more important within emerging markets or between emerging markets and developed markets then? Or how would you recommend an active manager approach, in emerging market strategy?

00:40:23 Nicolas Rohatyn: That's a good question. So M to DM diversification definitely now I think works and it pays. So this is a good thing. And the more you get away from the bigger emerging markets the more that diversification exists. So the the pairwise correlation keeps going down within M. Strategies that are for instance, very concentrated strategies that are total return strategies, private credit strategies. To your point before, I think this is where you can take advantage of the dispersion, get the diversification, get the returns regardless of the beta trade having arrived where it is, and then multi-asset class, both public and private investing I think is for sure the wiser way to do things. And we talked a little bit about it on the public side. We didn't talk about it much. On the private side, private market investing in emerging markets suffers from a lot of things. It has some advantages, for sure, but the biggest thing it suffers from is lack of deal flow. And therefore for large investors, it's very difficult to deploy at scale. And the more you narrow the mandate in a typical developed market manner, which is to say, oh, I'm giving somebody a mandate to do private credit It just in one country in Latin America. Or I'm giving somebody a mandate to do health care, private equity in Africa. The narrower the mandate, the worse the deal flow, the worse the deal flow, the more pressure on the manager to deploy. Despite that fact, the more that pressure, the worse the portfolio, as simple as that. So the need to adjust an investment philosophy to allow a manager to invest in private credit plus private equity. For instance, private credit plus infrastructure, for instance, the better the result will be.

00:42:45 Nicholas Lall: It definitely seems like a multi-asset approach is really what's needed in emerging market investing today. I guess that we just have about five minutes left. Is there anything else that you wanted to cover that we haven't covered yet?

00:43:01 Nicolas Rohatyn: No. Listen, I mean, Lord knows there's a lot to talk about. As I mentioned, we also have a forestry and agriculture business. I know that for Insead this is definitely thematic. I mean, I know we're on the emerging market podcast here, Nick, but I think this is an area of activity in the world that is also very rewarding for young people as people think about their careers. My daughter works interned over the summer in an agriculture VC firm in Europe. Fascinating stuff. Absolutely fascinating stuff. That kind of gives you a lot of hope, actually, for our ability to efficiently, produce, efficiently and sustainably produce food for for the world. Our forestry business is definitely a beacon of hope to me. It's a sustainable forestry business. I couldn't tell you today the amount of carbon we are sequestering, but it is a gigantic amount of carbon. And I think for college and graduate school age people thinking about careers to embark on in which I think today, of course, always young people are idealistic. Somehow I feel like today even more so, maybe because the world has become a more crass place, I don't know, but career paths that combine finance, doing something that is fundamentally good for the world and making a healthy living. I think these are things that this generation will value more than my generation did I? Of course, I fell in love with it. As I said, more or less on day one in well, on day one in nineteen eighty eight when when I figured this all out. But I think for a lot of your audience, I would certainly encourage them to think about emerging markets, think about real assets and sustainable investing. Things, though, that can be done at scale. You know, I know that in some of your past podcasts and some of the other things that Insead does, it, it reads at least a little bit like microfinance or fairly targeted sort of single country stuff. And all of that is good. None of that is bad. But scale is its own virtue in our world.

00:45:31 Nicholas Lall: Yeah, there definitely are so many very big problems in the world that need to be solved. But those big problems also create big opportunities as well. Which the Roatan group seems to be tackling. it's always a pleasure. Nick. Thank you again for joining. Really interesting stuff.

00:45:43 Nicolas Rohatyn: I'm very happy to be here, Nick, and I hope that this podcast breaks the record for my old podcast. Right. Well, we'll see where it all goes.

00:45:55 Nicholas Lall: Yeah, maybe this will be the first over a thousand. We'll see.