From Treasury Minister of Argentina to Macro Hedge Fund Manager | Nicolás Dujovne of Tenac Asset Management
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EMBI delivered an annualized return of 8.5% the last 25 years with a volatility of, let's say, 10%. It was only surpassed by the S&P in the last 25 years with a much higher volatility. So the Sharpe of EM is provided with a very, very nice risk return option for the portfolios of global investors.

Today's episode is brought to you by Fintool, the AI junior analyst tailored for institutional investors. Go to the Fintool.com link in the description to learn how you can add AI to your research process. Before we get started, I just want to do a quick disclaimer that nothing we say here is investment advice, as well nothing we say here is advertising or marketing for Tenac or any of their funds or products. Everything is meant to be informative about the fund management industry.

I am joined today by Nicholas Duhovny, CIO and founder of Tenac Asset Management. He's also the former Minister of Finance for Argentina under Mauricio Macri. Tenac was founded in May of 2020 and has returned 115% since inception as of the end of February. And for those of you calculating, that's approximately a 17% compounded return with no down years.

the strategy focusing primarily on emerging market debt, sovereign debt, that is corporate debt as well, and rates and currencies. So you are really our first big macro fund manager that I've had on the Other People's Money program. So I'm very excited, Nicholas. Thank you so much for joining me today. Thank you, Max. Really honored and with a lot of enthusiasm of being here. Thanks a lot for the invitation.

Maybe the volatility of the 80s and 90s was the seed of many of

of the people now involved in the industry. In the '80s, many of the countries of Latin America suffered hyperinflation, Argentina, Brazil, Peru. So that history of instability generated a lot of problems.

many, many people focus on macroeconomics as differently maybe to what you will find in the US or in Europe, in which most of the economists that went to school, to university, are focused on micro issues, on

issues of competence or, you know, or make market failures. You know, in Latin America, a lot of people from my generation in the 40s, in the 50s, you know, we, you know, suffered.

that instability in the 80s and early 90s. We went to university with the idea of how to fix this mess. So some of us were involved in government, in finance, but you will find a lot of

people with a lot of involvement in macro in Argentina in Brazil in Peru in Chile uh that you know now are part of the team of many of these macro fans that you you will find in the region

And what about making the jump from, because prior to this, obviously you were in government, you were the finance minister. So what was it about that moment in time in 2020 when you founded the fund that you felt it was time to take a stab at being an investor? Previously to being finance minister in Argentina, for many, many years, I was a

the chief economist of Grupo Galicia, who is the largest bank in Argentina, the largest private sector bank. So we have a staple bank, Banco Nacion, that is bigger than Banco Galicia, but of the banks of the private sector, Galicia is the biggest one. So I was the chief economist. And in that role...

you know, of course I leaded all the efforts and research of the bank, but I also helped on the proprietary trading of the group. So I was an economist involved in finance and my office was inside the trading room of the bank. So it is not that I was a PM, but part of my job was helping the PM

to make money, designing derivatives or helping the bank with the capital market operations. So I had an involvement with markets since many, many years ago, but not as a PM. And why not? Maybe that was something that was...

Floating in my mind. Well, then I left the bank in 2011. I launched my consultancy firm, which I which I lead until I was appointed in office late December 2016. So for three years.

I was the finance minister of Argentina. I was 19. We lost the elections. I had the expectation that we would continue in office for four more years, implementing all the reforms that Argentina was doing.

was implementing in the first during macro term in which you know we reduce the government deficit the primary deficit from minus five to zero we open up the economy so

We lost the elections. That was a frustration. So I went to my home. It took three months to rest a little bit. Being in office is very exciting, but also very demanding. You have almost no time for you, for your family. So I took some time to reveal my situation.

my relationship with my family and my friends and after that I had to think on my next steps and I found that first after my involvement in office you know I had the honor of

leading the G20 group of finance ministers, because when I was in office, Argentina had the presidency of the G20. And as you know, the G20 was born as a group of finance ministers. Then in the overweight crisis, the president joined the group as president.

as a way to help to withstand the effects of the Lima brothers crisis. But in Argentina, I lead that group, so I had a lot of involvement with issues of international finance, a lot of interaction with my colleagues in other parts of the world.

So one of the things that I decided after leaving office was that I wanted to maintain my relationship with the rest of the world, not only to be focused on Argentina. I wanted to widen the scope of my job. And then I also, you know, putting together a finance job with the job of, you know, economist.

So at the end of the day, starting a strategy based on EM, which is basically you need to have a macro focus to make money, was the synthesis of the things that I wanted to do. And then my relationship with all my colleagues and international organizations

with whom I interacted with in office, and to put together my job as an economist, but also as a PM. So I called, at the time, José González Anaya, that was my colleague in office in Mexico. He was the Secretary of the Treasury of Mexico under Peña Nieto's administration, and previous to that, he was the CEO of Pemex.

a very successful one when José was in office, you know, the spread of the Pemex bonds as compared to the government bonds in Mexico was zero because Pemex was doing its job and the leverage of Pemex was, you know, below two times Evita to Tepulos, south of two times, now it's north of four. And

I had a great relationship with Jose when we were both in office, both speaking Spanish. He helped me a lot during the G20 ministers when we had to reach a consensus on the communique, all the things that you need to do. And so together with Jose, we started to talk.

think on what we were going to do. He was in a situation very similar to the one that I was facing. And also with Fernando Jarnis, a very sharp partner of mine that he also...

worked with me at the finance business in Argentina. He's an engineer with an MBA in Berkeley. And for 15 years was a PM in a boutique firm in New York doing long-short take with Islata. So together with Pepe and Jose, with Jose and Fernando, I'm sorry, we started to think in Tenac. And, you know, well, the next step was

building the infrastructure of the firm and start the process of raising capital. And that's basically the history of how we launched our firm. Now, certainly having the high profile of having led the G20 and your partners also having such an equally high profile, probably a little bit easier to raise that initial seed capital than many people who have the...

the desire to go out and start a fund, but it's still very difficult to be an upstart hedge fund, especially one outside of the big global financial centers of New York and London, et cetera. So what was it like trying to raise capital in another place outside of these major financial centers? Very, very difficult. Very, very difficult. First, because it's the job that I don't like to do. I'm a shy person.

person asking money to invest with me. But eventually some family offices of families that knew me and my partners from many, many years

decided to trust on us even when our track record was zero. Because zero in terms of the track record of the firm and zero in basically that we didn't have a track record as PMs. So it was people that truly believed in our intellectual capacities and our ability to

to do the job, so I'm very grateful for the initial investors of the fund. But being a firm that is, even with the legal infrastructure of the firm, it's a US firm because it's a limited partnership in Delaware, we are based in Buenos Aires, except with Jose that is in Mexico, but the rest of the partners of the team, we are based in Buenos Aires.

So it's not easy to raise capital from Buenos Aires when you are not part of the ecosystem of Wall Street or even Sao Paulo, which is Brazil. You know, the capital market is, you know, many, many times the size of the capital market of Argentina. In Argentina, you will not also find the organization of families with, you know,

professionalism of the family offices of Chile. That's an example of a country which you know. You have 40 very well established family offices that do the job. They

know exactly what is to choose, how to analyze the fund. In Argentina it's much more informal, the ecosystem. So it was tough. So the beginning of the fund was a small fund, very small. And eventually we grew organically by performance.

And after a good track record in the last few years, now we are at the point in which we are starting to receive interest from institutional investors for the first time since we started.

Yeah, you've reached a size now where you can actually take on investments that move the needle for a lot of funds. When you're too small, you just can't take on the size of check that makes it worth the time for these larger pools of capital. Exactly. We started to do cap intro calls with institutional investors from the very beginning, so for them to know us.

for them to start to receive our monthly letter, which is a piece in which we put a lot of effort. Our monthly letter for us is something that is not something that we do mechanically. It's a piece in which, you know,

We describe our view of global macro and how we plan to take advantage of that for our investors and the movements in our portfolio in terms of the biggest positions, how we are moving in terms of duration or beta. So we wanted them to start to follow us.

So from the very beginning, we did that effort. But of course, they say, OK, I can receive your math letter. But in three or four years, we will speak again. Once you reach 100 million, once you cross the three years, and of course, if you perform OK. So we are now at the point in which we expect to start collecting on that effort that we did from the very beginning.

A lot of the portfolio managers that I have had on that have had the most success raising assets all sort of echo the same thing that the role is often one of communication, even throughout the entire organization. The analyst's role is to communicate well with the PM and the PM's role is oftentimes to communicate their investment decisions well with investors and potential investors.

And coming from a political background, communication of ideas is the job in many ways. So how have you found that that experience in communicating complex ideas, tough decisions from politics has translated to your role as an investor? Well, of course, it's a process in which you learn to communicate, you know. So, yeah.

on the one hand, we have a process, a process in which we combine our view in Global Macro. From Global Macro, we decide the

the architecture of our portfolio in terms of how much duration do we want how much exposure do you want do we want to be you know that long 110 percent or 20 you know we want to be really exposed to the markets or we want to shrink our balance sheet uh as we did for example in 2022 because we were concerned about inflation and the fed uh behind the curve um so that that

one part of the process. The other part of the process is the bottom-up. It's the day-to-day job in which we are at the office discussing countries. So, in every country in which we invest, we produce proprietary research with

that will include now our assessment of the sustainability of the country in which we are investing, the financial position, the balance of payments with an outcast, the fiscal position, of course, the managerial capacity of the authorities. We try to speak with the authorities. We try to speak with the IMF desk covering that country. And then from that process,

in the direction between the top-down view, the lower macro and the bottoms up. How do we fill our lower macro view with different countries that we like to be long or short? We have a portfolio. But that process that I can describe more or less very clearly now,

was a work in progress at the beginning because when we started the fund, we did not have the clarity that we have now in terms of, for example, how many positions in our portfolio will match our aim of balancing our capacity of generating alpha with diversifying risk.

Maybe at the beginning we had too many positions. If you have too many positions, well, you are mostly investing in the markets rather than generating alpha. So I'm exaggerating. But during these years, we learned that our ideal portfolio is one of 45 issuers, more or less, because that

that's what balances our risk policies with our alpha capacity generation. So now we learned that at the beginning we were still in that process. So I think that you know communication improved because also we have more clarity in what we want and we have more clarity in

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What about the universe of investments? I was struck by just how much larger the emerging market debt markets have gotten over the last 20 years. Is this strategy something that when you started focusing on global finance, you could have imagined was possible? Or is this strategy really born out of that growth in the last two decades?

Well, the financial deepness of EM in the last two decades grew a lot. So when emerging markets started to fight the original theme of

of issuing just the dollar debt that was uh or her currency that was also euros but that generated a lot of a lot of volatility on their balances you know uh vis-a-vis the falling inflation rate in em there was a tremendous growth in domestic capital markets and domestic debt markets

which now accounts for the most important share of what is traded in the end. So the market for local debt and for swap of local rates is very, very liquid. Very, very liquid. So that was something that already existed when we started our fund, of course, five years ago. But, you know,

the size of the market is comparable to the size of other asset classes that you will find in EM as opposite to EM. So now, you know, EM became an asset class in which there's a lot of liquidity. But apart from the liquidity, if you observe the returns of EM

Well, if you go to our currency component of a merchant market, that's the EMBI index of JP Morgan. Well, EMBI delivered an annualized return of 8.5% the last 25 years with a volatility of, let's say, 10%.

So in terms of return, the return of EM, as a class, especially by the EMBI currency, was only surpassed by the S&P the last 35 years with a much higher volatility. So the sharp of EM provides with a very, very nice return

risk return option for portfolios of global investors. And what we are trying to do is to enhance that return, to offer more high returns on the upside and to try to protect also the investors on the downside. So

we try to you know to be a better option to channel in birds the investments to em rather than the passive investment on on a on on on on it in a tracker of the index

Yeah, well, I imagine there's also wide dispersion between issuers in terms of returns in any given year. Obviously, what's happening in Argentina is quite idiosyncratic with Miele coming in. What's happening, say, in Eastern Europe around concerns of Russia's recent aggression in Ukraine is very idiosyncratic. And similarly, what we have going on in the Middle East,

So I imagine in any given year, there is quite a bit of dispersion in outcomes. The dispersion between the top 10 performers and the 10 underperformers is very, very wide every year. So having the possibility of picking long and short because we can be short also the market. Of course, our strategy has a long bias.

but we do shorts. Well, that can, of course, generate extra returns. And the shorts are very important because they can fund your long strategy by not generating too much risk. If you are funding a long with a short that you believe that

will underperform, you are decreasing the risk of your portfolio while generating returns. You can perform RVs all the time, RV crashes between two countries, which you think, okay, this country is pricing too much of...

of an increase in its credit rating that is not going to occur because x reason and these countries pricing downgrades in its credit rating that again are not going to occur because the authorities will react and will correct on the fiscal for example. Well, if you identify those pairs, you know, it's very interesting as

also of a process that is repeatable and can generate P&L without being exposed to too much risk. And from time to time, you can also short a country or a quasi-sovereign or a corporate that you think is going to blow out. Those opportunities appear from time to time.

Of course, the sizing of that trade has to be appropriate because, you know, if you are wrong, a country that is, you know, starting to be under stress, of course, has a negative carry for your portfolio that is very, very big because maybe you are shorting something that is already yielding 15%. So the negative carry can kill you if you are short the position for

too much time and finally that trade does not materialize but from time to time you can profit also of that. In the case of Argentina, it was a tremendous opportunity in 2024. Even when we live in Argentina, for us Argentina is another country in which we are bound for the limits that we establish in terms of rate. For example, for a country that is rated below B, we cannot invest more than

10% of the NAV of the portfolio. Or we have another limit that is we cannot invest more than 500 basis points of risk as per our internal model in any country or position. The most astringent of those, the one in terms of NAV or the one in terms of risk in basis points will be the one that we will rule. So in 2024, we were long Argentina, close to our max long for a very big part of a year.

And as Argentina delivered returns close to 100% in fixed income, which is something very anomalous. Well, Argentina added close to 700 basis points to our P&L of last year. That's something extraordinary that the single position can provide you with that return. Are those position limits at entry or at size as it grows?

If because of the pricing, the position starts to be bigger than our limit, we have to start to reduce, reduce and reduce so as to keep our limits.

Okay. Now you brought up two things I want to get into. First, you talked about quasi-sovereigns. I think this is something people hear about a lot. Are those all SOEs or could a private company that just trades more on the country's fundamentals than say its own fundamentals, can that count as a quasi-sovereign or are these all just SOEs? We are speaking about SOEs, state-owned enterprises. So

They are owned by the sovereign, though they are not the sovereign. So the typical example is Ecopetrol in Colombia, YPF in Argentina, Pemex in Mexico, you know,

So it is not that there's an explicit guarantee in none of these cases, but they are state-owned. PetroPerú in Peru, yes, many, many cases.

And in those, I mean, how much more liquid is, say, the sovereign of Mexico as compared to like Pemex bonds? Are they relatively close? What does it add to you to be able to trade these quasi-sovereigns? The value that can be generated by trading the quasi-sovereigns is sometimes they are trading wide to the sovereign. But typically, quasi-sovereign trades outside Mexico.

The sovereign, that's the case of Ecopetrol, Pemex, Ecopetrol trades close to 150 basis points outside the Colombian government bonds. Pemex trades, you know, let's say 500 basis points outside the government.

And of course, if you perceive that even when there's no explicit warranty, there's an implicit warranty, and of course, that's your subjective perception because they're not trading at the same price. You can be long-way sovereign, short-way sovereign in a trade that is carry positive.

with a lot of mitigation of the underlying risk of the trade. But also from time to time you learn what are the drivers of the widenings or the tightenings of that specific pair. So during COVID,

the spread of Pemex against the sovereign widened a lot because oil went down and many boats were under stress and liquidity drained. So you had the opportunity of being long Pemex and short Mexican

bonds think that finally that spreads will tighten again and that's something that really occurred. So when you have the timing of understanding the drivers of widenings and tightenings, it's something very interesting to do. And of course, structurally, you can have a carry positive trade by being long one and short the other one.

Typically, there's less liquidity on the Quasar than in the sovereigns, but in some series of bonds, you can find the appropriate liquidity.

You also started to talk about downgrades. So I want to get into what are the types of events that you need to keep track of as a portfolio manager focused on your strategy? On the equity side, everybody knows when their company reports earnings, probably know their big product releases or investor days. What is the equivalent for you as a macro PM trying to keep track of all of these different countries and issuers?

Well, I would say there are many, many factors, but typically it's mostly fiscal and it's about the trajectory of the debt.

the fiscal position and their sustainability are the two drivers generating most of the movements in terms of upgrades and downgrades because you know it is not that the rating agencies are focused on subjective matters if they like or they don't do like uh

the government. Basically, the job is to assess the probability of the government servicing its debt appropriately. So, you know,

Then we have models of sustainability for every country in which we invest. And of course, now casters of a fiscal position. And it's very interesting when you find countries in which you think, okay, the fiscal position is going to be better than the one that the market expects.

the market is pricing you know uh two downgrades that will not occur so eventually if you build a position and you are right eventually you know the the market will start to price in the future

that no downwards will occur, so you will see a tightening of spreads and you can generate profits there. And of course the opposite. And that's a very important part of our job. It's very systematic and repetitive. So we need to be very, very focused on what the government is doing with its fiscal accounts,

are they reporting okay or there's a lot of window dressing and, you know, one day we will, you know, wake up and, you know, they will say that, you know, the deficit was three or four points higher than the one that was stated before as it happened in Senegal a month ago in which, you know, the new administration came with an audit that revealed that, you know, the debt was, you know,

much higher than the one that the previous musicians reported and that the fiscal figures were good. So, you know, you will find a lot of that in EM as you move into countries with better ratings, with much better institutional framework,

the risk of having a surprise like that are much lower and also slower the volatility of the spreads. So you can make money in countries that are very risky with small positions, you can make money with bigger positions in countries with lower volatility and lower risk.

And you have to size that, manage the risk of your portfolio appropriately. That data integrity issue, I mean, people often talk about it like in relation to China, for instance, that, you know, a lot of people say they don't trust the economic data there. How big of a problem is it across the board with countries that politicians are incentivized to paint the tape perhaps on some of the numbers? Well, yes, absolutely.

You have that risk. We have it here too. It happens in the United States. I will say that as well. Yeah, yeah, yeah. No, no, no. It's a risk. And, you know, for that risk, you know, we have our risk limits. So, but yes, of course, from time to time, you can have a surprise. And, yeah.

But it's something that we have to be aware of when we invest.

Okay. And what about the expectations of your investors? You talk about the family offices are largely where you're having success and you're starting to talk to more institutional investors. Do they have different outlooks for the type of return to get from a fund like yours or a strategy? Well, we don't have a benchmark yet.

We don't have an index as a benchmark, but we have a budget of volatility. So our budget of volatility is 14% annual. It is not that we like volatility, but we understand that to generate returns north of 15, we need to be prepared to accept some volatility from time to time.

And that's something that is communicated to our investors. So if they want to invest with us, of course, we provide with monthly liquidity, but our strategy is more suitable for investors that would like to be with us for one, two years, three years, because in our job, in investing in EM, sometimes you are investing in

in histories that need some time to mature and in that the time in which they will mature you have to hold some positions even when they they pull in the opposite direction that you thought at the beginning um so so uh i would say that uh

our strategy is suitable for investors that are aware that this can have volatility. And so basically our investors are professional investors that are very aware of the risk of investing in EM.

And that when we suffered drawdowns in the past because of a spike of volatility in the markets, when, for example, Russia invaded Ukraine, that coincided with the spike of inflation and rates in the US. Are investors more prone to add rather than to take the other direction? Because they understand

what is like investing in EBM. And that's very important, you know, to have the appropriate investors in your strategy that fits with your strategy. Do you find that Latin American investors are more tolerant of volatility than U.S. or European investors?

Well, it depends. You know, most of our investors are Latin American. So I cannot do like the comparison. But I would say that as U.S. investors are very tilted to investing in equities, you know, in which volatility is much higher than in fixed income, I would say that, you know,

They understand volatility in their portfolios. But I'm not able to do the exact comparison because most of our investors are from Latin America.

Do you have you've noticed maybe an increase in interest as Argentina has become in the spotlight with everything that's going on with Millet and the reforms that are going on? And it's getting I can tell you that Argentina has gotten more U.S. media coverage at this point in time, at least in my memory now, not a long memory, but certainly it's gotten more coverage than I've seen in a huge amount of time.

Well, yes, somehow, yes. I know that, you know, increasing the interest on Argentina. But, you know,

Our strategy is one in which Argentina is a country like any other, bounded by the same limits. And as a matter of fact, 2004 was the only year in which Argentina generated that out-of-the-box P&L for us. The rest of the years, Argentina was the only

as it did not generate the extraordinary P&L for the portfolio. But of course, yes, Argentina is in the spotlight right now. Our president is very idiosyncratic for putting a word and is calling the attention of the rest of the world. But

But for our strategy, you know, it is not that we are, you know, an Argentina fan. Yeah. Now, what about the brokerage infrastructure? I mean, imagine trading so many global markets. It's got to be more important to make sure that you have the right counterparties and the right brokerages set up. I can trade some Argentinian stocks that are listed here in the US, but I probably couldn't tell you how to buy an Argentinian bond.

I'm sure as I expand that list of countries out more and more and more, it gets harder and harder. What about for you guys making sure that you have the proper infrastructure to trade all these markets? Well, of course, that's a process that takes a lot of time to build the appropriate infrastructure. Now we think that we have a very, very solid one because...

well we have our prime broker that is called one uh but we also have uh accounts with you know like 40 counterparts uh uh to do you know very specific uh locals and to have uh counterparts very involved with local markets in many of the countries in which we trade some of them which are frontier and we need to you know to know the specifics um

So, yes, it's very important because it takes a lot of time to have the number of counterparts that you need to be with the appropriate counterparts in EDM.

And it's, of course, an ongoing process. We maybe we need maybe 20 or 30 more counterparts all around the world so as to have the locals on the other side as an alternative all the time.

And do you find yourself traveling to other countries? Has the Zoom nature of the world post-COVID made it easier to do this type of investing than maybe it would have been pre-COVID? Or are you still going on the road to meet with these officials and to see the realities on the ground? We use a lot of digital platforms to connect with colleagues and international organizations.

We travel a lot to the US, to the meetings in the IMF, April, October. So that provides us with the opportunity of meeting 50, 60 government officials in the same place twice a year. We travel a lot to Latin America because we

we can do together the process of capital raising and doing research when we go to Chile, Brazil, Uruguay, Colombia or Mexico. But most of our research job in the Middle East

Africa and Asia is performed by platforms. And we find that since COVID, you know, it works perfectly well for us. Perfectly well.

What about the IMF and some of these other larger international organizations? I know that there's a big potential for a deal for, I know we keep going back to Argentina because I know you do more than Argentina. We'll make that clear. But I know there's an opportunity for a big deal with the IMF, almost 20 billion that is looming. How important are these types of financing arrangements from the IMF, the World Bank in Argentina?

in your investment process? Very, very important. Very important. In the case of Argentina, we think that the program will unlock a lot of value for the Argentinian assets. Why? Because, you know, Argentina delivered an incredible fiscal adjustment during 2024, which, you know, primary expenditure of the national administration fell 37% real. That's an unprecedented, you know,

fiscal adjustment in the sub-nationals, in the provinces, you know, the primary expenditure fell 20%. So Argentina was able to bring down the government expenditure to GDP from 39 to 32% in just one year. And that was impressive. On the other hand, the normalization in terms of the effects framework,

was very slow. The DST has capital controls. The view of the authorities is that they need fresh funds so as to liberalize the FX market. It's a view, in my view,

Flows are what matters rather than stocks, and Argentina was able to liberalize the FX market even without fresh funds. You can generate an increase in reserves just by liberalizing the FX accounts, but that was the position of the authorities. Of course, I respect that position, but it is clear that

The new agreement with the IMF will make Argentina to have a more normal effects framework in which capital controls will be gradually lifted.

that will allow Argentina to build liquidity and reserves in a country that has no liquid reserves. And that's the most important difference between Argentina and other high-yield countries. Argentina now is trading at 800 basis points over U.S. Treasuries.

displaying fiscal equilibrium and a net debt to GDP of 50%. So on the fiscal side, Argentina is showing much better indicators than most of the countries in EM. Of course, of EM, which debt to GDP is not of 100 in many countries. But there's no liquidity. That's the most important difference between Argentina and

Egypt, Angola, Zambia, countries that are trading south of 600 basis points. So, in my view, we will see spread compression in Argentina again once

Once the deal with the IMF is finished, after some weeks or months of letting the program to work, Argentina will regain liquidity and spreads will go down. So very important. And of course, this same type of analysis is the one that we apply to any other country in which we invest. So in the last

couple of years many programs were performed Sri Lanka, Ethiopia you know and in every case we assess the impact of the program of the AMF how that will generate lower or higher spreads and we acted you know consistently with

So in the case where you're analyzing a program, obviously the headline number of 20 billion or whatever is what gets a lot of the press. But there are these nuances in terms of the negotiated behaviors from the government and from the authorities to secure these financings. When you're analyzing them, are you more focused on how much money they're receiving or the behavior that the IMF is trying to induce from that country?

Well, because at the end of the day, as I was saying, flows are much more important than stocks. Flows are moving in the appropriate direction. That's the way in which stocks are built, with flows. So the most important question when you analyze an IMF program is,

Is this program going to play the catalyst role in terms of letting the country to go back to the voluntary markets? That was the role that

is the one, the most important role that is intended to be played by the IMF, by design. It's not that the IMF was designed to finance the countries for many, many years. The IMF was designed to help

the countries to withstand transitory shocks and to help them to play catalyst roles that will generate the confidence so as they can regain access to voluntary markets. And you access voluntary markets when you yield below 500 basis points. So the big question in every of these programs is, you know,

Will this program play the catalyst role or not? In the case of Argentina, we think that yes. What about elections? Obviously, you've been on

on the wrong side of an election result and it upended some of the reforms that you were trying to do. In the US, we just had legalized prediction markets and it got a lot of press here that the prediction markets forecasted the results of the elections perhaps better than the polls. I'm sure the outcome of elections are hugely important for you. How are you thinking about traditional polling versus these

deeper, more liquid prediction markets that are starting to pop up? We look at both, of course. We look at both. You know, polls are becoming less and less reliable as, you know, people tend not to pick up the phone to answer a poll.

then you have a lot of biases by different groups. Sometimes a group voting for some candidate has a bias in terms of their response or their confidence towards the people doing the polls. And you have this new eruption of bias

of the people betting on the result of the elections. That's something new that proved to be in the last one, in the last elections to be more reliable than the polls. So we have to take a look at both and make our assessment. But in any case, that's a part of, that's a component of the decision process. We don't do, you know,

algo trading or automatized trading of nothing. So everything enters into the box of discussion between the partners of what's appropriate, what's the better decision, how to trade an election.

And we considered carefully all the information that is available. - Also, what about US financial conditions? Obviously, US financial conditions kind of steer global financial conditions. So how important is focusing on the big developed markets like the United States for your process? And in a world where US financial conditions look negative,

What does that mean for you? When we look at global macro, the U.S. is basically the most important country in which we are looking to. In the last two or three years,

the most important driver of yields in YEM was the volatility of the 10-year yield of US Treasuries. So, spreads in, especially in the high yield segment of of emerging markets was very, very highly correlated with the volatility of 10-year yields in the US.

more on the level with the volatility. Once you reach a level, uncertainty diminishes, it's another story. But that volatility was the most important driver. So for us, that's very important. As an example, in September last year, we had, after the US elections,

going into inauguration in the US, we drastically reduced our net long of the portfolio. Because we thought that eventually if the government came with a neutron bomb in terms of tariffs, that could pose a risk for EMFX because

you could see eventually the dollar, a strengthening of the dollar, a risk of process, and if the movement in EMFX were to be big, that can create a contamination of credit,

So we decided to hedge the portfolio. We still had our alpha capacity generation because we think that we are very good pickers in terms of assets that can perform very well. But we shorted the EMBI, the index. So we kept as...

as a P&L source our selection, but we reduced dramatically the risk of the portfolio. Well, eventually, you know, tariffs went up, but not in a size in which they generated, you know, a neutron impact. It's more idiosyncratic depending, you know, the country that is affected.

So now the portfolio has a bigger exposure than it had at the end of last year. But we are keeping, for example, a hedge by using the Nasdaq Composite. Why? Because, you know, we think that it's the most expensive market now in the U.S. and eventually...

Should we see a sharp deceleration of the US economy because of the uncertainty generated by policy, we will see a correction that can be larger than the one that we already saw. So with a very small part of the NAV of the portfolio, we can buy puts of the NAV.

QQQ index. So, you have a very limited loss in the case of market rallies. But should we see a big correction that will protect a very important part of our notion and of the portfolio. So, we try to pick the appropriate hedges, barraing

using the different circumstances that we are facing. So as a not as an economist, but as a portfolio manager, does the policy uncertainty out of the U.S. excite you that it might drive opportunity, drive idiosyncratic outcomes, as you mentioned, from country to country? Not, you know, are tariffs good or bad, but just as a portfolio manager looking for opportunities, does the idiosyncratic nature of U.S. policy present opportunities?

Yes, it does, of course. But, you know, that volatility is very difficult to trade because, you know, at the beginning, you know, it can generate, you know, damage. So you have to avoid, you know, the losers. Once you have the losers, yes,

you have the opportunity of buying spreads that widen. So, timing is of the essence because you have to have the patience not to catch the falling knife. So, that's part of our job. We like that.

And yes, of course, this environment will generate a lot of opportunities. All right. Well, I want to close with the final question, which is outside of Argentina. Is there any particular area that you're focused on right now that you think presents an interesting opportunity?

Yes, yes, yes, yes, we do. You know, I can give you some examples. We like being long, for example, the long end of high currency bonds of Pakistan, a country that improved a lot as compared to the position in which they were in 2022 when they were affected by the floods, by the

increased the price of the energy after the Russian invasion. So at that time they had no reserves. Now, you know, they're rebuilding the reserves. The policy rate became positive in terms of the real rates became positive. They're accumulating reserves. The fiscal position is okay.

We like Egypt, both local and our currency, because this country is experiencing a transformation. They want to be an economy more similar to one of the countries of the Gulf, being non-oilers, of course, but in terms of a more orderly economy with a bigger role of the private sector. So they are improving a lot.

We like the long end of some countries that are trading wide in terms of where they were trading two, three years ago after receiving some shocks, like Hungary or Romania or South Africa. So, you know, plenty of opportunities all around the world. We always find very attractive opportunities.

Well, Nicolas, we'll leave it right there. Thank you so much for joining us. It was a pleasure. Thanks a lot.