KIT CHERRY, MAN INVESTMENTS AUSTRALIA: Hello, I’m Kit Cherry from Man Investments. Today, I’m joined by Dr Bart Turtelboom, Co-Head of Emerging Markets at GLG. Welcome to Australia, Bart.

BART TURTELBOOM, GLG: Thank you very much, Kit, delighted to be here.

CHERRY: Bart, can you tell us about your background in emerging markets?

TURTELBOOM: I joined the International Monetary Fund in the mid-1990s in the research department with a focus on the Asian currency crisis. I then joined Deutsche Bank in 1998 working on various projects on emerging markets, before joining Vega Asset Management where I ran an emerging markets portfolio. Before joining GLG in September of 2008, I spent several years at Morgan Stanley as the co-head of the emerging markets sales and trading business, responsible for the trading operations of the firm in Asia, Latin America and the European emerging markets time zone.

CHERRY: Europe's in crisis, and the USA was recently downgraded. How do emerging markets fit within that global context?

TURTELBOOM: Historically, Kit, the major volatility in emerging markets has always come from either policy mistakes or political upheaval from emerging markets themselves. But since 2008, the world really has turned on its head. The emerging markets are now the saving nations in the world and it’s the Western countries that are suffering from excessive fiscal debt burdens and low interest rates and in that context they have become the beacons of stability from a macro-economic perspective.

CHERRY: Is the emerging markets story dominated by the China story?

TURTELBOOM: China is obviously very important in the context of emerging markets but one should not forget that there are a wealth of trading opportunities not just in the other large countries in the emerging markets universe, like India and Brazil, but also in some of the smaller countries. In the past we have made fantastic investments in countries like Azerbaijan and Peru and as these smaller countries develop we expect those to be a rich source of alpha for our funds.

CHERRY: There are a lot of choices for investors. Why should they consider emerging markets a separate piece, rather than being part of their international and domestic share allocations?

TURTELBOOM: While there is merit to including emerging markets exposure in broader global equity portfolios it nevertheless remains the case that the macro factors that affect returns in emerging markets are very much dominant and much more so than in Europe and the US. You look historically at devaluations, defaults, all those types of macro events have been of tremendous importance for returns in emerging markets and hence I do believe that there is a very significant merit to carve it out out of global portfolios and allocate dedicated capital to it.

CHERRY: Many Australian investors have access to emerging markets through their share portfolios - like BHP shares, for example. What benefits are there to invest in emerging markets via a dedicated emerging markets fund?

TURTELBOOM: Clearly, companies like BHP have tremendous exposure to emerging markets and offer investors, to a certain degree, exposure to this asset class. However, there is much more going on in emerging markets than what we can glean from the operations from Western multinationals in this asset class, lots of smaller companies that are growing fast. There are lots of companies, particularly in the consumer sectors that do not have an international presence and which we do believe offer tremendous value for Western investors in this asset class.

CHERRY: How is the GLG approach different to other emerging markets managers?

TURTELBOOM: The problem with emerging markets is not, in our view, recognising it as an opportunity. We reckon that is quite clear in light of demographic trends, trends of financial integration, trends of trade integration. However, the problem in this asset class in our view is how to turn that opportunity into sensible risk-rewards. Often, we see emerging markets investments which lead to catastrophic drawdowns after 2-3 years of positive numbers, and what we aim to do is to offer investors an opportunity to participate in what we do believe is a terribly exciting story of emerging markets but to do it in a manner which is much more risk-controlled and allow for exposure and returns to grow regardless of whether equity markets in this asset class go up or down.

CHERRY: It is impossible to know what is going to happen to markets in the medium to longer term. What things do you ensure are part of your fund regardless of conditions?

TURTELBOOM: Our fund is based on three tenets. The first one is liquidity. This is an asset class which has experienced in the past tremendous vagaries in liquidity trends. One day, you can buy $100 million worth of a stock, the next day you cannot sell $5 million. We’re very cognisant of the fact that the liquidity profile of liabilities of the fund are daily liquidity and we want to ensure that the fund is run consistently with that mandate. The second one is diversification. We will have accidents in emerging markets, there will be volatility, and spreading the risk across regions, across asset classes is in our view going to be a tremendous mitigator of risk. Finally, re-balancing. Often, we see trends where currencies massively outperform government bonds, where credit outperforms equities, or vice versa, and we aim to have significant exposure to all these asset classes, at all times, no matter how dire recent experiences might have been in it.

CHERRY: GLG is London-based. Can you tell me about your team and how you participate in emerging markets research?

TURTELBOOM: The bulk of our team in based in London. We also have team members based in Dubai and in Hong Kong and that’s very important for us. While most of the risk decisions are being taken in London, it is very important to have people on the ground. Everybody travels to emerging markets very regularly. We have recently hired a team member who joined us from an outfit based in Moscow. Similarly, we have hired somebody who used to be based in Qatar. We’re looking to build out further in Latin America and establish a presence down the road in Brazil. These things are terribly important for us but while, because, the bulk of the capital and the savings that are devoted to emerging markets comes from emerging markets itself and it’s very important in that context to be very close to the local drivers of these markets.

CHERRY: Bart, what should investors look out for when considering in investing in emerging markets?

TURTELBOOM: First and foremost, it’s very important to decide on what risk profile one wants. And there, there are valid alternatives. One can go for private equity exposure in emerging markets, which is going to give you the very long term return, however, one does run the significant liquidity risk. One can look at frontier funds which give you really a call – a long-dated call – on human and economic innovation in emerging markets over the next 5-10 years. Or you can go for more liquid strategies, which in our view, in these very volatile times, offer investors an opportunity to really extract the excess returns that one can find in this asset class without having to lock up capital in the medium term. A mistake that I often seen made is when these objectives get confused and the return profile does not match the liquidity profile of the fund.

CHERRY: Bart, since you left the IMF in the 1990s, what things have changed in emerging markets over that time?

TURTELBOOM: The growth of the asset class. Countries like China, Brazil, India are now very, very meaningful components of world GDP. That has lead to a significant deepening of capital markets. Their integration in world trade and world finance has been nothing short of phenomenal. These were trends which started towards the end of the 90s and have become firmly embedded in the world economy over the past 8-9 years and this is truly sea change.

CHERRY: Thanks, Bart. Man Investments Australia has launched the Man GLG Emerging Markets fund. For more information on this investment, call your financial planner or contact Man Investments Australia. Bart, thank you for your time.

TURTELBOOM: It was a pleasure to be here, Kit.