Geoffrey Symonds started his career as an M&A lawyer in Australia before moving to New York where he continued to practice law
Geoffrey Symonds started his career as an M&A lawyer in Australia before moving to New York where he continued to practice law. In 1993, he joined Steinhardt Management Co. where he became a portfolio manager specializing in emerging markets. After Steinhardt closed shop, Geoff started his own emerging markets fund with the support of Marshall Cogan, Chairman of Trace International Holdings, a buyout and investment firm. Opened in June 1996, Trace Global Opportunities Fund, L.P. and a companion offshore fund started in January 1997 have ridden the wave of the emerging markets explosion, from Eastern Europe to South America, Africa, Asia and the Middle East. The fund has put together a string of thirteen profitable months in a row with an annual net return of 71% and total current assets of $100 million. Geoff Symonds talked to HFN publisher, Antoine Bernheim in late July, 1997.
Profile of Geoff Symonds
Profile of Geoff Symonds
Born: October 16, 1963 in Sydney, Australia
Education: University of New South Wales, Bachelor of Commerce and Bachelor of Law
Family: Married, one child
Last vacation: Turkey
Last book read: Absolute Power By David Baldacci
Hobbies: Tennis, Golf, Skiing and Sailing
Favorite quote: "Don't be around for the last 10%"
How he best describes himself: "Emotionally correlated to
the performance of my fund"
Q. How did you initially get involved with emerging markets?
A. Because Australia is so isolated, most Australians focus on what is going on in the rest of the world. As a result, I have always been fascinated by international events. As a lawyer, I was buying and selling companies in an international setting. When I joined Steinhardt, the firm was not involved in emerging markets at a time when it was a booming asset class. The key to success in any organization is to carve out a niche for yourself. In 1993, we were offered to participate in a private fund investing in Russia. I started to follow the Russian story which was a great case study for emerging market investing. Because of my background and as a result of the Russian investment, I studied every piece of research and spoke to as many authorities as possible on emerging markets. So, from humble beginnings, I ended up in charge of all emerging markets activities.
Q. Given the geographic diversity of your investments, could you describe the mix between macro factors and bottom-up analysis in your investment decisions?
A. We start by developing a short list of countries or regions that are particularly interesting, either because of a privatization process or announced reforms or political or economic crises. There is generally some event that forces us to focus on a particular country. The next step is to work out how to play that theme. We have a choice between the debt or equity markets. The debt market, whether Brady bonds or the local treasury market, is very much a macro bet that you can make while sitting in New York. The equity markets are often different. For instance, if you want to make a bet on Thailand (which is down over 80% in U.S. dollars since early 1996), you are really making a macro bet and may as well buy the top four stocks. In other countries, one has to be much more of a stock picker and be in the right stocks, not just any stocks. So our style is very much a combination of a macro-approach and bottom-up analysis.
Q. Could you describe your research process?
A. The Financial Times, the Economist, Reuters and Bloomberg give you a very good sense of what is going on in the world. The Reuters News in particular is excellent. The key to this whole process is to be able to zero in on the most interesting situations and to have the discipline to ignore the rest. We then typically call up our connections on the sell-side and get as much information as we can on particular countries and companies. We travel extensively to meet with companies and we also have a very good dialogue with local brokers in these countries. In addition, we speak frequently with other emerging markets investors and exchange ideas.
Q. How do you choose between investments in debt and equities?
A. We are very focused on having not just good returns but also consistent returns. We do that by balancing debt with equity. As a result, we will probably under-perform in great bull markets but in more difficult times, we will probably look better than some of our competitors. Last year, debt to us meant Brady bonds but as yields have compressed to U.S. levels, we have gradually replaced that exposure with T-Bill exposure. But many good ideas disappear quickly. The Russian GKO's had yields of 220% when we started in June 1996 and now they are around 20% (but still a good investment). In Romania, just about three months ago, we had yields of 130% for 90 day paper with a currency that is relatively stable. Today they are at 25%. We are also in Lebanon, Venezuela and Ukraine. As a result of the recent currency crisis in Asia, yields have gone up dramatically. We do not own any Asian paper at the moment but there may come a time when some interesting situations develop there.
Q. What is the mix between trading and investing?
A. Probably because of my legal background, I am still somewhat conservative and less interested in aggressively trading than in investing for long-term capital gains. I think that is the real key to emerging markets. You are not there to make quarters and eighths, you are there because you think there is fundamental change going on in the world and you try to be part of that.
Q. What is your approach to selling stocks short?
A. We are not generally looking to short stocks to make money but as insurance and to smooth out the volatility. We short stocks in response to world events in order to reduce the risk of our long exposure and we do that through ADRs and GDRs. For example in Russia where we have a big exposure with positions we are very excited about, we have on a number of occasions shorted stocks such as Lukoil. In Latin America, we frequently short stocks such as Telmex to protect us against changes in perception that frequently hit the markets such as in early July with the Asian currency crisis.
Q. Could you describe the current structure of your portfolio?
A. We are essentially unleveraged and have been since we started. Debt is becoming a smaller proportion of the fund from 50% to 20%. We own approximately 40 stocks, which is more than I would like but consistent with our geographic diversification. No one position is bigger than 7%. Since inception, we have focused on Central and Eastern Europe with an exposure between 40% and 60%; the Middle East, particularly Egypt, Lebanon and Israel, represents 15% to 20%; Latin America, particularly Brazil, Venezuela and small positions in Colombia and Ecuador account for approximately 20%; we have about 10% in Asia, particularly India and Pakistan and we are currently building positions in Thailand and Korea.
Q. How do you control risk and what is your approach to cutting losses?
A. First, we are geographically diversified. Second, we have a balance between short duration debt and equity. We also short U.S. bonds and we can short the U.S. market in addition to ADRs and GDRs. When some of our core positions go down, we would typically buy more. For example, we started to buy Pakistan Telecom, a good, cheap company in a bad country, around 100; it went down to 65 and we kept buying more. It is now at 110. With positions where the level of confidence is lower, if they go against us we cut them. But there is no formula. The only time one is really forced to cut losses is if you are too aggressive and things go against you. We tend to be conservative when we start buying.
Q. Emerging markets have a history of boom and bust. What do you think could cause a reversal of the current trend and do you have a sense for timing?
A. A sell-off in the U.S. would have a short-term impact on our universe. The Asian currency crisis had a spill-over effect in countries like Brazil which was nonsensical. On the other hand, Mexico was not affected at all. Overall, I think investors in these markets are now more mature after going through the Peso devaluation. There are also country specific risks such as Yeltsin's health in Russia or a flare-up in the Middle East that could create short-term volatility. You have to be nimble when things like that happen and act quickly. The most major risk is when a sense of euphoria creates an overvaluation such as in 1993. Asia for the last few years has been a great growth story but that was reflected in the price of the stocks. One should not be in emerging markets to pay a premium to the U.S. market. You should be there because there is excess growth and you can buy that growth at a discount to the U.S. market. There is some euphoria in Russia right now; in some cases it is justified, in others it is not.
Q. Could you describe the adjustment to being on your own and where you would like to take your business ?
A. The transition was not that dramatic because at Steinhardt, I really worked on my own, reporting directly to Michael and did my own trading. I am actually better off here because I have a couple of people working for me and a good infrastructure. I was very happily surprised that the same people who covered me at Steinhardt continued to cover me even when we started with only $6.5 million. If we are fortunate enough to get to $250-300 million, we will probably close the fund and reassess. In the future, we may look at private equity or country funds.u