US Dollar. Picture: ISTOCK
US Dollar. Picture: ISTOCK

Emerging-market assets have been convulsed since Donald Trump’s victory in the US presidential election, which distressed debt investors are now betting will generate rich pickings in the developing world.

Gramercy, a Wall Street money manager, has raised almost $1bn to invest in distressed emerging-market debt in anticipation of the damage rising US interest rates and a stronger dollar will inflict on emerging-market corporate borrowers.

"Some of our early thoughts on the election are, if there’s really going to be tax cuts and spending, it’s logical to think we’re going to have higher rates," said Gramercy chief investment officer Robert Koenigsberger.

Although the Connecticut-based asset manager began tapping investors before the election, the appetite for the fund underlines the nervousness over emerging markets.

Distressed debt specialists buy the beaten-up loans and bonds of weaker borrowers that have been sold by panicked investors, betting either they have fallen too far or that returns could be squeezed out in an eventual bankruptcy process.

Enjoying the tailwind from the low — and sometimes negative — level of interest rates in major developed economies this year, emerging markets have been a powerful draw for investors.

Among hedge funds, for example, those focused on emerging markets have outperformed this year, generating 1.6%, according to Eurekahedge. That compared with 3.6% for the broader hedge fund industry.

Gramercy’s fund will also look for opportunities to provide loans to companies and be able to actively short bonds. Investors in the fund have agreed to hand over their money for five years, a commitment that hedge funds are increasingly pushing for.

While emerging-market specialists have expressed caution on the asset class since the historic election, many have also pointed out that Trump’s fiscal stimulus plan may prove a boon for some of the commodity-producing emerging-market countries and that the president-elect’s threat to impose tariffs is unlikely to translate into practice.

Sergio Trigo Paz, the head of emerging-market fixed income at BlackRock, said last week that investors were likely to turn more neutral on the asset class following Trump’s victory rather than completely ditch their holdings.

© The Financial Times 2016

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