Key Takeaways
- • Union Bancaire Privée launched "The Walking Tree," a new emerging market long/short hedge fund focused on fixed income, positioning active management strategies for a volatile market environment expected to persist through 2024.
- • Sergio Trigo Paz, UBP's head of emerging market fixed income and former head of emerging market debt at BlackRock (decade-long tenure), argues that the era of low-cost borrowing has ended with interest rates now at 5%, creating a fundamental shift in emerging market investment dynamics.
- • Deglobalisation is reshaping emerging markets, with multinational firms relocating production from China to lower-risk jurisdictions like Mexico despite higher costs, creating both winners and losers across EM debt securities.
- • UBP identifies high-conviction, actively managed strategies as critical in emerging market debt, contrasting with the previous decade's performance dominance of passive exchange-traded funds and low-spread borrowing conditions.
- • The macro environment combines geopolitical tensions, changing consumer behavior, demographic shifts, and elevated interest rates, creating what UBP characterizes as a period requiring tactical fixed income positioning rather than passive exposure.
Summary
Union Bancaire Privée has amplified its emerging market fixed income capabilities by launching a dedicated hedge fund strategy and reaffirming its conviction in active management for EM debt in 2024. The Swiss private bank held a media event in London on November 23, 2023, where it outlined the debut of "The Walking Tree," a long/short hedge fund positioned specifically for emerging market fixed income investments. This product launch reflects UBP's assessment that market conditions favor active, high-conviction strategies over the passive approaches that dominated the previous investment cycle.
The strategic rationale centers on a structural shift in global financial conditions. Sergio Trigo Paz, UBP's head of emerging market fixed income who joined from BlackRock after a decade leading that firm's EM debt division, characterized the current environment as a departure from the previous era of ultra-low interest rates and compressed spreads. "Interest rates are now at 5 per cent. We are now back to reality," Paz stated, emphasizing that the investment playbook of the past decade—which favored long equities, longer-duration bonds, and passive ETF exposure—no longer applies. The convergence of elevated rates, geopolitical uncertainty, and shifting consumer dynamics creates both risks and opportunities that demand active oversight.
Deglobalisation represents a critical thematic driver UBP identifies for emerging market debt allocation. Paz noted that multinational corporations are systematically relocating production away from China toward geographically closer, lower-geopolitical-risk jurisdictions such as Mexico, despite accepting higher production costs. This reallocation dynamic will generate differentiated returns across EM sovereigns and corporates, favoring countries positioned as secure manufacturing alternatives. "There will be winners and losers," Paz noted, underscoring the necessity for tactical security selection rather than broad EM debt exposure.
The timing of The Walking Tree's launch aligns with UBP's observation that sustained market volatility, driven by geopolitical tensions and macroeconomic uncertainty, creates an environment where active management and nimble positioning deliver superior risk-adjusted returns. The bank's emerging market fixed income team believes the combination of elevated rates, deglobalisation, and demographic shifts across developing economies will sustain relative attractiveness in EM debt for institutional and alternative investment professionals seeking differentiated exposure beyond traditional fixed income allocations.
The strategic rationale centers on a structural shift in global financial conditions. Sergio Trigo Paz, UBP's head of emerging market fixed income who joined from BlackRock after a decade leading that firm's EM debt division, characterized the current environment as a departure from the previous era of ultra-low interest rates and compressed spreads. "Interest rates are now at 5 per cent. We are now back to reality," Paz stated, emphasizing that the investment playbook of the past decade—which favored long equities, longer-duration bonds, and passive ETF exposure—no longer applies. The convergence of elevated rates, geopolitical uncertainty, and shifting consumer dynamics creates both risks and opportunities that demand active oversight.
Deglobalisation represents a critical thematic driver UBP identifies for emerging market debt allocation. Paz noted that multinational corporations are systematically relocating production away from China toward geographically closer, lower-geopolitical-risk jurisdictions such as Mexico, despite accepting higher production costs. This reallocation dynamic will generate differentiated returns across EM sovereigns and corporates, favoring countries positioned as secure manufacturing alternatives. "There will be winners and losers," Paz noted, underscoring the necessity for tactical security selection rather than broad EM debt exposure.
The timing of The Walking Tree's launch aligns with UBP's observation that sustained market volatility, driven by geopolitical tensions and macroeconomic uncertainty, creates an environment where active management and nimble positioning deliver superior risk-adjusted returns. The bank's emerging market fixed income team believes the combination of elevated rates, deglobalisation, and demographic shifts across developing economies will sustain relative attractiveness in EM debt for institutional and alternative investment professionals seeking differentiated exposure beyond traditional fixed income allocations.
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