(Pictured: James Gruver)
The waters, in the search for alpha, have been muddied of late because of the – possibly – incompatible search for yield. Well, how about emerging markets credit? That seems to tick both boxes. James Gruver, well known to the market from his former role as head of BNY Mellon in Australia, has an intriguing new story.
Black River, the independently owned alternatives manager based in Minneapolis, is currently involved in a small capital raising for an emerging markets credit fund. Gruver and his colleague from New York, portfolio strategist Charles Friedberg, were in Australia last week to tell the story.
Black River is an independently managed funds management subsidiary of the largest privately owned company in the US, the 150-year old agricultural company Cargill. Black River, which refers to the Black River in Wisconsin, where in the late 1800s, Cargill had a logging operation that was an important part of the firm’s early success., was formed as a separate funds management business in the 2003.
Gruver says that timing is right for emerging market credit as, what may be, a new asset class for many super funds. There is, for instance, a wall of re-financing beginning in the next two or three years following the record US$1.6 trillion in emerging markets bond stock, as at September 30.
“Many of these companies have not been through a re-financing before,” Gruver says. “And their financials, on average, have weakened because of declining commodity prices plus middling growth in the global markets… This is a great opportunity for managers like us.”
Friedberg, an experienced investment professional who joined Black River this year, says that Australia’s long history as investors in infrastructure and other alternatives, and our knowledge of the commodities cycle, mean that an emerging markets credit strategy tends to resonate with super funds.
“The market here readily understands the strategy. It’s not a product for everyone, of course. It has a three-year tenure. We look at mainly marketable securities but they not necessarily very liquid. We define risk as loss of capital rather than mark to market.”
Black River, which has 190 investment staff overseeing about US$8 billion under management, specializes in niche strategies. The emerging markets team includes 43 investment professionals. They work closely, the managers say, with the separate private equity and natural resources teams.
Gruver observes that a lot of international allocations by Australian super funds rely heavily on beta for their returns. The Black River range of strategies, which cover a spectrum of liquidity, are very different, he says.
“With interest rates so low, where else are you going to put your money? There are few asset classes which can offer both yield and a growth strategy going forward.”
The argument for emerging markets credit stems on the fundamentals following a record year of about US$360 billion in issuance, with companies that have debuted in the market matching pre-2008 levels. The spike in maturities require re-financing in 2017.
“Given the market conditions, with rising supply and greater financial volatility, we believe this is a great opportunity,” Friedberg says.
Gruver headed up the multi-affiliate finds management business of BNY Mellon in Australia for several years before being promoted to a senior New York role with the firm. An American-born Australian, he joined Black River in 2012 and moved his family to Minneapolis. Interestingly, his successor at BNY Mellon in Australia, Bruce Murphy, is in the process of vacating that role to join one of the affiliates, Insight Pareto.
Gruver says: “Australia is a great fit for our strategies. We offer solutions across the liquidity spectrum. Most of our equity strategies are either closed or close to closing but this credit strategy is a hybrid structure which offers the best of both worlds.”
