Key Takeaways
- • Union Bancaire Privée launched "the walking tree," a new emerging market long/short hedge fund focused on fixed income, positioned to capitalize on structural shifts in global markets and geopolitical volatility.
- • Sergio Trigo Paz, UBP's head of emerging markets fixed income and former head of emerging market debt at BlackRock (where he spent a decade), leads the initiative and argues that active management strategies will outperform in a higher interest rate environment where passive approaches no longer deliver outsized returns.
- • Rising interest rates (now at 5 percent) have fundamentally altered the investment landscape: the era of low-cost borrowing and compressed emerging market spreads has ended, creating new opportunities for active fixed income strategies in emerging markets.
- • Deglobalization trends are reshaping emerging market dynamics, with multinational firms relocating production from China to geographically closer, more secure locations such as Mexico, creating distinct winners and losers across the region.
- • UBP's strategic emphasis on high-conviction, active management reflects a belief that persistent volatility driven by geopolitical tensions, evolving demographics, and economic uncertainty will favor skilled active managers over passive index-tracking approaches through 2024 and beyond.
Summary
Union Bancaire Privée, the Swiss private bank, outlined a comprehensive strategic pivot toward emerging market fixed income opportunities at a London media event on November 23, 2023, announcing the launch of a new emerging market-focused hedge fund called "the walking tree." The fund targets long/short positions in emerging market fixed income securities, designed to capitalize on structural market shifts and elevated volatility expected to persist through 2024.
Sergio Trigo Paz, who joined UBP as head of emerging markets fixed income after spending a decade leading BlackRock's emerging market debt division, anchored the bank's investment thesis. Paz emphasized that fundamental macroeconomic shifts are reshaping investment opportunities across emerging markets. He highlighted a critical inflection point: the decade-long era of accommodative monetary policy, compressed spreads, and passive index-fund dominance has definitively ended. With interest rates now normalized at approximately 5 percent, the structural underpinnings that drove returns for passive strategies have eroded, and active management has regained relevance.
The investment environment is further complicated by geopolitical tensions, shifting consumer behavior, and demographic changes that create asymmetric risk-reward profiles across emerging market sovereigns and corporates. Paz underscored deglobalization as a critical macro trend reshaping emerging market competitiveness. Rather than concentrating manufacturing in low-cost China, multinational corporations are prioritizing geographic proximity and supply chain resilience, relocating production to regions such as Mexico—accepting higher production costs in exchange for operational security. This structural reallocation will generate distinct winners and losers across emerging markets, making selective, high-conviction investment approaches more valuable than broad-based exposure.
UBP's strategic repositioning reflects a conviction that volatile markets and elevated uncertainty favor active managers capable of identifying differentiated risk-adjusted opportunities. The launch of the walking tree hedge fund, combined with UBP's recent expansion of emerging market fixed income capabilities, signals institutional confidence that the emerging market debt complex offers compelling risk-adjusted returns for sophisticated investors willing to embrace active management and navigate a more complex, multipolar economic landscape.
Sergio Trigo Paz, who joined UBP as head of emerging markets fixed income after spending a decade leading BlackRock's emerging market debt division, anchored the bank's investment thesis. Paz emphasized that fundamental macroeconomic shifts are reshaping investment opportunities across emerging markets. He highlighted a critical inflection point: the decade-long era of accommodative monetary policy, compressed spreads, and passive index-fund dominance has definitively ended. With interest rates now normalized at approximately 5 percent, the structural underpinnings that drove returns for passive strategies have eroded, and active management has regained relevance.
The investment environment is further complicated by geopolitical tensions, shifting consumer behavior, and demographic changes that create asymmetric risk-reward profiles across emerging market sovereigns and corporates. Paz underscored deglobalization as a critical macro trend reshaping emerging market competitiveness. Rather than concentrating manufacturing in low-cost China, multinational corporations are prioritizing geographic proximity and supply chain resilience, relocating production to regions such as Mexico—accepting higher production costs in exchange for operational security. This structural reallocation will generate distinct winners and losers across emerging markets, making selective, high-conviction investment approaches more valuable than broad-based exposure.
UBP's strategic repositioning reflects a conviction that volatile markets and elevated uncertainty favor active managers capable of identifying differentiated risk-adjusted opportunities. The launch of the walking tree hedge fund, combined with UBP's recent expansion of emerging market fixed income capabilities, signals institutional confidence that the emerging market debt complex offers compelling risk-adjusted returns for sophisticated investors willing to embrace active management and navigate a more complex, multipolar economic landscape.
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