Emerging Unscathed: Featuring Ali Akay

Greg Dowling (00:06): Welcome to the "FEG Insight Bridge." This is Greg Dowling, Head of Research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investments, economic and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance. After years of American Exceptionalism, is this finally the time for emerging markets to shine? Based solely on historical valuation measures, they certainly appear more attractive than the US. However, a litany of headwinds including geopolitical tensions and Trump tariffs all appear as obstacles. Can investors emerge unscathed? To better answer this question, we recruited my friend, Ali, founder of Carrhae Capital, whose personal mantra is, "Struggling, I emerge." He will share his interesting career journey and lessons learned along the way. He will discuss which countries and industries provide the best opportunities in emerging markets, the impact of tariffs, and how investors need to approach risk management. Ali, welcome to the FEG Insight Bridge.

Ali Akay (01:17): It's great to be here.

Greg Dowling (1:18): Would you mind introducing yourself and Carrhae?

Ali Akay (01:21): Absolutely. I'm the founder and CIO of Carrhae Capital. We're an emerging markets asset manager focusing on equities. I personally have been doing emerging markets for about 24 years on the buy side and set up Carrhae Capital with my partners about 14 years ago. We run about $2.5 billion of capital in long, short and long-only strategy. We have 24 people sitting across emerging markets. We have people from India, China to Brazil, our main officer in Dubai, and London.

Greg Dowling (01:51): Now, I know you're a history buff, and Carrhae is a reference to that, right? How did that name come about?

Ali Akay (01:58): Well, all the rocks and harbors and all the good names were taken, so we had to come up with something else. I love Roman history, and Bath of Carrhae is quite a poignant example of arrogance and failure to take local advice, and when marching East, we're marching into uncharted territory. And I thought, when we go to emerging markets, we need to go with local advice with a degree of humility. So I thought it would be apt.

Greg Dowling (02:22): So I actually read up on this beforehand, and pretty interesting. So a huge Roman legion is lured into the desert and basically slaughtered, right?

Ali Akay (02:30): Yes, and the man commanding the legion and who actually financed and equipped the legion is Marcus Crassus, who was part of the triumvirate running Rome, and he didn't have the military glory the others had. So he just had to measure up to them, and he did something pretty stupid.

Greg Dowling (02:47): You have a pretty interesting background, so maybe that helps you not get slaughtered. We'll start with some of your central bank background and then maybe some of the professional background after that. But you've been involved with a couple of different central banks. Maybe explain that, and then how is that helpful?

Ali Akay (03:03): Well, I guess macro is kind of at the heart of emerging markets. My involvement with central banks, I guess the most extensive engagement was as a consultant to the Turkish Central Bank during the last bank crisis in late '90s, early 2000s. We were brought in to advise on what to do with all the failed banks and come up with a blueprint for the new banking system that would be more resilient. And I had the chance to work with some great people including the ex-head of the BOE at the time, Bank of England, as a young McKinsey consultant. I had exposure to a lot of politics, macroeconomists, central bank technocrats, which was great. And I'm glad to say 24, 25 years on, despite all the macro policies that the president has been dictating recently, they haven't had a bank crisis, so I guess it's not too bad. It vindicates our approach.

Greg Dowling (03:50): Turkish lira goes up and down a lot, but they haven't had a banking crisis.

Ali Akay (03:54) : Yeah, exactly. The bank system is still solid. My other tangential central bank experience or involvement is, I was a teaching assistant for the current head of the central bank in Israel so --

Greg Dowling (04:05): That's fascinating. We're going to talk about investing in emerging markets, and one of the questions I wanted to ask, it's really hard because not only do you have normal, fundamental analysis that you have to do, there's politics, and there's currencies and it's very, very different. So how does that frame your thinking? Is there like, "Okay. Yeah. That might be a great stock, but we need to be cognizant of currency devaluations or something"?

Ali Akay (04:26): Absolutely, absolutely. In emerging markets, only the paranoid survive. I tell my team, at the end of whatever is next, it's going to be us and the cockroaches who live through. But in terms of the framework that we use, we have the saying, "We need to align the whole stack." So if you look at the long-term history of emerging markets stocks, a third of stock dispersion happens on the country level. Another third happens on the industry level, and the remaining third happens on the bottom-up level. So you really need to make sure you scrutinize all three levels. You can have a great bottom-up idea, and it could be slaughtered on the currency, interest rates or regulation and vice versa. It could be very positive on a certain country, and you might not have scrutinized the alignment of shareholders and you get into some corruption scandal. It's important to be thorough.

Greg Dowling (05:14): Don't get lured into the desert.

Ali Akay (05:15): Yes, indeed.

Greg Dowling (05:16): So you have the central bank background, but then you also have some pretty amazing practitioner experience, too. So you worked at Goldman Sachs, SAC Capital, HBK. Anything you kind of learned or took from any of those different organizations?

Ali Akay (05:32): I think they all had something to contribute. When I was at Goldman's, I was on the Principal Strategies group that used to be their Risk Arbitrage group. So they had that background of --

Greg Dowling (05:38): A lot of famous people went through there.

Ali Akay (05:42): Yeah, they did. Lots of decision trees, nodes, assessing outcomes, scenario analysis, quite useful.

Greg Dowling (05:49): That thinking and probabilities.

Ali Akay (05:51): Yeah, probabilities, assigning probabilities to nodes. HBK, I worked with the macro team there. They were great relative value investors in the EM fixed income. They had access to all the central bankers, the IMF people and economists, and they had a very sturdy way of investing in emerging markets without taking a whole lot of country risk and understanding the instruments, understanding the signals that you get from fixed income and ascribing that to useful heuristics or insights for equities was something that I picked up there. At SAC, it's the sizing discipline. It's the risk management. It's managing your liquidity and also optimizing the sizing of your positions based on risk-reward and trying to be very cognizant about how we can optimize your return by sizing optimally.

Greg Dowling (06:40): So SAC or any of these pod shops, you can run a lot of money and be happy. They take care of everything for you. Why did you want to launch your own firm?

Ali Akay (06:49): I guess I was asking for trouble. I'd say I've worked at pretty great institutions: McKinsey, Goldman Sachs, HBK, SAC. I think I picked up something from each of them, and I wanted to combine what I learned, my learnings, and add something of my own and put it all together and build something even better, at least try.

Greg Dowling (07:10): I remember meeting you. It was a Goldman Sachs Prime Brokerage event in Rome. We shared a taxi, and you probably don't even remember this. I was like, "So what are you? Who are you, and what are you doing?" And you're like, "I'm going to launch this firm." And we weren't day-one investors with you, but we followed you ever since. It's been a long time.

Ali Akay (07:27): Well, great to have you on board.

Greg Dowling (07:30): It took a while, I guess. Why EM now? Can't we just invest in the US? Boy, it's easy. It goes straight up. Why invest?

Ali Akay (07:36): I think it's mainly diversification. And I think people are very aware of the relative returns and how exceptionally well the US have done. And I think people are, here, aware of US valuations are with the predominance of US equities in their own portfolios. But I think if you travel across EM, one of the things that I noticed is how long the rest of the world is in US stocks. Korean retail owns like $250 billion of US stocks. That was 50 a couple of years ago. An owner of a hotel in Brazil will tell you about their positions in NVIDIA. Oligarch you meet in Dubai will say how much they made in Meta, et cetera, et cetera. So everybody is long, and the weighting of the S&P is essentially very concentrated. And it's the ultimate MOMO trade, right? Because US has momentum, S&P has momentum, and then the top names get weighted higher. I'm not saying people should divest from the US, but it's still the place where capital is treated the best, and the companies are envy of the world, and they're amazing companies, amazing management, et cetera. But everything you own, and especially as a US resident, your long US stock, your long US housing, consumption, housing prices, everything is correlated to the future, the fate of seven stocks. And owning an asset -- We own gold not because of its yield, right? Owning an asset like EM that is also pretty low-quality, sometimes inversely correlated to US asset prices, is probably not a bad thing. And secondly, it is the asset class where active management adds the most alpha, which is very difficult to do anywhere else.

Greg Dowling (09:19): So diversification, there's more alpha potential there. The relative valuations are better, as well. But you mentioned the oligarch who's investing in Meta. All those examples you named were tech stocks. Is some of the difference in valuation just the lack of tech sector other than China and a lot of the EM countries?

Ali Akay (09:39): Actually, it goes beyond that. I can give you very specific examples. We cover a lot of industries globally, so we're well aware of the US peers. I can give you a half a dozen EM companies who, if they move their listing to the US and they have US operations, they would get a huge value bump. And one of the biggest M&A or listing activities in Europe these days is that European companies that have either a big US division or US presence either moving the listing or listing their US arms and then you get an immediate 40, 50 percent bump because it's the US.

Greg Dowling (10:16): Yep.

Ali Akay (10:14): So let's say in Brazil, there's Gerdau Steel, half the operations in the US. Trades at, I don't know, three and a half times the EBITDA. Value of the US arm at, I don't know, something close to Nucor, you will get a negative value for the rest of it, and the list goes on and on and on. So it's not only tech. It's just US stocks that are just priced more dearly than elsewhere.

Greg Dowling (10:37): All right. Let's talk about the elephant in the room. That all sounds great. You're starting to sell me a little bit on this EM thing, but what about tariffs?

Ali Akay (10:45): We can talk about the picture as of yesterday or the pictures of last week or the picture as of next week. It's anybody's guess, and tariffs usually lead to currency adjustments. You just need to be aware of that and where the potential big currency moves are. But I don't think tariffs in themselves would sink emerging markets. Trade adjusts. Currencies adjust, and great companies continue to compound. As of who is going to get tariffs, what tariff, I think I'm probably the wrong audience. There's only one man who knows. And I was in Miami, not far from Mar-A-Lago, but I'll visit him next time when I'm there on a weekend.

Greg Dowling (11:23): Yeah. There you go. Just walk right up. I'm sure they'll let you do that.

Ali Akay (11:26): Yeah.

Greg Dowling (11:27): I guess related to that, you're right. The shock absorber for a lot of things is currencies. And so how do you kind of deal with currency fluctuations? And the other big headwind for US investors who want to invest abroad is the strong dollar, and it seems like it'll continue to be fairly strong over at least the short term.

Ali Akay (11:46): Well, that's difficult to know, but the way we see it is, we have a good mix of exporters, importers, et cetera, stocks that could benefit from a strong dollar. We own stocks in countries that have managed currency. So if you're investing in the Middle East, you don't care about a strong dollar. So we've been happy holders of Embraer, the Brazilian company that is actually very geared to weaker BRL. We try to put a good mix together, not get too hurt or not to be too bothered if the dollar keeps getting stronger.

Greg Dowling (12:19): The other related to tariffs is just general geopolitics, and it does seem like the world is splitting along an East-West divide. Is China investable?

Ali Akay (12:34): Definitely. It goes up, it's investable. If it's not going anywhere, it's not. But I think we need to think about investor basis or the American investor investment in China. That's been going down across from privates to publics. But China is one of the highest savings-to-GDP societies in the world, and the average equity allocation is very, very, very low. Interest rates are very, very, very low, and they can't invest in real estate because it's not attractive anymore. So currently they're piling up cash balances and invest in gold. But if they got animal spirits. And in my experience in China, they flip on a dime about everything. And they go to excess, from pessimism to optimism to back, so they don't need us to rally their markets. They can. And for the US investor, I would be personally quite apprehensive about putting money into venture capital or private equity fund or growth fund in China with a 5-year lock, 7-year lock, et cetera, or buying real estate in China. But they are not going to disappear. There is a case where Chinese equities can do a lot. I'm not saying they will, but there's a chance. So you need to be agile, tactical and to be able to benefit, if and when that happens. Being a global emerging market manager who can be in China, but don't have to be in China, I think we're pretty well-positioned for this kind of world.

Greg Dowling (13:51): Yeah, it's hard too, because you mentioned that only one person knows. President Trump is hard to pin down, and he's pretty volatile himself. He likes to negotiate. It wouldn't shock me either if there was some grand bargain that he hit with China, and then all of a sudden China was our friend and not our enemy. But who knows, right?

Ali Akay (14:08): The events of the last month should tell everyone that what they read from political consultants, of which we have many, it's very unlikely to be accurate in the sense that we have a new administration come in, the most hawkish or China -- Sinophobe cabinet ever. And we were expecting 60 percent tariffs on China and nothing on the friends, and now it's the perfidious Canadians that are getting the bulk of the tariffs, and Chinese are scot-free. That could change, but we don't know, and there pretty fat tails on either side, so --

Greg Dowling (14:44): Yeah. Maybe we'll be divesting from Canada, I guess.

Ali Akay (14:48): Get rid of those --

Greg Dowling (14:50): Yeah, those Canucks.

Ali Akay: (14:50): Yeah, exactly.

Greg Dowling: (14:53): That's right. You've got to watch them. China and India get most of the headlines in sort of EM land, but it's such a huge market, and I wanted to spend some time talking about some other markets. So maybe we can kind of go on a journey around the world and hit a few different countries.

Ali Aka (15:06): Let's get going.

Greg Dowling (15:06): Yeah, so how about let's do Greece?

Ali Akay (15:08): It's been a fantastic market. It's small. It has no correlation with the rest of this hodgepodge of countries called emerging markets, and they've had been atrociously run for a number of years. They had a financial crisis, and post-financial crisis there's been a great recovery in their financials and asset pricing and real estate, and the banks have been a very good play on that and it's been a gift that keeps on giving. And obviously the fundamental of their economy is essentially tourism. They're in the Eurozone. They don't trade with the US. No tariff wars there. No China risk there. No major currency risk there. It's got its own thing, and it's a good diversifier, and it's been a great source of return.

Greg Dowling (15:51): I'm a fan of Greece, been on vacation there, but maybe even more underrated but also an emerging market is Turkey.

Ali Akay (15:58): Indeed. Actually, I'm of Turkish origin. According to my DNA, I'm 60 percent Greek, so --

Greg Dowling (16:02): And the border has changed so many times.

Ali Akay (16:03): Yeah, exactly. Yeah.

Greg Dowling (16:04): Who knows? Yeah. true.

Ali Akay (16:04): Yeah, my family came from Greece to Turkey.

Greg Dowling (16:07): Yeah, and so what about Turkey?

Ali Akay (16:10): It is a wild market. It's been a great source of alpha. What makes it so great is, because of the crazy macro policies this government has pursued over time, the foreign investment into equities is very, very low. But the local investment is very high because they've run negative real interest rates for a long time, so the locals try to protect their wealth, real financial assets, equities and real estate. And equities, they trade actively. And wherever you have big retail participation, you can get alpha. so we like Turkey. One problem for us has been single-stock, short sale ban, so we have to use the index for a while. So for the last couple of years, we've created alpha, but always in smaller size, because you can't short single stocks. But they've just lifted the ban, and we look forward to doing much more there.

Greg Dowling (16:57): Oh, that's great. All right. So let's hop to another part of the world, Peru.

Ali Akay (17:02): Peru, there's one or two stocks there. There's a bank that I love. I've been a shareholder on and off for almost 15, 20 years, Credicorp. That economy is very interesting in the sense that what I like about it is the government is always about to fall, and the prime minister is always -- The popularity rating is the president of 15 percent. You talk to economists and locals and say, "Well, there is that risk." But the country, after having been on the precipice for so long, has learned to live with it. The bureaucrats are on the place. The politics are a mess, but who cares? And they have very low leverage in the corporate and households and governments that the GP, I think, probably 30s. It's this quasi-managed currency. You don't worry about the currency. You don't worry about the politics because they're always a mess. They loan copper and gold, which we both like.

Greg Dowling (17:49): Copper and gold. It's funny, when you visit some of these countries as a foreigner and you read up on all the headlines, and you must be thinking, "Gosh, everything must be crazy in this country because of the politics and this and that." And oftentimes you go there, it's just normal business. They're used to it, and they just kind of go about their daily routines, and --

Ali Akay (18:05): Yeah. Human beings, we're an incredibly resilient, adaptive species, so we just adapt and move on.

Greg Dowling (18:11): So one country that, gosh, you just think, "Well, they should be developed." Then every once in a while, they remind you why they're an emerging-market country: How about South Korea?

Ali Akay (18:23): Well, the last political events, the shenanigans, that was a curveball, I might say. I didn't expect that. Quarrels about budgets is one thing, but getting upset at their position for being intransigent about the budget negotiations and trying to arrest the MPs is something else. And the president who did that was an erstwhile prosecutor, so I think he knows the law.

Greg Dowling (18:41): You would think, yeah.

Ali Akay (18:41): But I think the good thing about the whole thing, it was just so shambolic. And he was -- basically came out as an oddball madman, and the whole society coalesced around the core values of parliamentary democracy and didn't go anywhere. So I think for anybody else who harbors such thoughts about politics or such methods about politics, the message was that the country will not bear it. So I think it was crazy, but it had very low chance of succeeding, and somebody else trying to act in such ways is probably, at this point, pretty inconceivable in South Korea.

Greg Dowling (19:17): With South Korea, talking to a lot of either Asian managers or EM managers, there is this general theme that the South Koreans were behind the Japanese in some of their governance reforms. There's a little competition between them, and they were going to improve their governance. And this political shenanigans, is that going to at all prevent or slow any of that down?

Ali Akay (19:37): I think it was already a bit slow, given that there was no clear majority. Very difficult to push through significant reform, structural reform, when you don't have a clear majority, when power is so divided. But I think the impetus is there. And in Korea's case, they have awful demographics, worst in the world.

Greg Dowling (19:55): Is it worse than Japan?

Ali Akay (19:56): Worse than Japan.

Greg Dowling (19:57): Wow.

Ali Akay (19:58): They're in a bad way, and the concentration of wealth and GDP among seven different groups stifles competition, and they've caught the stock market investing bug there. I think a third of people over a certain age own stocks now. There was zero 10 years ago. I think as a country and people, they have an incentive to break up these groups, improve capital allocation so that they create wealth for a very precariously aging society. I know what should happen, but I don't know whether it will happen or when, but we have some positions. What we try to do is, we look at the operating businesses that we want to own. We own Hynix, SK Hynix, the memory foundry that has dominant market share in high-bandwidth memory. And then we look at parent companies. They have multiple parents. And if we see something, a huge discount that might eventually shrink and create additional off on top of the operating company, we buy that as well as an adjunct, add-on trade.

Greg Dowling (20:53): And let's get a little closer to home. How about Mexico?

Ali Akay (20:56): Well, Mexico, we're going to know in a few days whether they get the tariffs or not. But we've been looking at this situation with the US relationship for a while. We've had extensive contact with the local politicians and decision makers there. And from the beginning, the present administration took over in Mexico, the message to us was clear: We're going to engage the US constructively. We understand their concerns, and we'll do whatever it takes to have a good relationship with our largest trading partner and neighbor. And if you look at what they've been doing on immigration, cracking down on any incremental efforts they've put in against the drug cartel and this new economic plan that prioritizes North American trade and reducing imports from Asia and buying more from North America, which is a pretty extensive, well thought-out plan, they're doing everything they can. Whether it's good enough is going to be assessed by somebody sitting in the US. And they haven't engaged in any of the grandstanding, let's say, the recent example with the Colombian president. They've been quiet. They've had their emissaries and people and traveling around DC and meeting people and explaining what they can and can't do. And just to remind people, the current trade agreement between US, Canada and Mexico was updated and signed and designed by the first Trump administration. And he hailed it as the best trade agreement ever signed by the US, so it's slightly disingenuous to turn around a couple of years later and say, "This was a terrible agreement and being taken advantage of." I think there are things that the US is legitimately concerned about, Chinese companies taking advantage of Mexico to come in as a Trojan horse into the US market. And Mexico has back-channeled solutions, and they want to work with the US on that. So the current agreement is just that the current agreement needs to be updated. And finally, almost half the value-add of Mexican exports to the US accrues to American companies. It makes absolutely no sense to punish Mexico and Canada and punish US corporate America.

Greg Dowling (23:01): Auto manufacturer.

Ali Akay (23:02): The same auto part goes back and forth 15 times, and you're going to tariff it each time? The crazy thing is we've been canvassing a lot of manufacturings on tariffs from Samsung to Nissan to other emerging companies. And when we heard some Korean company telling us, "Well, this happens, the Canada-Mexico tariffs, we might downscale North American manufacturing and move manufacturing to China and Malaysia," that is just crazy.

Greg Dowling (23:27): That is the opposite of what they did.

Ali Akay (23:28): That's --

Greg Dowling (23:29): Yeah, right.

Ali Akay (23:29): I want to send that excerpt to people in DC to carefully consider what they're doing.

Greg Dowling (23:34): You mentioned gold earlier. I know you have some positions in gold miners.

Ali Akay (23:37): I'm a gold bug.

Greg Dowling (23:38): Maybe you just always own gold, but why gold now?

Ali Akay (23:40): I think there are multiple reasons. That's a multi-layered thesis. One, on the golds, where there's gold, gold miners and the gold miners we own, right? There's three layers to that. First layer, gold, you can see the fiscal situation in the G20, and the needs for government spending just keep increasing. The Europeans need to spend on defense. The US wants to increase more spending on defense, engaging societies, et cetera, et cetera. And I don't really believe on a magic deus ex machina solution to DOGE solution to solve the US' fiscal issues. So you need to run these economies hard. You need to take it from the savers in one way or the other. You're not going to increase taxation, and then increased taxation rarely solves a --

Greg Dowling (24:26): You solve it by a little growth and then a little inflation.

Ali Akay (24:29): Yes, and gold is a good asset for that. Furthermore, you have the geopolitical tensions. What was done to Russian reserves is a clear sign to anybody, whether you're Saudi Arabia or -- You're not inside the tent if you're not US, UK and part of the club. Sovereign assets might be at risk. So they need to diversify, and they are. And just going back to the original point, gold demand has traditionally been very strong in the Middle East and India and Turkey. But China retail joined the camp. They have every reason to diversify and have something solid. They don't trust their future in the country, so good to have a movable asset that's real, et cetera. And now, seeing it in Japan, Japan retail is buying gold. And I think in the US, a portion of society is very excited about new administration and the pro-business stance. But there are people who are apprehensive about the country's future and how the debt mess is going to be cleared, so there is demand there. So globally, we are having structurally higher demand for gold, and I've been in gold mining for a very long time. It's a tough business. You can never get the supply when the time frame -- the cost that you want, so there's that. And gold miners are very cheap versus gold. Talk to any gold mining analyst. They have the back end of the curve. The assumption they come up with to justify their stock prices are 1,800 gold, 1,700 gold, 1,600 gold, whereas spot is much, much higher. So I think the gold miners versus gold is -- They're very cheap. And then we have individual miners that have, we think, underappreciated assets, so hopefully we're right.

Greg Dowling (26:01): Is there any other area you wanted to hit on, a country or maybe a company that nobody has heard of that they should have heard of in emerging markets?

Ali Akay (26:10): I think the sort of companies we invest in are mid-to-large caps. I think we're talking to a pretty sophisticated base. I think they would have heard of most of the companies that we invest in. If you want to be positive, I would say South Africa is interesting in the sense that that place was probably that they won the medal for the worst-run country for a very, very long time. Now, they are just poorly run.

Greg Dowling (26:33): You can make a lot of money in emerging markets when you go from really bad to slightly bad.

Ali Akay (26:37): Exactly, exactly. And then you've seen the transformation in Argentina, right?

Greg Dowling (26:42): Yeah. Almost seems nuts, but free markets on steroids, but it seems to be, at least for now, working.

Ali Akay (26:48): Yeah. I'm not sure about the equities. They seem a bit over ag, but the sovereign bond has been amazing, and I still think it's interesting. And Ukraine, obviously, I think that place, when reconstruction starts, there's going to be beneficiaries. I think the Ukrainian bonds are interesting, the GDP warrants are interesting, and there are plays outside Ukraine that can get a nice kick if and when that conflict is wrapped up. All sides are very tired, so I think they will try very hard to come up. There's a window to at least stop the bleeding.

Greg Dowling (27:20): Well, that's interesting. You heard it here. Ukrainian GDP warrants could be -- I like it. I like it a lot. So we've talked about all of these far-flung countries and how emerging markets are -- It's not really a block. People always sometimes talk about BRICS and an acronym, but emerging markets is much, much bigger, and just different types of economies, different growth patterns, but can be pretty volatile. I'd be curious to know how you manage risk of your portfolio.

Ali Akay (27:52): Well, we have developed our customized risk-management system. We have three quants, and I've been running an EM portfolio for 20-odd years. My team is quite experienced. And I have a severe case of acid reflux that's episodal. So my stomach usually, apart from our risk system splashing, my stomach gives me the best signal on --

Greg Dowling (28:15): When your stomach hurts, you know there's a problem coming. That's pretty good, yeah.

Ali Akay (28:19): He's a better investor than I am. But in the hedge fund, we've been able to compound pretty nicely, even in a market that's done nothing in dollar terms for 14-odd years. We're very cognizant about our currency risk. We are very tight on liquidity, 2-day ADTV. I think we are managing it like we're still running in a pot shop. We don't do small or micro caps. We don't do frontier so that we have an ability to move our positions around. And we do a fair amount of tail hedging on auto money puts, holds, CDS when it's necessary. And then along on the fund, we are aware of the benchmark. We're not going to be following the benchmark, but if something is a very big weight in the index and we don't have a very significant view and it could go either way, we're not going to take the risk. We're not going to have errors of mission either if we can avoid it, so we're paranoid. We have very good risk systems, and we try to invest in very uncorrelated clusters of stocks, a Brazilian aerospace company and a Greek bank and a Chinese Internet name. They shouldn't correlate. In the case they do, there's a global-contagion event. We have the tail risk.

Greg Dowling (29:34): And most times, they don't, but they sometimes do, right? Because they might be all part of it, especially if it's an index and people are just selling the EM index. They can all kind of correlate to one.

Ali Akay (29:42): Yes. Then we try to also have positions in places where EM index or foreign investors are not the major price determinants. So if you invest in the Middle East, they determine the stock price, and Saudi retail determines the stock price. It's not EM investor or because everybody is underweight. So I think it's important not only to look at the fundamental correlation but also investor basis, et cetera, so it's a lot of work.

Greg Dowling (30:08): I've heard people say that they know when it's going to rain because they can feel it in their hip or their bones, but I've never heard of the stomach. That's the early warning system for emerging markets. I like it. I wanted to ask you, been all over: How many languages do you speak?

Ali Akay (30:22): I speak seven, most of them rather badly, but I speak seven.

Greg Dowling (30:26): So what are those seven?

Ali Akay (30:26): Well, English, Turkish, German, French, Norwegian, Portuguese, Spanish.

Greg Dowling (30:32): And then how many languages are spoken at your firm?

Ali Akay (30:35): Too many to count. From Korean to Hindi to Arabic to Brazilian Portuguese to Russian, we've got it covered.

Greg Dowling (30:43): You've traveled quite a bit, so I wanted to ask you, favorite EM country to visit?

Ali Akay (30:50): Depends on the season.

Greg Dowling (30:51): Okay. Well, maybe give me some seasonal picks.

Ali Akay (30:54): In the European winter, South Africa is pretty great or Brazil. Late summer or early autumn, I'd say Turkey and Greece are pretty amazing. One of my favorite activities is going to a country, chatting with the cabbies. Particularly love going to a barbershop, getting a haircut, usually save a bunch of money, but also those people are actually quite loquacious. They're great conversationalists because they have to. And they speak to 1 million people a day, so they give you the lay of the land pretty well.

Greg Dowling (31:23): If you've never done it, Turkish barbershops are pretty amazing. Yeah?

Ali Akay (31:27): They also burn your -- the air.

Greg Dowling (31:29) :Yeah. They put fire into your ears. Yeah. It's an experience.

Ali Akay (31:32): It's an experience.

Greg Dowling (31:33): It's an experience. You also said earlier that you love history, and you're a big reader of just history. You mentioned Roman, but maybe other history that you're fond of? And maybe we'll take a couple of your favorite books about history that you would recommend to our listeners.

Ali Akay (31:48): I have a very broad range. I could go from the history of Byzantium. Anything by Runciman is a great read, Byzantine art. I think it's a lot of what we construct in our head as kind of the great Western narrative and its origins. I think Byzantium is essentially written off our histories because they were on the losing side. I think it's important to look at these narratives critically and find the parts of the world and civilizations that didn't quite make it because they're not going to be in the history books, and they're in the common narrative, but they've had an interesting contributions to who we are today, so I like doing that.

Greg Dowling (32:22): You mentioned one author. Any other authors you would recommend?

Ali Akay (32:27): Well, I would avoid Niall Ferguson --

Greg Dowling (32:31): I like Niall Ferguson.

Ali Akay (32:33): -- just as a person.

Greg Dowling (32:35): He writes some good -- "The Ascent of Money."

Ali Akay (32:37): Yeah, look. I've read most of his books, but he's now become too much of an ideologue.

Greg Dowling (32:42): Yeah.

Ali Akay (32:43): And then once you have a jaundiced lens, everything becomes an opinion rather than history, but I like his earlier books.

Greg Dowling (32:50): Favorite food in an emerging market? You're in a country you've got to go to. What are you eating? Give me two if you can't choose one.

Ali Akay (32:57): I think I just like a good mezze platter, whether it's Greek, Turkish, Lebanese. I don't care. Just give me a good mezze platter. I won't have space left for the main, but give me a good mezze platter.

Greg Dowling (33:08): I had a Turkish breakfast one time, and I've never seen so many plates on a table.

Ali Akay (33:12): I know. How do you go to work afterwards?

Greg Dowling (33:14): Maybe you don't. Maybe if they got rid of that giant breakfast, the economy would pick up.

Ali Akay (33:17): Yeah, perhaps.

Greg Dowling (33:18): Thank you so much for spending time with us today and our listeners. We learned a lot, and you won't get slaughtered in the desert. You're going to take the right approach to --

Ali Akay (33:26): I'll hydrate well. Don't worry.

Greg Dowling (33:28): All right. Thank you very much.

Ali Akay (33:30): Thank you.

Greg Dowling (33:31): If you are interested in more information on FEG, check out our website at www.feg.com. And don't forget to subscribe to our communications so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client. Therefore, nobody should consider these to be FEG recommendations. This podcast was prepared by FEG. Neither the information or any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views and opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of their firm or of FEG.