Authored by:
Robert Koenigsberger, Managing Partner & Chief Investment Officer
Mohamed A. El-Erian, Chair
Petar Atanasov, Director & Co-Head of Sovereign Research
Kathryn Exum, Director & Co-Head of Sovereign Research
January 15, 2025
Decoding the Global Macro Environment: A Top-Down Perspective and Implications for Emerging Markets Heading into 1Q 2025
Top-Down Observations
Themes Influencing Investment Decisions Entering 1Q 2025
The world enters 2025 facing a consequential economic challenge: It must broaden its growth engines amid high debt, large deficits, and unusual policy uncertainties. Meeting this challenge is integral to maintaining the shield against harmful spillovers from messy geopolitical conditions. It is also closely related to unleashing productivity opportunities associated with exciting innovations in transformational sectors such as technology and life sciences.
The world economy in 2024 was a mixed picture, and several key observations take us into 2025. Having again confounded many analysts’ forecasts of recession for 2024, the U.S. economy significantly outperformed most of the other advanced countries. The stronger growth, along with more sticky inflation than anticipated by the Federal Reserve, has meant that policy rates have fallen by less than markets expected a year ago (and market yields have risen).
Europe, however, struggled to maintain its growth, with several countries teetering again on the verge of recession. Government collapses in Germany and France, the region’s largest two economies, added not just to domestic volatility but also to policy uncertainties for the European Union as a whole. In the case of France, this also led to spreads on its government bonds trading at the same level of Greece, a once unthinkable occurrence.
In Asia, China found itself fighting low growth and hesitant consumer confidence, torn between two competing policy alternatives. On the one hand, there were calls to stimulate the economy’s leaky economic engine with “bazooka” measures, weighing the promise of higher growth with the cost of encouraging corporate inefficiencies and misallocations of resources. On the other hand, there was pressure to deepen the structural reforms needed to re-energize this engine and make it less vulnerable to external headwinds at the cost of lower growth in the short run.
Overall, the uneven and inconsistent growth pattern rendered the global economy more vulnerable to high debt levels fueled by unusually large fiscal deficits. It also frustrated the type of investments needed to improve public services, enhance education and health, and position many world economies for tomorrow’s drivers of growth and prosperity.
This unbalanced growth configuration translated into a more difficult operating environment for many emerging economies. Higher government bond yields in the U.S. also pressured their currencies and contributed to stubbornly high borrowing rates. However, the benefit of relatively agile policymaking in most economies contained any threats to debt sustainability and asset class contagion.
All this occurred in the context of a more difficult geopolitical environment that saw Russia gradually gain the upper hand in Ukraine, the humanitarian crisis in Gaza worsen, and the Hamas-Israel conflict expand to other countries in the region. Indeed, one of the striking aspects of last year was the extent to which markets and the global economy managed to fend off adverse geopolitical spillovers.
Now, at the start of 2025, a broadening of global growth is needed for the global economy to continue playing both defense against geopolitical contagion and offense to harvest actual and potential productivity gains. This depends on three things:
– First, a revamp in policies in China and Europe, putting durable growth at the top of the agenda.
– Second, the U.S. economy’s benefits from the announced deregulation agenda of the incoming administration outweighing the potential economic headwinds from the possibility of higher tariffs, unfunded tax cuts, and labor force shrinkage due to the large-scale repatriation of illegal immigrants, as well as the risk of another policy mistake by the Federal Reserve.
– Third, better policy coordination at the regional and multilateral levels.
These uncertainties point to the need to frequently test baseline scenarios against actual developments and evolving prospects. From a top-down perspective, it suggests continued dispersion of macroeconomic and corporate outcomes impacting markets, particularly the foreign exchange and fixed income segments. With careful security selection and smart portfolio structuring, it is an environment that promises multiple opportunities associated with high carry, bouts of volatility and valuation overshoots, and changing relative values between and within major asset classes.
Global Growth
Central Bank Policy
Dispersion – good, bad and ugly?
Wait-and-see mode
U.S. exceptionalism to continue? Does stronger U.S. growth increase inflation/stagflation risks?
China withholds material stimulus for potential trade war.
Europe’s lack of reforms fuels recession risks amplified by a possible trade war.
Uncertainty about U.S. inflation outlook and Fed policy actions and signals.
EM cutting cycles facing headwinds from stronger USD and possible reflation.
Focus on idiosyncratic stories in EM local debt.
Volatility
Geopolitics
Opportunity for active management
Rise of geoeconomics
Pockets of event risk could arise from government policymaking uncertainty.
Dislocation in high-consensus growth/inflation narrative.
Significant U.S. Treasury supply.
Trump 2.0 implications for U.S. foreign and economic policy.
Israel-Iran conflict in Middle East: Implications for oil prices and global inflation.
Russia-Ukraine conflict.
Continued China-U.S. tension.
Source: Gramercy. As of December 20, 2024. The information presented is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any forecasts made will come to pass. There can be no assurance that investment objectives will be achieved. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.
Growth growth dispersion with wider range of possible outcomes
In 2024, the global economy demonstrated resilience in the face of political and geopolitical volatility led by continued U.S. exceptionalism. In 4Q, U.S. economic data firmed with robust PMI and retail sales prints while labor market concerns eased. While real GDP growth in Europe improved relative to 2023, lackluster consumption and headwinds, particularly in Germany and France, curbed activity as the year concluded. In China, official growth likely neared the 5% target driven by the external sector and incremental policy support but with a continued drag from property and depressed confidence.
Our baseline outlook for 2025 envisages deeper dispersion with solid, yet slower U.S. growth in contrast to more pressured activity in Europe, while China attempts to balance policy in response to structural headwinds and evolving U.S. trade policy. However, we acknowledge that with geopolitical uncertainty and political change, particularly in the U.S., there is room for upside and downside surprises. In the U.S., the timing, sequencing and scale of trade, immigration, fiscal and deregulation policies will drive the evolution of the base case throughout the year. While resilient consumer and labor markets uphold the current base case, strained lower-income households and eroded savings leave the economy vulnerable in the event of a drop in confidence or financial markets.
On the flip side, investment growth and deregulation could fuel productivity gains and sentiment.
In Europe, we expect U.S. trade policy and domestic political challenges to constrain already sluggish economies which could push the region into recession. Lower interest rates should begin to improve the outlook later in the year, though a material development in the Ukraine conflict could result in a change to the base case scenario.
In China, structural constraints weigh on the country’s medium-term growth outlook. The Central Economic Work Conference last month signaled a step-up in policy support in 2025 with the intent to leverage both monetary and fiscal tools and “vigorously boost consumption”. While the increase in special government bond quota still focuses more on supply rather than demand factors, we expect evolution of support as the year progresses. Higher tariffs on Chinese exports to the U.S. will pose a headwind to China’s growth but we think that the domestic policy response will be tailored accordingly to at least partially offset the impact. The nature of the Chinese policy measures will determine their durability and effectiveness, and the demand side support that can spur consumer confidence and absorb excess housing supply is poised to be among the most beneficial. In addition to the opening stance on U.S. trade policy, markets will also look to the NPC in March for the official growth target and further details on economic policy measures. In the meantime, investors will likely continue to price in ‘Japanification’ with all time low CGB yields.
Focus on EM idiosyncratic stories amid uncertainty around U.S. inflation outlook and Fed trajectory
Donald Trump’s win in the U.S. Presidential Elections in November 2024, combined with a Republican control of both chambers of Congress, has resulted in elevated uncertainty around the U.S. inflation/monetary policy/USD outlook at the start of 2025, and, by extension, credit prospects in emerging markets (EM). The critical variable in 1Q25 will be how many, which ones and how quickly the Trump Administration’s stated policy priorities will be implemented. We believe the areas likely to be of high priority for the Trump Administration and most relevant for markets are trade policy/tariffs, immigration, tax policy and deregulation. How aggressive the Administration chooses to be on each of these policy fronts after taking office on January 20 as well as policy sequencing will determine the impact on markets, including EM assets, in the first quarter of 2025.
In terms of economic policy, we note that the highest profile proposals by President Trump’s team, such as significant increases/new tariffs on imports to the U.S., have the potential to put renewed upward pressure on inflation and complicate the Fed’s policy path, depending on level and timing. Additionally, potential significant changes to U.S. immigration policy, including large scale deportation of undocumented workers, also have the potential to be inflationary. We are of the view that markets have coalesced around expecting a relatively moderate/gradual approach to tariffs and immigration, so any initiatives in 1Q that signal a more aggressive policy management in these areas could further evolve the pricing of the Fed’s policy path in 2025, with direct implications for EM assets.
Amid the elevated uncertainty in the U.S. we expect during the first quarter, we think that outperformance in the EM credit universe will likely be driven by idiosyncratic stories that have enough of a fundamental or valuation buffer to be shielded from what is expected to be an overall challenging top-down environment for EM.
– In the hard currency sovereign space, we expect to focus on the few remaining stories that trade in distressed territory but have political and/or political economy triggers on the horizon that could catalyze structural repricing, regardless of global top-down dynamics.
– In the local currency space, we’ll continue to look for disinflation/high real rates stories that could allow nominal yields to trend lower regardless of the magnitude and timing of Fed/DM monetary policy easing, or absence thereof.
Geopolitics dominate amid shifting U.S. objectives
Trade and immigration policy will be in focus in 1Q as U.S. President-elect Donald Trump launches his second term. Trump’s promised tariffs will not only influence monetary policy, but will undoubtedly be a key tool utilized to pursue economic and geopolitical goals with China, Mexico and Europe under threat. We note that in the aftermath of the U.S. election, initial and unofficial posturing between Trump and China has been cordial, with Trump extending an invitation to Xi to attend his inaugural address, meeting with the TikTok CEO and making positive remarks regarding U.S.-China relations. While we do not attribute much to this at this stage, these are further signs that Trump adopts the slow and steady approach to tariffs as he did in his first term. Beyond hiking tariffs, we think Congress could revise the de minimis rule, which currently exempts goods below a certain value, crack down on export re-routing through third countries primarily via Mexico and ASEAN or revoke China’s Most Favored Nation status. We expect China to respond proportionately with export controls, pressure or restrictions on multinationals in China, FX policy and broader domestic measures to support the economy.
We expect U.S.-Mexico relations and negotiations to cover a range of issues including trade, migration, security largely linked to the fentanyl crisis as well as components of USMCA, which is officially up for renewal in 2026. Both Sheinbaum and Trump have economic incentives to ultimately reach agreements. However, we do not expect the process to be linear. Meanwhile, Argentina remains on course to strike an eventual new deal with the IMF while Milei is well-positioned for a strong relationship with Trump and Musk.
The beginning of the Trump 2.0 period is likely to be characterized by increasing emphasis being placed on transactional and bi-lateral relations at the expense of value-based and multilateral ones. In that context, we think countries with leaders who are likely to enjoy a good bi-lateral relationship with the Trump Administration to enjoy some “market premium” at the start of 2025. A few countries that come to mind in EM in that context include Argentina, Ecuador, El Salvador, Turkey, Hungary, and India, among others.
The ongoing military conflicts in Ukraine/Russia and the Middle East will continue to be at the center of market discourse, but without necessarily impacting valuations in a material/consistent way, unless meaningful structural changes were to take place during 1Q. We assess the probability of such material changes in conflict trajectory as low, especially in the case of Ukraine/Russia, despite recent market optimism about a potential ceasefire deal in the near-term.
This market optimism around Ukraine/Russia involves a narrative in the marketplace anticipating a potential “end of active hostilities” scenario soon after Trump takes office, under an assumption of decreased U.S. support for Ukraine’s war effort and better relations between the White House and the Kremlin. While we believe that Trump is likely to approach Moscow and Kyiv with a “peace deal” proposal in the early days of his Administration, we see the odds of this initiative leading to a peace deal as very small. The odds of a temporary and fragile ceasefire are naturally slightly higher, but still carry a low probability, in our view. A scenario in which the Ukraine-Russia conflict escalates in 2025 carries a decent probability; from that perspective, we think that the market has become quite complacent about Ukraine’s medium-term economic prospects and associated bond valuations.
In the case of the Middle East, we expect Israel to continue to make steady military and political gains with strong support from the Trump Administration, but we do not foresee in the near-term the type of all-encompassing geopolitical “grand bargain” between Israel and Iran that could anchor a sustainable, lasting security arrangement for the region, or a potentially better outlook for specific credits such as Lebanon. Meanwhile, the situation in Syria is likely to remain highly fluid in the first quarter, with Turkey and Israel in the driving seat, imposing political outcomes favorable to their geopolitical and economic interests.
Looking across the EM sovereign universe, we expect significant market focus during 1Q25 on a few prominent stories such as Brazil, Turkey and Ecuador, among others.
– In Brazil, markets will be looking for signals by the Lula Administration about willingness to introduce additional expenditure control measures in order to anchor medium-term inflation expectations and reverse some of the weakness observed in December. Given Brazil’s stronger sovereign fundamentals relative to peers (except for fiscal), we think that the December sell-off has gone too far, but we also caution that a reversal of sentiment would likely require additional spending cut measures by the Lula Administration in 1Q. We worry that unless the market turmoil intensifies further, the political urgency to commit to such additional budget consolidation measures might not materialize in the near-term. We are of the view that eventually, Brazilian assets, both local and USD-denominated, will likely become a compelling buy opportunity in 2025 as the real economy is doing quite well despite the recent financial markets’ turmoil. Additionally, President Lula’s ruling coalition has the incentive to maintain economic and financial stability in 2025 as 2026 is a Presidential and Congress election year. Lula has plans to run for re-election and would benefit from economic/FX stability going forward, and vice versa.
– In Turkey, the first quarter will be a critical testing period for the disinflation/overall macro normalization narrative and the Central Bank’s management of the rate cutting cycle that began with a 250bps cut on December 26, 2024. We are of the view that the economic team led by Mr. Mehmet Simsek, the Minister of Treasury and Finance, is likely to continue to enjoy President Erdogan’s backing, which anchors a credit-positive outlook for 1Q25 and beyond. Moreover, better-than-expected inflation numbers for December 2024 were released in the first week of 2025, starting the disinflation story on the right foot in the new year, which is likely to support improvement in domestic sentiment as well as anchor political support for the economic team.
– Ecuador is the only EM jurisdiction that faces a major political event in 1Q: Presidential and Legislative elections on February 9 with a potential run-off for the Presidency in April. Incumbent President Noboa appears well positioned to win re-election against his populist main challenger, who is supported by currently exiled former President Rafael Correa. A market-friendly outcome in Ecuador’s elections would be the main catalyst behind a potential next phase in the powerful rally in the sovereign bond complex that delivered ~70% total return to investors in 2024. We believe Ecuador’s sovereign bonds have further upside potential in 2025 under our base case of a market-friendly outcome in the upcoming elections.
– Venezuela is another EM jurisdiction whose credit trajectory depends heavily on the U.S. foreign policy direction of the Trump Administration. We believe there are strong incentives for the Administration to adopt a pragmatic approach to Venezuela and the Maduro regime, as advocated by some of the president-elect’s closest advisors. We note that Maduro will also assume office for a new mandate in January, although he lacks broad international recognition. Under a “pragmatism wins” scenario, we expect the continuation of case-by-case OFAC license granting to U.S. companies wishing to do business in Venezuela’s oil sector as well as gradual steps toward some sort of political/diplomatic re-engagement. However, we also recognize the risk of a less benign scenario in which the Venezuela hawks within the Trump Administration get the upper hand and the President’s ear on U.S.-Venezuela policy, most notably, the incoming Secretary of State Marco Rubio, an avid critic of the Maduro regime. That scenario would not bode well for a diplomatic rapprochement and a pragmatic U.S. approach towards Venezuela at the start of the Trump 2.0 Administration but could evolve in that direction over time.
Investment Strategy Review and Outlook
Multi-Asset
The traditional approach to emerging markets has often failed investors, resulting in poor returns and significant risks. This outdated strategy relies heavily on passive investing and closet-benchmark-tracking, which forces investors to own unstable assets and creates unbalanced portfolios. For instance, in 1998, the Emerging Market Bond Index (EMBI) included a significant portion of Argentine bonds, despite the country’s high default risk. Similarly, in 2022, the Index included a large amount of Russian and Ukrainian bonds just before the Russian invasion. These examples highlight the flaws of index-based investing in EMD, which we believe has caused more harm to investors than any other factor.
A better approach to EM involves a barbell strategy that strategically balances high-quality yield from private and public credit with more risky credit and special situations exposure. This strategy allows investors to capture significant upside while minimizing the threat of non-recoverable mistakes. The implementation of this approach requires strong, active EMD and special situation capabilities and a focus on private credit in EM, which offers high risk-adjusted returns, low leverage, strong covenants, and collateral. By combining strategic and opportunistic exposures, investors can achieve a well-balanced portfolio that emphasizes careful security selection and both correlated and uncorrelated collateral. The fourth quarter showcased the power of a better approach to emerging markets.
In public credit, the U.S. 10-year yield marched markedly higher over the quarter. The strategy tactically swapped bonds of some high conviction issuers to bonds further out on the curve as we continue to trade the rates volatility. Our allocation to public credit maintains limited exposure to local currency, leans in favor of high yield over investment grade, and currently comprises approximately 30% of the strategy.
In private credit, we upsized an existing exposure and added one new deal to the strategy. The new senior secured term loan to a Turkish entertainment company is structured with an attractive collateral package and one of its operating subsidiaries is a potential 2025 IPO candidate. Private credit remains a tactical overweight.
In opportunistic credit/equity, the strategy participated in a junior loan for a regulated financial institution in Colombia. Equity-like returns are expected through a cash flow structure while the facility also increases the likelihood of a value-creating exit. Separately, a public equity position in the strategy had several positive developments. The Turkish micromobility provider received favorable court rulings related to their operations, reported adoption figures that exceeded expectations, and provided positive forward guidance.
In special situations, one of the cases in the Venezuela ICSID claim portfolio received an award in October. While the damages were lower than anticipated, the positive ruling created a helpful precedent for other cases in the claim portfolio. Separately, the UK emissions litigation continued to make significant progress, and we look forward to the liability trial scheduled for October 2025.
The global hedge strategy is designed to provide an additional layer of tactical tail hedge or tail insurance protection should the need arise, and risk/reward structures be attractive. The strategy made the active decision to go into the U.S. elections with no additional hedge or tail protection in the fourth quarter. This decision was a result of extensive internal sovereign analysis of potential outcomes and their expected (limited) impact, weighed relatively against the high premiums demanded in the market going into the risk event.
As we enter 2025, there is a sense of heightened uncertainty and unknows. Persistent inflationary pressures, evolving central bank policies, and geopolitical tensions continue to challenge traditional asset classes. One of our highest conviction themes, volatility, carries us into the new year. In such a landscape, an absolute return strategy offers a compelling solution and peace of mind. By prioritizing consistent, positive performance under an active multi-asset class framework, we aim to navigate uncertainty with minimal downside volatility. This approach allows us to capitalize on our highest conviction opportunities across the platform and confidently seek value for our clients, regardless of market conditions.
Gramercy Chair, Mohamed A. El-Erian, was featured in Project Syndicate on December 24, 2024 where he outlines the baseline for the global economy in 2025.
Capital Solutions
As stated above, emerging markets present a dynamic and evolving landscape of opportunities, despite the challenges posed by global policy shifts and geopolitical uncertainties. Their unique combination of growth potential, structural transformations, and resilient sectors provides fertile ground for delivering attractive risk-adjusted returns. By leveraging our disciplined approach, which emphasizes robust downside protection, sectoral resilience, and strategic diversification, we are poised to unlock the full potential of a better approach to EM investments, even amid evolving global challenges.
The potential recalibration of U.S. trade policies, including higher tariffs targeting key trading partners such as China, Mexico, and other EM nations, has contributed to a stronger U.S. dollar and pressured local currencies, with Brazil, Colombia, and Mexico particularly impacted. By having U.S. dollar assets or fully hedging local currency exposures, at a portfolio level, we effectively mitigate the impact of FX fluctuations driven by the stronger U.S. dollar and global monetary tightening. While a restrictive trade environment could negatively affect certain EM economies, it remains uncertain how policies will evolve, as tariffs increasingly are used as negotiation tools rather than outright barriers to imported goods.
These conditions also underscore the resilience and adaptability of certain jurisdictions, which continue to demonstrate robust growth potential and attractive investment opportunities.
– Mexico stands out as a particularly promising market, supported by a combination of structural advantages and resilient sectors. Despite the transition in government and external rhetoric, infrastructure, SME financing, and middle-market real estate continue to thrive, driven by strong sponsor interest and Mexico’s strategic role in the global supply chain realignment. The country’s nearshoring efforts, catalyzed by U.S.-China trade tensions, further solidifies its position as an appealing destination for medium-to-long-term investments.
– Turkey also offers a compelling investment case, underpinned by disciplined monetary policies and attractive local interest rates. These conditions create favorable opportunities for USD-denominated private credit, particularly among corporates with manageable leverage and strong USD revenue streams. As these companies optimize their liability profiles, the credit environment in Turkey continues to strengthen.
– In Brazil, our proactive approach, including the avoidance of highly volatile soft commodities (such as soybean and corn) along with robust hedging strategies highlight our commitment to safeguarding portfolios while capturing selective opportunities in the market. Diversification further underpins our strategy, balancing exposure across sectors such as infrastructure, O&G and agriculture with enhanced collateral packages, to ensure stability and downside protection.
Across Latin America, thoughtful asset selection and strategic positioning are unlocking value in sectors that offer stable returns and manageable risks. Our investments in well-managed mining assets exemplify this approach, focusing on commodities with lower volatility and enhancing portfolio resilience.
Private credit remains a cornerstone of our “better approach to emerging markets”, offering a disciplined framework to manage market volatility and deliver consistent performance. First, our top-down approach gives us the ability to dynamically dial-up or dial-down country allocations allowing us to pick winners and losers in different scenarios. Secondly, our rigorous bottom-up approach allows us to put in place the structural features necessary to ensure robust downside protection. Finally, our portfolio management style of diversified investing, with median positions of ~2% ensures that we’ll be able to capture opportunities across our regions while avoiding non-recoverable mistakes.
Overall, we deployed a total of approximately $110 million in the fourth quarter, through a mix of new deals, loan upsizes, and platform loans. These were diversified across sectors such as real estate, oil & gas, agriculture, media, and food. Geographically, our investments spanned Brazil, Mexico, Peru, Turkey, Africa, and Costa Rica. As of the end of the quarter, we have already committed over $115 million, have an additional $300 million in the advanced due diligence stage, and over $1 billion in early-stage deals. This pipeline includes opportunities in real estate in Mexico and Costa Rica, financials in Colombia, agribusiness in Brazil, Peru and Colombia, O&G in Mexico and Africa, power in Mexico, food in Turkey and Brazil, healthcare in Mexico and Colombia, and industrials in Chile.
In Q4 2024, Gramercy Funds Management announced the close of Gramercy Capital Solutions Fund III.
Watch as Gustavo Ferraro, Partner and Head of Capital Solutions, is joined by Carlos Vargas, CEO of Andino Investment Holding S.A.A., to discuss his experience working with Gramercy.
Emerging Markets Debt
In hindsight, 2024 mirrored 2023 in many respects, with mixed macroeconomic data driving pronounced interest rate volatility through much of the year. This dynamic persisted until the Federal Reserve initiated its first rate cut in September, after which U.S. policy uncertainty, fueled by the transition to a new Trump Administration, became the dominant force shaping fixed income markets in the fourth quarter. Despite the uneven macroeconomic backdrop, U.S. exceptionalism once again shaped the global narrative. High-yield strategies proved the most effective, offering robust coupons from companies capitalizing on better-than-expected growth while minimizing interest rate risk due to their lower duration profiles. Reflecting this, emerging market hard currency high-yield segments delivered strong returns: the EMBI Global Diversified HY Index (EMBIGD HY) gained 13.0%, and the CEMBI Broad Diversified HY Index (CEMBI BD HY) rose 11.7%. In contrast, investment-grade segments posted more modest returns of 0.3% and 4.9%, respectively. On an aggregate level, emerging market hard currency sovereigns and corporates (represented by the EMBI Global Diversified and CEMBI Broad Diversified Indices) returned 6.5% and 7.6%, respectively. This resilience highlights the strengths of EM fixed income, underpinned by (1) risk diversification within the asset class, split roughly 50/50 between investment grade and high yield, and (2) higher carry offered by emerging market assets that are penalized for being in the wrong zip code despite having stronger fundamentals. This robust performance occurred despite $18.4 billion in EM hard currency outflows during the year. Conversely, EM local currency sovereign debt faced headwinds, ending 2024 down 2.4% as concerns over higher U.S. tariffs clouded the outlook for non-U.S. economies. This sub-segment remains highly tactical, as volatility often undermines its performance.
We expect volatility to remain a central theme for investors in 2025, particularly in the first quarter as the new U.S. Administration enacts its agenda via executive orders focused on tariffs, immigration, and deregulation. Tax reform is also a priority but will likely unfold later through congressional action. While rhetoric around these policies has been clear, uncertainty surrounding their scope and pace creates a clouded outlook for markets, particularly EM debt. We believe the Trump Administration could prove more pragmatic than markets currently anticipate, potentially creating attractive opportunities for investors. Nonetheless, over the past 20 years, and especially in the last two, EM fixed income has demonstrated resilience, driven by its diversification and breadth of opportunities. Emerging market economies and corporates enter 2025 on strong fundamental footing, with most risks stemming from external factors. Importantly, technical conditions are the cleanest in over two decades, following cumulative EM hard currency outflows of $85.7 billion since 2022. Historically, external shocks in EM markets have created short-lived dislocations, and waiting for a perfect entry point often results in missed opportunities. To navigate this environment, active risk management and a bottom-up security selection process are essential. This approach enables investors to cut through the noise, uncovering high-quality opportunities in a market poised to deliver attractive returns despite the challenges ahead.

Please see the Emerging Markets Debt Strategy video for more information about the team and their process.
Special Situations
The Special Situations team continues to focus on the successful management and monetization of our existing portfolio of legal assets in emerging markets, including in Brazil, Mexico, Peru, Argentina, Venezuela, Puerto Rico, and developed markets, including the United States and the United Kingdom. Certain recent highlights include:
– In October, Gramercy finalized a settlement agreement with the Republic of Peru relating to our investment in Peruvian Agrarian Land Reform Bonds. In December of 2022, an award in favor of Gramercy was issued by an international arbitration tribunal for approximately $100 million. To avoid a drawn-out appeals and collection process, Gramercy and Peru agreed to settle the award on October 30, 2024, for $85 million.
– In 2024, Gramercy initiated a series of lawsuits against PDV Holdings, Inc. (“PDVH”) to collect on certain overdue promissory notes issued by PDVSA and unpaid arbitral awards against the Republic of Venezuela (the “Republic”). The suits against PDVH, which is the direct parent of U.S.-based refiner Citgo Petroleum, alleges that PDVH is the alter ego of its parent, PDVSA, and, accordingly, PDVH should be responsible for the debts of PDVSA (and the Republic, which has already been found to be the alter ego of PDVSA). Despite the efforts of many creditors of PDVSA and the Republic that are seeking to recover from an auction of PDVH’s shares in a Delaware proceeding to enjoin Gramercy’s litigations against PDVH, in December 2024, the Judge overseeing the Delaware proceeding summarily denied such efforts, which paves the way for Gramercy’s parallel lawsuits to proceed expeditiously in 2025.
Elsewhere in litigation finance, we are also seeing attractive opportunities in secondary transactions involving legal assets, law firm portfolio loans, and claim funding opportunities. Similar to past deals, we often seek to structure these investments with insurance to protect against the downside. Likewise, through our network of relationships in the U.S., Europe, and Latin America, we are evaluating several attractive deals, outside of litigation finance, with high potential returns with similar downside protection characteristics, including the potential applicability of our unique insurance capabilities, completion guarantees, and other credit enhancements.
Sectors of focus include multifamily real estate focused on work force housing in markets where there is inadequate supply despite strong secular economic tailwinds. We have also significantly advanced a potential investment in digital infrastructure assets, including entering into partnerships with key vendors and other large, well-capitalized strategic partners.
Please see a Reuters Article speaking to recent developments.
Conclusion
Given the uncertainties surrounding the policies of the incoming Trump Administration, geopolitical risks, and economic uncertainty and dispersion, we anticipate continued volatility in the markets. This environment necessitates frequent testing of baseline scenarios against actual developments and evolving prospects. From a top-down perspective, it suggests ongoing dispersion of macroeconomic and corporate outcomes impacting markets, particularly in the foreign exchange and fixed income segments. With careful security selection and smart portfolio structuring, this environment promises multiple opportunities associated with high carry, bouts of volatility, valuation overshoots, and changing relative values between and within major asset classes. As always, we will embrace this volatility to plan the trade and trade the plan.
Gramercy Managing Partner and CIO, Robert Koenigsberger, spoke with our Chair, Mohamed A. El-Erian, about the motivation, the development and the implementation of a better approach to emerging markets. Watch as they discuss where allocators often go wrong and how they might combat these factors to bring stronger results to their portfolio.
About Gramercy
Gramercy is an a global emerging markets alternatives investment manager with offices in Greenwich, Connecticut, London, Buenos Aires, Miami, West Palm Beach and Mexico City, and dedicated lending platforms in Mexico, Turkey, Peru, Pan-Africa, Brazil, and Colombia. The firm, founded in 1998, seeks to provide investors with a better approach to emerging markets, delivering attractive risk-adjusted returns supported by a transparent and robust institutional platform. Gramercy offers alternative and long-only strategies across emerging markets asset classes including multi-asset, private credit, public credit, and special situations. Gramercy’s mission is to positively impact the well-being of our clients, portfolio investments and team members. Gramercy is a Registered Investment Adviser with the SEC and a Signatory of the Principles for Responsible Investment (PRI). Gramercy Ltd, an affiliate, is registered with the FCA.
Contact Information:
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Phone: +1 203 552 1900
www.gramercy.com
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Managing Director, Head of Content and Communications
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This document is for informational purposes only, is not intended for public use or distribution and is for the sole use of the recipient. The information set forth herein and any opinions herein do not constitute an endorsement, implied or otherwise, of any securities, nor does it constitute an endorsement with respect to any investment area or vehicle. It is not intended as an offer or solicitation for the purchase or sale of any financial instruments or any investment interest in any fund or as an official confirmation of any transaction. Opinions, estimates and projections in this report constitute the current judgement of Gramercy as of the date of this report and are subject to change without notice. All market prices, data and other information, are not warranted as to completeness or accuracy and are subject to change without notice at the sole and absolute discretion of the Investment Manager. Gramercy has no obligation to update, modify or amend this report or otherwise notify a reader hereof in the event that any matter stated herein, or any opinion, projection, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Certain statements made in this presentation are forward-looking and are subject to risks and uncertainties. The forward-looking statements made are based on our beliefs, assumptions and expectations of future performance, taking into account information currently available to us. Actual results could differ materially from the forward-looking statements made in this presentation. When we use the words “believe,” “expect,” “anticipate,” “plan,” “will,” “intend” or other similar expressions, we are identifying forward-looking statements. These statements are based on information available to Gramercy as of the date hereof; and Gramercy’s actual results or actions could differ materially from those stated or implied, due to risks and uncertainties associated with its business. Unless otherwise stated, all representations in this presentation are Gramercy’s beliefs based on sector knowledge and/or research. Past performance is not necessarily indicative of future results. Any reference to net returns reflect the deduction of management fees, carried interest, unconsummated transaction fees, professional fees, organizational fees and interest. Such fees and expenses will reduce returns to investors and in the aggregate, may be substantial. References to any indices are for informational and general comparative purposes only. There are significant differences between such indices and an investment program of Gramercy. A Gramercy Fund may not invest in all or necessarily any significant portion of the securities, industries, or strategies or represented by such indices. Indices are unmanaged, and their performance results do not reflect the impact of fees, expenses, or taxes that may be incurred through an investment with Gramercy. Returns for indices assume dividend reinvestment. An investment cannot be made directly in an index. Accordingly, comparing results shown to those of such indices may be of limited use. This presentation is strictly confidential and may not be reproduced or redistributed, in whole or in part, in any form or by any means. © 2025 Gramercy Funds Management LLC. All rights reserved.