Between 2010 and 2020, a period many hedge funds call the ‘Alpha Winter,’ the Federal Reserve, the European Central Bank, and the Bank of England made only 22 quarter-point-equivalent interest rate moves. Fixed income and macro traders had little volatility to work with for those 10 years. Since 2021, global central banks have made more than 80 interest rate changes in response to inflation, war, and spiking energy prices, among many other things. Now traders have four times as many potential opportunities to make money.

But Ken Tropin, chairman and founder of Graham Capital Management, says the volatility and uncertainty hanging over markets also makes it much more difficult to have conviction. That requires his portfolio managers to trade smaller positions more tactically, “match risk to conviction,” and remain open to having misunderstood an unfamiliar environment. Tropin, a former sculptor who launched Graham with the backing of Paul Tudor Jones three decades ago, has continually made changes so his firm could adapt to markets that never behave as expected.

The challenges for institutions are many: a single factor, AI, driving markets and bonds’ diminished role as a diversifier.

For institutions, macro funds can provide uncorrelated returns. But, says Tropin, “Don’t think of me as a hedge. Think of me as something that should provide diversification over some number of market cycles.”

Listen in to Julie Segal’s conversation with Institutional Investor’s 2026 Hedge Fund Lifetime Achievement Award winner.

Robert Koenigsberger isn’t rattled by uncertainty, at least when it comes to markets.

That may be simply part of his natural constitution. He started his career in the 1980s when emerging markets were essentially a collection of bank loans in default — and he founded Gramercy, the emerging markets alternatives firm, in 1998 when Russia devalued its currency and kicked off the restructuring of its government debt.

That experience comes in handy now as developed markets are facing the kind of uncertainty once reserved for emerging markets. Investors are facing wars in the Middle East and Ukraine, shaky global alliances, and rising inflation, debt, and interest rates.

When we met to record the podcast, Robert said people will look back at the last three decades as a time of “extraordinary peace,” which translated into an environment that was “extraordinarily friendly to investors.” The tools that investors have come to take for granted, he said, probably won’t work for the next 35 years.

Institutional investors need to make peace with the uncertainty hanging over markets. Koenigsberger said he and Mohamed El-Erian, the chair of Gramercy, agree that “Our highest conviction is you can’t have conviction.” Not particularly reassuring, of course. But investors need to accept that volatility isn’t going away and then construct portfolios that use it rather than “get whipped around by it.”

Which brings me back to investing in emerging markets, which is an object lesson in how not to deal with uncertainty. Institutions let well-intended asset allocation rules and governance policies prevent them from being flexible and opportunistic.

In episode 23, Koenigsberger told Julie that “If you were Rip Van Winkle and you owned the asset class, it did everything it was supposed to do,” including outperforming. The problem was that investors weren’t earning those returns. The culprit was behavioral mistakes.

Counterintuitively, investors added emerging markets to their portfolios by buying the index, rather than making bets in which they had the highest confidence. That meant they had a big slug of their portfolios in Argentina in 1999 and in Russia and Ukraine in 2022, to name a few. The pattern repeated itself over and over: investors bought in when markets were exuberant, held on too long, and then sold at the worst time. Then they blamed it all on the instability of emerging markets, explained Koenigsberger.

A month before Russia’s invasion of Ukraine in 2022, sources on the ground told a Gramercy analyst that there was a 40 percent chance of an invasion. “And if that happened, Russian bonds would drop X and Ukraine would drop Y.” Koenigsberger said he didn’t need to hear more. He sold the exposure and decided to wait and see. “How could you go to bed at night thinking” Russian tanks could be in Ukraine by the morning.

“Performance doesn’t just come from what you own,” he said. “It comes from what you don’t own.”

Institutions repeat flawed investment behavior despite understanding the negative impact of slow decision-making and following rules that don’t fit what’s actually happening in the market at a specific point in time.

Now, when investors are more concentrated than ever, emerging markets offer much-needed avenues for diversification and resilience, which have been repeatedly tested since the global financial crisis. In fact, as Koenigsberger said, the landscape has changed over the last few years, with the gap between emerging markets and developed ones narrowing significantly.

“I think you have developed markets and emerging markets and you have submerging markets.”

Other topics of discussion include:

• Koenigsberger and El-Erian wrote a piece in late 2019 warning of a coming dislocation in emerging markets. But when it came in March 2020, interested investors said they might get board approval by July or October. “Boing, they missed the entire V-shaped recovery,” he said.
• On legal protections and contracts: What’s different about emerging markets is “we have to underwrite the people…. Contracts matter when you get the people wrong.”
• On why investors index: “If that’s what everybody else is doing, then I’m not really taking a career risk with this. Hey, we all got smoked from Russia.”

In this episode, Julie Segal speaks with Matt Harvey, head of direct lending at PGIM Private Capital, about how he evaluates opportunities as more companies tap both public and private credit markets for financing. The episode is a follow on to my podcast of July 17th, “AI’s Debt Boom Is Giving Credit Investors Rare Leverage. PGIM’s Greg Peters Says They Should Use It.”

Harvey explains why he views illiquidity as a hurdle rate rather than simply a premium, why PGIM integrated its private and public credit teams, and how demanding covenants, which are often misunderstood, allows lenders to actively manage risk after a loan is made.

The discussion also explores AI-driven concentration risk, why private credit deals, contrary to popular opinion, can often provide more information than public ones, and how all these shifts are changing the way credit portfolios are constructed.