Emerging markets are no longer the niche area they used to be. In the past 20 years, such markets have developed from being small and illiquid to being among the major movers in the global economy, something James Donald, head of emerging markets at Lazard, has experienced first hand.
“Although I was always interested in global markets I thought emerging markets were particularly stimulating. When I got involved in emerging markets in the early 1990s they were still quite new. They really were emerging and quite rudimentary markets. When I look at emerging markets today compared to then, there has been a huge change in our universe of countries and companies,” he explains.
The manager, who originally hails from Canada, notes the emerging markets have always had a cultural appeal to him, providing him with the opportunity to meet a number of remarkable people, such as the late South African leader Nelson Mandela.
“I always felt I wanted to stay in this area because of how interesting these countries were, and also one got the opportunity to meet even more remarkable people than one meets in developed markets. These markets are smaller so the chance of meeting very interesting people has been greater.”
That said, he acknowledges it is an “enormously challenging area”.
“These are still highly volatile markets where we face situations that you can’t really analyse just as a financial analyst,” he says.
“The situation in Russia, for example – you can’t try to understand the challenges of that situation without understanding history, geography, international relations and other things. Financial analysis is very important, but a combination of the two is vital.”
He adds: “It tests me every day and it tests my team every day. We have very active debates looking at these different types of situations and it always makes me want to do well.”
Emerging markets and fund management in general were not always the plan for Mr Donald. His first steps into the industry came with an internship at a brokerage firm in Canada, which led to his first job. Then as the Big Bang approached in 1986, his father, “who had been in this business”, encouraged him to look into the possibility of moving to London.
He joined Warburg Investment Management first as an analyst and then was given the opportunity to be a portfolio manager at the age of just 24.
“I had to have practical experience being a fund manager to understand how challenging and how stimulating it was and how it felt emotionally in order to know if I could live with it,” he explains.
“It is an all-consuming type of job, it never ends, and it can easily dominate your life. You also have to develop a comfort level of feeling uncomfortable. I would say my first six months as a portfolio manager was a baptism of fire, it was very challenging but I made it through that period and ultimately enjoyed it very much.”
The manager points out that fund management essentially boils down to three things: “Patience, courage and intelligence. The first two are much more important than the latter,” he laughs, “but it’s a combination of those three things that can make a good portfolio manager.”
Mr Donald spent 12 years at the firm, which included its transition into Mercury Asset Management, before leaving to join Lazard in New York in 1996, which at the time had a small emerging market equity portfolio.
He says: “I thought it would be a very interesting challenge and I was impressed by the people I’d met at Lazard. But for the first five years it didn’t really grow very much and we went through very difficult markets. A lot of people used to say, ‘All you get from emerging markets is high volatility and negative returns’.”
“It was actually very challenging indeed, and a lot of firms got rid of their emerging market businesses at the end of the 1990s into the 2000s, [however] I’m glad to say Lazard did not. We had a particularly interesting emerging market business as we had three emerging market strategies,” he recalls.
While he worked on the equity side, the firm also had a local emerging market debt strategy called ‘emerging income’, and a third strategy that invested in closed-end funds and investment trusts. “It was nice [the firm] had other teams and disciplines in emerging markets,” he says.
In the early 2000s interest in emerging markets soared and the business and assets grew significantly. Now Lazard’s emerging markets platform encompasses 11 different teams with more than 70 people managing roughly 20 different strategies.
“Building our team and our platform has been a major highlight. I haven’t built all of them but I have been very involved in the development of the platform and its design. We have tried to add only very differentiating strategies with the idea that all of them are high quality in nature. All have dedicated teams and all have very clear objectives.
“It is still a work in progress, but it’s all been very interesting and, at least so far, it has been enjoyable,” he smiles.
But Mr Donald adds: “This is a long-tail business and it takes quite a long time to bring in the assets and develop a reputation; it’s a long-term thing to build that reputation. So we need to build out some of these strategies. [However,] I think a lot of them are very much on their way.”
He also highlights a key focus for the platform is to share information across the different teams and strategies in an effort to better understand emerging markets as a whole. “It is about encouraging people to talk to each other. It’s important because asset management is not a business where people typically share outside of their teams. The term ‘siloed’ is very common. Even 16-18 years ago our teams were relatively siloed, but it’s a different situation now where people are encouraged to share information.”
Teamwork is a clear focus of the emerging markets business at Lazard, with Mr Donald comparing it to sports such as football and ice hockey.
“I think teams are fascinating and it has a lot of application in our asset management role. Teams are the essence of this business, in particular how teams function. A team that can’t function is not usually a successful team and you can say a lot of that about sports as well: the team is much more important than the best player, in my opinion.”
In spite of having achieved so much in his 18 years at Lazard, it’s clear there is still more on Mr Donald’s to-do list. Looking ahead he notes he is “quite happy with the way the platform is today”, and suggests he doesn’t necessarily want to expand it and certainly not at “breakneck speed as the quality is much more important than the quantity”.
“We have 11 teams and want to make sure they are functioning well and that as businesses they are successful,” he adds. “But we get visited by a lot of investment practitioners who present their strategies as things we should consider. When they are highly differentiated, high-quality strategies, they are the things we take an interest in. If they can add something to the knowledge base of our platform, then that has value attached to it. What we are not interested in are things that can’t add to the knowledge base of our platform.”
CV
James Donald
Present
Head of emerging markets platform, Lazard Asset Management
1996 – present
Portfolio manager and analyst, Lazard Asset Management
1985 – 1996
Portfolio manager, S.G. Warburg & Co. (became Mercury Asset Management in 1987)
1983 – 1985
Graduate trainee, Wood Gundy, Toronto, Canada
1983
BA (Hons) in history from the University of Western Ontario, Canada
