Hortz: What does that add to the investment process? How can it be an effective risk-management tool?

Maizel:  Let me provide some background. I advanced the Scenario Planning process while a faculty member at Harvard Business School. Royal Dutch Shell approached our department for advice. Subsequently, we applied different scenarios and probability outcomes for disruption within the international energy sector. It covered areas such as environmental and geo-political events, as well as price and supply-chain disruptions. The exercise demonstrated its value by pointing to a wide range of outcomes.

“What-if” Scenario Planning is a dynamic process that seeks to account for a variety of possibilities that may affect the markets. It is not necessarily a linear thought process but rather a different and dynamic phenomenon. It includes thinking and analysis that can challenge assumptions. By design, it forces everyone involved to think differently. Not to rely on a cliché, but it encourages “out of the box” thinking, forcing one to steadily look at sequences of potential events and re-evaluate components. It’s more than asking simply “Why?” We take the investigation a step further, in fact, several steps further, and ask: “Why not?” It’s about never being satisfied with the status quo or general consensus. Progress and innovation are typically achieved by those who think differently. The same holds true for the investment business.

Hortz: Can you describe a typical scenario for us?

Maizel:  Due to the premise that each scenario is unique, there is no “typical” scenario. A recent example, however, would be Brexit. In this case, we modeled the portfolios in accordance with each side of the vote. When the decision was announced, we already had an action plan and, consequently, went longer in duration in our portfolios.

Hortz: You have written about how active team collaboration is a driving force within your investment process. How does a collaborative effort add to your process?

Maizel: Each aspect of our investment process is team-based. When I use the word “we,” I am referring to our Investment Strategy Group (ISG) that comprises the four LM Capital portfolio managers with input from the Credit Research team. A lot of businesses claim they are team-oriented but we actually are.

We further believe that each team is only as good as the people on it – from the coaches in the locker room to the players on the field. From the top down, we are a diverse team. We believe that professionals from different backgrounds can add value to our process due to the potential for providing unique insights. This coordinates with our belief that many opinions based on experience, judgment, and objective research help us help our clients. This is not necessarily an easy exercise, as we continuously allow room for debate. However, we feel it is a worthwhile one, and the only way to keep on top of a rapidly changing environment.

Hortz: What is different about your insight or experience in emerging markets in regard to recent political events as well as historical issues?

Maizel: This is an area where we are very comfortable. Presently, we are seeing more investor interest in emerging market debt, as individual countries benefit from stronger governance structures, less contagion issues, capital flow, and attractive yields relative to such a low-yield U.S. environment. Also with emerging markets, you have to frequently visit the regions where you have exposure due to a higher number of qualitative factors.