Friday, April 19, 2024

ECONOMY | 24-07-2020 15:26

Investing legend uses distressed debt to hunt for next Messi

Martin Schubert, the pioneer of emerging-market debt swaps, is searching for the next Lionel Messi though an out-of-the-box trade combining distressed notes and sports.

Martin Schubert, the pioneer of emerging-market debt swaps, is searching for the next Lionel Messi – with the help of distressed notes.

Poring over price charts as a political talk show plays in the background of his South Florida home, the 84-year-old investor is working out the fine points of an out-of-the-box trade combining two passions: bonds and sports.

His latest deal hinges on finding young football stars in heavily indebted developing nations such as Argentina and Ecuador, then using his international network of contacts to facilitate their transfer to a club in the United States or Europe for a commission. Then comes the twist. He sends the selling team some of its home country’s debt to entice them to choose him as the intermediary.

“They trade their player and I give them the sovereign debt,” he said in an interview. “It’s a lot of fun and you can make money with these swaps.”

A Brooklyn native, Schubert carved out his niche in the early 1980s buying developing-nation debt from US regional banks and flipping it to European and Asian firms in a swap. Several years later, he tried something different: He used some Yugoslav debt to buy a basketball player from a cash-strapped club. He began carting his Dell computer and big Motorola phone to gymnasiums, including the practice facility for the New Jersey Nets, to find future talent.

Schubert would buy debt securities on his computer along the sidelines and occasionally lace up his trainers to scrimmage with the players.

Pichi’ Campana

One of his most prominent deals was linked to Argentina. In the 1990s, he picked up the contract for Hector “Pichi” Campana, the national team basketball star who guarded Michael Jordan in the Olympics.

Still, contract regulations for football are stricter. In 2015, the sport’s governing body, FIFA, introduced a rule prohibiting third parties – an individual investor, company or fund – from owning a player’s economic rights. The issue had gained prominence in 2006 when two Argentines, Carlos Tevez and Javier Mascherano, were transferred to English Premier League side West Ham United.

Intermediaries can still get paid for helping with a transfer, though. That process has been particularly lucrative in Latin America, where stars are hungry for a chance to sign eight- or even nine-figure contracts overseas.

The swaps also offer an opportunity for retail investors who own distressed debt, such as Argentina’s defaulted notes, to exit their holdings at a potentially more attractive price amid lower trading volume.

Schubert said he’s a novice at football, so he’ll rely on relationships cultivated through decades of rubbing shoulders with business executives, government officials and sports club owners in the Americas and Europe.

Argentina, which boasts both a debt museum highlighting its default dramas and some of the world’s top footballers, is particularly fertile ground.

“For swaps, the bigger your imagination, the bigger your business,” he said.

by Ben Bartenstein, Bloomberg


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