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Developed markets are “tapped out” and saddled with “the biggest debt burden that they’ve had since 1929,” said Lee Partridge, CIO of Salient Partners, in relation to developed markets.

With China, too, showing signs of slowdown, this makes emerging markets “a very powerful story,” and explains why investors are increasingly seeking growth in previously untapped markets, according to Partridge.

But, as Donald Lindsey, CIO at George Washington University pointed out, “it’s important not to confuse growth with profitability,” as high GDP growth doesn’t necessarily imply high profitability and high equity returns.

The complexity of navigating emerging markets can produce a variety of views, even from Institutional Investor’s award-winning Money Masters, who gathered the morning after the award ceremony for a wide-ranging roundtable discussion. (Our Money Masters also talked at length about J.P. Morgan's trading losses.)

With Institutional Investor Editor Michael Peltz and Senior Writer Frances Denmark steering the conversation, Partridge and Lindsey were joined by Robert Manilla, CIO, Kresge Foundation; Lawrence Schloss, CIO of the New York City Employees Retirement System; and Sean Gissal, CIO at Marquette University.

What follows are excerpts of the portion of their discussion related to emerging markets.

Lee Partridge: The whole idea of public equity markets being the mainstay of a portfolio is a very recent phenomenon. That is not how money has been invested for thousands of years. That is a product of the 20th century and one very loudly-spoken Wharton professor, who advertised that stocks were the only way to get to the returns that you needed as an investor. That simply isn’t true. The reality is this is definitely a tale of two cities. Seventeen percent of the world’s population lives in developed markets. They are tapped out. They have the biggest debt burden that they’ve had since 1929, and they’re going to be working that off for a long period of time.

Robert Manilla: We think that there are interesting opportunities in emerging markets, but the opportunities are dramatically changing from four to five years ago. You’re beginning to see different types of assets become investible that weren’t investible a few years ago. Since we have more emerging market exposure than just about any foundation in the country, we tend to look at things from a GDP-weighted benchmark, but we do that for growth assets, not across the portfolio. We think for hedge funds, for example, you’d only do that if you think there’s an interesting idea in hedge funds, and that’s a big chunk of our portfolio. In the fixed income space, we don’t necessarily view that as the same opportunity set, because they’re not as developed, so we don’t split that one. But all of our growth assets -- that’s our benchmark -- are GDP-weighted around the world, as opposed to using the MSCI World [Index]. We’ve been doing that for six years now.