Robert Smith ’62 is the founder and managing director of the Boston-based Turan Corporation, which specializes in trading the debt of emerging market countries. A noted authority on developing-world debt, and once described in Fortune magazine as a “financial Indiana Jones,” Smith is considered a pioneer in the field of emerging markets investment. His adventure-filled memoir chronicles a career buying and selling highrisk securities in some of the world’s most distressed economies.
Bowdoin: When did you get the idea you wanted to write a book?
Smith: I would say about 10 or 12 years ago. During all my travels, I took copious notes, so that made it easier - particularly about some of the unsavory characters that I met. The reason I didn't write it before, was that obviously it would be detrimental to my business, this frank introspective; describing how these international transactions work. Even though the book is a retrospective of the countries and the types of deals that I did, even though the times are different, the actual concepts today are not only alive, but they're very much in use.
Let me sum that up. You saw in [the chapter titled] "Turkey," the sick man of Turkey, and they used debt equity as a methodology of paying down their debt. I was in London, I spoke before an executive group at Citibank and I mentioned this concept [of debt equity], and I said we see it very much in evidence today - General Motors, Chrysler, United Airlines - then I paused and said, Citibank. They didn't enjoy that...But it is true. The government lent them, mostly through preferred shares, X amount of dollars; I think it might have been $20 billion or something like that. And, today, or when this was all done by August, the government, or we the stockholders of the government, will own 34% of Citibank. So, you see these things being done all the time.
Bowdoin: Is it still necessary for investors like yourself to visit these countries like you did?
Smith: Let me compare it to the CIA gathering intelligence. They're big on the technical stuff, the satellites and intercepting code and phone messages. But, where they've always fallen on the ground is their human intelligence, human intel. I believe that you have to be on the ground speaking to as many people as possible, asking the embarrassing questions to government officials and executives as to where the country is going, what they're doing, what the economic plan is. It's similar to applying for admission into Bowdoin, to get an idea of what the College is all about. You can read all the catalogs, listen to all the videos and the promo material that they send out, but unless you are on campus getting a feel and talking to some of the students and professors, you really don't have an idea of what Bowdoin is all about.
Bowdoin: Is the primary reason for your success that you were there in those countries?
Smith: I think that's one of the reasons for success. You know these Wall Street people, they're buying their donuts all day long, looking at their screens with their yellow suspenders and striped pants, trying to suck up to their bosses. They don't really have an idea of what's happening. That's my feeling, that's why when someone takes over a post like [U.S. Special Envoy to Afghanistan and Pakistan Richard] Holbrook or any of these special czars or negotiators, [U.S. Special Envoy to the Middle East] George Mitchell [Class of 1954] for example, they always go out to the countries and find out what's happening.
Bowdoin: Are investors now not doing that, not following your lead now and getting themselves on the ground in these countries?
Smith: Well I think they are doing it more and more, but don't forget that our focus was on the second- and third-tier credit countries. Not the Brazils or the Chinas, but the Nigerias, the Côte d'Ivoire, Tanzania, Zambia, El Salvador, Bolivia, Guataumala, Costa Rica, Russian FTO paper. In other words, we would find a niche whereby either the country was too small or the issue was too small (let's say a $500M issue or $800M issue), or the country was on the verge of war or the last president had been shot or it just was not compatible to mainstream investment in commercial banking. And/or the asset we were buying, or trading, or hedging, or investing in, not only was it let's say difficult to find the asset - I'm referring now to Russia and Turkey - but you had to go to different government bureaus to get it reregistered and to get it reconciled. Like in Russia, we had a man in Moscow who did nothing more than take our claims that we would buy and go to three or four different agencies - Vneshtorgbank, the Ministry of Economy - he had to get approval from the FTO, the Foreign Trade Organization, etcetera. A lot of these investment banks, they want a quick trade. They're not willing to go through a process that takes 60, 90 days to become regularized.
Bowdoin: When you set out to write the book did you have a target audience?
Smith: My target audience was the Liar's Poker audience. I wanted to have a book for general reader who is interested in international globalization, who wanted adventure within the context of business.
Bowdoin: How is it that this book about finance reads like an adventure?
Smith: Everyone has an over-abiding passion in life, and the difficult part in life is finding that passion and finding a way to make money at it so that your work becomes play. I've been fortunate to find that passion, although it was a gradual process, as you can see from the book. But, my passion has always been adventure, and I'm referring to international adventure. I think I got this passion from my uncle's stamp collection at the age of 11. I lived in a suburb of Boston, Brookline - with double-decker houses - the only excitement we ever had was during a storm when a tree crashed through someone's house - and these were the '50s, you know, when very few people travelled. My parents never went abroad until they were 75 and I invited them to Brazil. There wasn't ease of traveling. College students didn't necessarily go over to Europe and go backpacking. Take Bowdoin, for example, during that time, we had 10 Bowdoin Plan [students]. And, I remember at Bowdoin, my real friends were the students in that program.
I also established [a chapter of] AISEC [Association for International Students of Economic and Commercial Sciences] at Bowdoin. AISEC is in or around 300 or 400 universities and colleges - maybe 500 - throughout the world, maybe 100 to 150 universities and colleges in the United States. This was one of my accomplishments at Bowdoin - I should say, my only accomplishment at Bowdoin - starting this chapter. The basic plan was, there were about 12 in the "club," if you will, to sell the idea of raising a traineeship for foreign students, whereby a foreign student would come to Maine, or New York, work for IBM - there was one fellow whose father had a high position at Texaco - they gave him 3 traineeships - to allow the students to get a taste of what it was like to work for a corporation in the States, and vice-a-versa in Europe. There was a host program by host families, also. That's how I got to go to Turkey when I graduated that year from Bowdoin. I worked for the Banca Commerciale Italiana in Istanbul basically exchanging money for the foreigners. I had a wonderful experience. It's funny how these things come around. The first country where I really started my business and began to make it was Turkey. There are these vagaries of light, as they say, and the students went to Switzerland, France, Sweden, England, and this AISEC program continued [at Bowdoin] for about three or four years.
Bowdoin: Do you have a favorite part of the book?
Smith: That's an interesting question. "Turkey" has to be one of my favorite parts. And the last chapter, "American Twilight," where, I must say, I was perspicacious, if you will, in seeing what was happening to the United States, based upon my experiences in the emerging market countries that I dealt with. This whole book was put to rest in June of '08; the manuscript was in. It didn't come out until April. Many of the symptoms that I saw went full-bore by that time. Particularly, September, October, November. There were mistakes that I'm going to correct in the second edition - like saying that AIG was too big to fail.
Bowdoin: What do you envision, as you look back, as your greatest accomplishment?
Smith: Well, life is not only about taking; it's about giving back. I feel like I have done that through my charitable contributions. And, you can always judge people by the children they've raised. I think that I've raised well-adjusted children who are not ostentatious, who have a lot of imagination and a lot of drive.
I've tried to give back to the various communities of which I'ave been a part and that includes Roxbury Latin, a great high school founded in 1634 by the Reverend John Elliott. There's the Robert P. Smith Art Center and the Robert P. and Saul Smith Theatre. And, of course, at Bowdoin, the David Saul Smith Union, and we've set up various foundations at Mass General Hospital to fund mental health research, and the synagogue in my mother's hometown of Bath, Maine, has been redone and refurbished, and my wife is instrumental in setting up and funding a hospital in the Amazon - she comes from one of the poor states in Brazil - a hospital for eye disease, which is very common in Brazil. I have no interest in a yacht or a plane. I still use my frequent flier miles. I think I've been very fortunate, and I talk about the equation of luck in my book. I define luck as where opportunity meets preparation. People say, "Oh, you are lucky." Well, I was lucky, I saw this opportunity in the late '70s, but if I hadn't been prepared, through my various activities with the State Department or the Bowdoin traineeship and Turkey, and speaking a couple of languages, I wouldn't have seen that opportunity.
By the way, everyone who worked for all the investment and commercial banks at that time - and they were managing these portfolios that weren't performing, very much like the subprime crisis - they all saw the opportunity and they never took it. My daughter, when she was a junior at Columbia, wanted a summer job, so I sent her down to the trading department of Salomon, which was absorbed by Citibank, but really was the most avant-garde bond and trading house in the world. I warned Fiona, I said, "When you go down there" - we have 2 or 3 screens in our office - "you're going to see a cast of a 1,000 people with screens and televisions and modern computers, and you'll see what a tiny little operation your dad has."
It suddenly dawned on me, when she came back and [we talked], how in effect I had been earning my living, putting food on the table for my hungry children. You know all these disposable 5-cent cans you can collect and return to the supermarket for money? Well, Salomon was throwing all these 5-cent cans on the floor. What I would do is simply pick them up and go to the supermarket.
Posted June 24, 2009