2024 Hedge Fund Champion Talks Investment Opportunities: The U.S. Will Enter a "Phony Recession," and the Best Opportunities This Year Are in Latin America

In a recent interview with Goldman Sachs' "Great Investors" column, Robert Citrone, founder of Discovery Capital Management and the "2024 Champion Hedge Fund" in the U.S., shared his views on this year's economic trends and investment opportunities. As one of the most renowned "Tiger Cubs," Robert Citrone served as the global emerging markets head at Tiger Management, led by Julian Robertson, and was deeply mentored by legendary trader George Soros. Since founding Discovery in 1999, Citrone has grown from an initial capital of $5 million to leading a team managing over $2.2 billion in assets, successfully navigating multiple rounds of emerging market crises, the 2008 financial tsunami, COVID shocks, and the recent inflation repricing cycle. Discovery Capital Management achieved over 50% returns for the entire year of 2024, ranking first among hedge funds in the U.S. In Citrone's view, the current market's concerns about a U.S. economic recession are somewhat "exaggerated." Although GDP has shown two quarters of negative growth, the main reason is a surge in imports. Even if final demand turns negative, it will be very slight, and the economy is expected to rebound in the third and fourth quarters. The best opportunities in 2025 are actually in Latin America and other regions outside the U.S., as no Latin American country has been subjected to tariffs exceeding 10%. Mexico also has the USMCA agreement, which can provide some protection for Latin America if the U.S. performs poorly. Tony Pasquariello (host, head of hedge fund client business at Goldman Sachs Global Banking and Markets): Welcome to the new episode of "Goldman Sachs Exchanges – Great Investors"! I am Tony Pasquariello, head of hedge fund client business at Goldman Sachs Global Banking and Markets. Today, I am very pleased to have a conversation with Rob Citrone. Rob is the founder of Discovery Capital Management, a hedge fund managing approximately $3 billion, focusing on macro investments with a particular emphasis on emerging markets. They have just achieved remarkable performance for two consecutive years, with returns close to 50% in both 2023 and 2024. Today, I look forward to discussing Rob's career, his investment framework, and his views on the current global situation. Rob, welcome to the show! Robert Citrone: I’m glad to be here, Tony, thank you for the invitation. Tony Pasquariello: So let's start from the big picture. What is your current view on the overall market environment? Robert Citrone: I believe the current market is full of various opportunities, whether going long or short, there are very good chances. We see that investors' views on the market are fluctuating quite dramatically. Our perspective is somewhat different from the mainstream market. I actually like this different viewpoint. We generally hold a relatively optimistic attitude, and we believe that 2026 will be a very strong year for the U.S. economy. We expect that the U.S. economy will experience prosperity in 2026 due to large-scale tax cuts. Although there are signs of a slowdown in the current economy, we do not believe this is a true recession. I call it a "pseudo-recession"—although GDP has shown two quarters of negative growth, the main reason is the surge in imports, as everyone is rushing to buy before tariffs take effect. We do not believe that final demand will actually turn negative. If it does turn negative, it will be very slight. We expect the economy to rebound in the third and fourth quarters. Robert Citrone: We see many companies are returning to the U.S. If you ask some operators of office parks, they will tell you that the office buildings are fully leased now, many leases have been signed, and many companies are expanding. Overall, I believe tariffs are ultimately beneficial for the U.S. If you look at the trade agreements with the UK, I think that is a very favorable deal for the U.S. I hope other agreements in negotiation can also reach similar good deals. Generally speaking, most tariff levels will be around 10%. Tariffs on China will not be too high, so this is not a bad thing. Tony Pasquariello: Got it, then I have two questions. The first is, is your optimistic outlook for 2026 mainly based on policy, especially the impact of "Trump 2.0 policies"? The second question is, what high-conviction investment views do you want to focus on, or what directions are you preparing for upcoming opportunities? Robert Citrone: I think this is indeed partly due to Trump's policy direction, including measures to cut inefficient spending, which I believe are all good things. But ultimately, it mainly comes down to the U.S. private sector. For the past 15 to 20 years, the driving force behind U.S. economic growth has primarily come from the private sector, and that hasn't changed. Moreover, our advantages in the technology sector are very obvious, and the U.S. will continue to maintain this leading position. So, this is driven by both policy factors and the outstanding performance of the U.S. private and corporate sectors. Robert Citrone: From an investment perspective, our strategy is to maintain a constructive attitude towards the U.S. market. Although market valuations have reflected optimistic sentiment to some extent, we believe the best opportunities are actually in Latin America and other regions outside the U.S. We hold an extremely optimistic attitude towards Latin America. Asset prices there are very low, and the potential returns are very high. Moreover, this is not limited to stock investments; considerable returns can also be obtained in local fixed income, credit markets, and even currency markets. We see that the political situation there is changing, overall shifting from left-leaning to center-right, becoming more market-oriented and moving towards a freer democratic system. In the next 18 months, Latin America will face four important elections—Chile, Peru, Colombia, and Brazil. Tony Pasquariello: It sounds like these elections should set a generally positive tone for risk assets in these regions? Robert Citrone: Absolutely one hundred percent positive. Just to add a supplementary point— even if our predictions for the U.S. are slightly off, Latin America can serve as a safe haven to some extent. You see, no Latin American country has been subjected to tariffs exceeding 10%. Mexico also has the USMCA agreement, where most goods can still enter the U.S. duty-free as long as they meet the rules. So we are seeing many positive signals. If the U.S. performs poorly, Latin America can provide some protection. Tony Pasquariello: Do you think the market is paying enough attention to this? It feels like the investment logic for Latin America has been forgotten for quite a while. Robert Citrone: Yes, Latin America has been overlooked for a long time. In fact, since the Mexican crisis in the 1990s, this has not just been a "lost decade," but a "lost 25 years." So very few people are paying attention to this region. I just attended a meeting this morning, where I met with the management of some Argentine companies and other investors. What surprised me was that some of these investors had never been to Argentina or had not invested there for over a decade. There are still many investment opportunities in Latin America, but very few people are actually getting involved. People's attention has mainly been focused on emerging markets in Asia over the past few years, especially China, which is understandable. But I believe the landscape has now changed. The Latin American market will experience prosperity in the next decade. Tony Pasquariello: If we return to the initial topic, you still seem to be a firm believer in the "American exceptionalism" theory? We share this viewpoint. So, are you concerned about global capital flows? In this context, do you worry about this? Robert Citrone: I do have concerns in this regard. We are currently seeing a lot of capital flows from official funds, central banks, etc., and they are clearly paying attention to the recent pressure on the dollar. How long this situation will last is a question. And I think the dollar's movement may be the most difficult variable to judge. Robert Citrone: Overall, we hold a fairly optimistic attitude towards the U.S. stock market after experiencing a correction We believe that interest rates will rise further, and our view is that by the end of this year, the yield on the 10-year U.S. Treasury bond will exceed 5%. This is mainly because the economy is re-accelerating, while inflation remains stubbornly high in the short term. We do not believe that interest rates will see a significant decline, nor do we think the Federal Reserve will cut rates in the short term. However, the most difficult to predict remains the movement of the U.S. dollar. Tony Pasquariello: Well, I’d like to shift the topic a bit. Could you talk about your investment style? And how has it evolved over time? Robert Citrone: I strongly believe in a combination of "top-down" and "bottom-up" approaches. That is, conducting macro analysis while selectively picking stocks. I think this approach is a huge advantage for us, and in fact, many people do not do this, or do not do it well. Discovery has adhered to this for 26 years, and this is also a valuable lesson I learned from Julian Robertson and George Soros. I have worked closely with both of these legendary investors—Julian has a long-term strategic vision, constantly reviewing each investment idea, and has a vast network of resources. George, on the other hand, is a trading master who dares to make large bets and quickly adjusts to changes in the market environment, managing risks. Therefore, I try to combine the essence of both of them in my philosophy at Discovery. Tony Pasquariello: I remember you mentioned before that short strategies play an important role in your portfolio and risk management, especially in equities. About a decade ago, when we first met at a roundtable dinner, you mentioned that your individual stock short positions were crucial to your strategy—saying this in front of a table of hedge fund managers was quite bold. Then events like GameStop happened. Looking back to today, are short strategies still important in your framework? Robert Citrone: I believe short strategies are still very important. In fact, it has become a "lost art." There are not many funds that are seriously shorting anymore. I learned this from Julian and George, especially from Julian, during our time managing the Tiger portfolio, where this short strategy was very helpful to us. The returns you mentioned from the past two years—annualized around 50%, with a cumulative 120% over two years—actually, we had an average net equity exposure of only about 10% during those two years. So you can see, we achieved this through an "old-school" method: carefully selecting long and short positions that complement each other very well. Moreover, our short positions have been very valuable, for example, we accurately shorted three out of the four regional banks that went bankrupt last year. We wrote in our outlook report at the beginning of 2023 that regional banks were one of the most suitable areas to short in the U.S. at that time. ** Tony Pasquariello: Did you guys have short positions in these regional banks in advance, or did you just happen to seize the opportunity? Robert Citrone: We accurately seized the opportunity, especially in the regional banks. Of course, shorting is not always about timing it perfectly—it's a very dangerous game that requires extra caution and strict risk management. We have done well in this regard. Even during the GameStop incident and various other market fluctuations, we managed risk effectively. I believe we handled it very well. Tony Pasquariello: I've always wanted to ask you a question—your asset classes are very diverse, and the number of positions must be quite large. How do you manage all of this? How much do you remember in your head? How much relies on spreadsheets or risk management systems? How do you do it? Robert Citrone: I am very familiar with the companies we invest in, to a very high degree. After all, I've been doing this for nearly 35 years, so I remember a lot of things. Of course, I also have very good real-time reports and system support. I have a real-time profit and loss system that allows me to see the performance of the portfolio at any time. I break down the entire portfolio into different thematic sectors rather than focusing on every specific position detail. For example, the long position in Argentina is one of our major themes, and the long position in India is also a major theme. The short position in regional banks is also a big theme. Thinking in themes helps me better grasp risks and manage them effectively. Tony Pasquariello: Got it. You usually have a high level of conviction in your investments, and although you have many positions, you sometimes concentrate your holdings. How do you balance this high concentration in risk management? Do you always maintain this style, or is it only during certain specific moments that you concentrate heavily? Robert Citrone: I believe that every 5 to 10 years, there is a particularly important and valuable trading opportunity, and that's when we will concentrate our allocations significantly. For example, in the 2013 USD/JPY trade, we went long on USD/JPY and made over $1 billion. At that time, I specifically discussed it with George (Soros) and Bessenet and persuaded them to enter the market together. Bessenet later said that the trade I helped him with that year accounted for almost 75% of his bonus that year—of course, that was said half-jokingly. The latest big opportunity is Argentina. I experienced a similar scenario in 1991 when Argentina launched a reform plan, achieved fiscal balance, and curbed hyperinflation, leading the entire market to recover rapidly from extreme stagnation. That was the best-performing market globally for four consecutive years. The current situation in Argentina is almost a replay of the 1991 scenario—we started positioning about 18 months ago, fully entering various assets, including stocks, bonds, and currencies. We flexibly use various tools, not just limited to stock trading Credit bonds are a significant advantage for us, but we also pay great attention to risk control. For example, the dollar credit bonds we bought in Argentina are all bonds that will mature during the current president's term. These bonds had yields as high as 35% at the time, but the actual probability of default was extremely low, making it a very attractive opportunity. I told investors at the time that after Miley won the election, this might be the best trading opportunity I had seen since going long on the dollar against the yen in 2013. We had to seize it while managing the risks well. We ensured that the portfolio had liquidity and could quickly exit in case of unexpected situations. Whether it was the dollar against the yen or Argentina, the commonality of these two trades was that we designed strategies that allowed for quick exits. Tony Pasquariello: When you have an investment view at the national level, like in Argentina, you usually express it through various means, such as stocks, bonds, currencies, etc. How do you decide which tool to use? Among these tools, do you go long and short simultaneously, or do you maintain a unified direction to avoid hedging? Robert Citrone: Generally, if it’s a major thematic investment, all tools will move in the same direction, and there won’t be contradictory hedging situations. I assess the expected returns and potential downside risks of each tool, then combine them to optimize the overall portfolio structure. For example, in the early stages in Argentina, stocks performed very well, but dollar bonds did not perform well, and we lost money on the bonds while stocks were rising, which partially hedged the losses on the bonds. So this diversification does provide some protection. However, the key is still liquidity—ensuring we can enter and exit. A combination of various asset classes helps us participate in trades more efficiently. Sometimes, for instance, when the Argentine stock market was rising rapidly in the early stages, we would appropriately reduce our stock positions and increase our bond positions, later adding exposure to dollar debt. When we were able to enter the Argentine peso market, the market was priced at a 35% discount, with interest rates as high as 75%. We were very clear that the discount would narrow, and capital controls would eventually be lifted, merging the dual exchange rates. That was an extremely successful trade. We invested capital there; although our initial position was not large, we eventually reached about a 10% position, and that trade was definitely a "home run" victory. Tony Pasquariello: There is a hypothesis now that the market will become more efficient over time. However, you have just experienced one of the best phases of fund management in your career over the past few years. What do you think? Robert Citrone: That's a great question. I actually believe that over the past five to ten years, the market has become less efficient, far from being as efficient as it used to be. The market's reactions now do not digest expectations in advance like they used to, which makes timing choices more challenging. What we see is that there is more retail money and "machine money" (algorithmic trading funds) operating in the market, which tends not to make anticipatory judgments but rather reacts based on news and headlines. This leads to a greater market reaction to news, but the ability to price in advance is actually weaker.** If you have the patience to hold your position, this market environment is actually easier, but timing is indeed more difficult. I would say that the current market efficiency is lower, which is actually more favorable for our type of fund management, but for most investors, this kind of market is harder to cope with. I believe that the key to our success in the past few years lies in our fearlessness when investing, while many investors are investing in "fear," feeling very uncertain about the future. Tony Pasquariello: It sounds like you hold a rather different stance on the idea that "the market is becoming increasingly efficient." This may be the kind of view that "people in every era feel that the market was easier to navigate in the past," but your perspective is very compelling. So, to sum up, do you believe that whether in macro investing or emerging market investing, the opportunities in the future will be very abundant, right? Robert Citrone: Absolutely! I think this is a very, very favorable environment for us. Looking back on my 35-year investment career, I feel that the current environment may be one of the best phases for us at Discovery. We have a skill set that is suitable for this environment, and we have very deep connections and insights in Latin America, which I believe no one can match. Moreover, we have the ability to quickly adjust our views, with both macro and micro perspectives. For example, we have always equipped ourselves with dedicated technology industry analysts. Because I believe that if you do not understand what is happening in the technology sector, you cannot do macro investing well. This is very helpful for us in building macro views, and the technology sector itself is also a very good investment direction. Tony Pasquariello: Well said. From another perspective, since we are discussing very exciting and high-quality content, what is your biggest concern? What keeps you up at night? Where do you think you might be wrong in your judgments? Robert Citrone: To be honest, I am not worried about insomnia, because for the past 25 years, I have been getting up at 3 a.m. every day to handle the market situation of the Asian close and European open. I have been doing this for 25 years. Tony Pasquariello: Do you go back to sleep after that? Robert Citrone: Yes, I usually go back to sleep after about 20 minutes. But during that time, we make trades, I make decisions, and I also plan ahead. So that early morning period is very important for me. I personally participate in decision-making, and it allows me to feel the pulse of the market around the clock. And I can't quite explain why, but if I want to buy into the U.S. market or go long on futures, the market is often at its weakest during the Asian close and European open periods. I have always had the feeling that I should take a good look back at this pattern. From personal experience, this period is indeed a great entry window. This gives us a significant advantage because it allows us to grasp the market rhythm around the clock. Of course, the world is very complex, filled with various uncertainties and potential risks. I believe the biggest risk is still those "unknown unknowns," those events that may suddenly occur and catch us off guard. Tony Pasquariello: I’m curious, you wake up at 3 AM every day, so what time do you go to bed at night? What does your sleep schedule look like? After waking up at 3 AM, do you take a nap? What time do you get up again? Robert Citrone: My routine is as follows: I try to go to bed before 11:30 PM, so I can ensure at least 3.5 hours of continuous deep sleep. I’ve heard that the Israeli military has specifically studied this issue, and their conclusion is that if you can guarantee 3.5 hours of uninterrupted sleep, the quality of any subsequent naps will be better. But if you only sleep for two hours and then get woken up, that’s actually quite bad. So I try to ensure that the first segment of sleep reaches 3.5 hours. I wake up around 3:15 AM and work until about 3:30-3:45 AM, checking the situation of the Asian market close and the European market open. The specific time depends on market dynamics; for example, last Sunday night, given the various news from the Chinese market, I stayed a bit longer that night. Then I go back to sleep and get up again around 6:00-6:30 AM. Tony Pasquariello: Alright, that leads to my next question. You are one of the few investors who have successfully managed hedge fund capital for decades, and this industry is almost like a daily battle. What is the secret to your successful "longevity"? Robert Citrone: I think first and foremost, you must love this job. I really love it very much. Doing this job makes me feel like I’m sitting in the front row of the world, experiencing various major global events firsthand. Being able to collaborate with excellent institutions like Fidelity and Tiger, and then creating Discovery ourselves, has deeply engaged me throughout this journey. Let me give you an example. The day Argentina announced the lifting of capital controls and signed the IMF agreement, I flew to Argentina to stay for a day. At that time, I had the opportunity to meet with the Argentine president a few hours before the meeting with the president and the economic team. Being able to participate in such a national-level event and to provide opinions and influence to some extent is a very fulfilling experience. There was also a time when I helped facilitate a phone call from the Mexican president to Trump. Initially, she just wrote a letter to Trump and his advisors. I told her, "What you need is to build a personal relationship; Trump likes to make phone calls, letters won’t be useful." So she immediately made the call, and they later developed a relatively good relationship, having spoken six times. She did an excellent job managing this relationship. All of this shows that we are not just investing; we are deeply involved in the environment and the overall situation of the investment targets And this sense of "sitting in the front row of the world" is unparalleled. Tony Pasquariello: So do you plan to do this until your last breath? Robert Citrone: I think so, I will keep doing it until my last breath. Tony Pasquariello: Alright, then I want to ask a slightly lighter question. Our listeners may have noticed that you are a fan of the Pittsburgh Steelers and also one of the team's shareholders. What does this experience mean to you? How involved are you in it? Robert Citrone: It's truly an incredible experience. I've been a die-hard fan of the Steelers since I was young, so being able to see the team operate from the inside as a shareholder and participate in it is very special. Moreover, I can bring my family into this circle, which means a lot to us. My wife Cindy and I have been working together on the board for 17 years. It's a very valuable learning experience that has deepened our connection with the team and given us more confidence and a sense of responsibility. Of course, the day-to-day operations of the team are mainly handled by Art Rooney, Omar Khan, and coach Tomlin, who are very professional and manage it very well. Tony Pasquariello: Alright, let's move into the final lightning round. First question: What do you think is your biggest advantage as an investor? Robert Citrone: I believe my biggest advantage is that I can connect various information and events from around the world and quickly draw conclusions about what might happen. I can make decisions swiftly and decisively, and in this industry, decisiveness is very important. I am a decisive person. Tony Pasquariello: This relates to the pattern recognition ability we talked about earlier, right? The logic in your mind. Robert Citrone: Absolutely. And the information I get from contacts around the world is also a valuable advantage. I can pick up the phone at any time and call some top people in key countries for direct communication, which is a huge advantage. Tony Pasquariello: What is the best advice you have ever received? Whether it's investment advice or life advice. Robert Citrone: I received a very important piece of advice from my father—something I've kept in mind since I was young. He always said, "Whatever you do, give it your all and do it 100%. If you can't do it 100%, then don't do it." So I have always believed that everything must be done with 100% commitment; there is simply no other option. And this habit has influenced me since I was young. You know, if you achieve success in something from a young age, over time, the compound effect will show, and everything will become easier Tony Pasquariello: This is really amazing. I have interacted with many investors in various industries, especially those who have managed to maintain success in the hedge fund industry for decades. They all have one thing in common - they have invested an enormous amount of energy, focus, and effort. There is almost no other path to success. Robert Citrone: I completely agree. Tony Pasquariello: You previously mentioned George Soros and Julian Robertson. Besides them, which other investors do you greatly admire? Robert Citrone: The first investors I admire are George Soros and Julian Robertson; they have had a profound impact on me, and I have learned a lot from them. I consider them to be among the greatest investors in history. In addition, I also greatly admire David Tepper, whom I have respected for many years. You know, he is also from Pittsburgh, so we have a special connection - although he later "betrayed" us by becoming the owner of the Carolina Panthers, we worked together for a while with the Steelers. I think deep down he still supports the Steelers (laughs). I also greatly admire Stanley Druckenmiller, who is also from Pittsburgh, and his investment record is outstanding. Maybe there is something special in the water in Pittsburgh (laughs). In any case, they are all investors I respect very much, maintaining excellent performance over the years. Tony Pasquariello: So besides investing and American football, what do you do in your daily life? Do you have any other hobbies or interests? Robert Citrone: I have done a lot in the charitable field, particularly focusing on youth mental health issues. We have a long-term project in Pittsburgh that started well before the COVID pandemic, and we have five full-time employees dedicated to this work. Additionally, I am also very concerned about education; I am a board member of my alma mater, and we are involved in many education-related projects. As for hobbies, I really enjoy playing golf, even though I'm not very good at it (laughs), but playing golf on the weekends is still a lot of fun for me. Tony Pasquariello: One last question, if a young person just entered our industry today, what advice would you give them? Robert Citrone: The most important advice I would give is: you must love this job. You really have to love it from the bottom of your heart. Secondly, building relationships is crucial in your career development. You must focus on establishing truly meaningful relationships, not just superficial connections. Remember, relationships are two-way - you have to give something to the relationship, and you must maintain integrity and honesty. This is very important. Tony Pasquariello: Great. Let's wrap it up here today. Rob, thank you very much for being on our show. Robert Citrone: Tony, this conversation has been fantastic, thank you! Tony Pasquariello: Thank you all for listening to this episode of "Goldman Sachs Exchanges – Great Investors." Today's recording date is May 14, 2025. I am Tony Pasquariello. If you enjoyed this show, please follow us on Apple Podcast, Spotify, YouTube, or your preferred podcast platform, and leave us a rating and review. The market carries risks, and investment should be approached with caution. This article does not constitute personal investment advice and does not take into account the specific investment goals, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investing based on this is at your own risk