Investing Legend Uses Distressed Debt to Hunt for Next Messi

(Bloomberg) -- 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 soccer 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 U.S. 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 U.S. 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 sneakers 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, a star on the national team who guarded Michael Jordan in the Olympics.

Still, contract regulations for soccer 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 West Ham United in the U.K.

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 soccer, 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.

©2020 Bloomberg L.P.