Gramercy reaps Argentina bond windfall
US hedge fund books big gain as new centrist government boosts financial markets
Gramercy, a US hedge fund, has handed investors in its two-year Argentina-focused vehicle about $750m, a gain of 20 per cent net of fees two months ahead of schedule, after the new centrist government restored investor confidence and boosted the country’s financial markets.
The Connecticut-based money manager known for its emerging markets investing set up its “Gramercy Distressed Argentina Fund II” in September 2014, a time-limited vehicle that would bet on Latin America’s second-biggest economy.
At the time Argentina had just defaulted on its debts again, for the eighth time in the country’s 200-year history, as a result of its legal battle with a group of US hedge funds that sued after Buenos Aires last defaulted in 2001 and imposed a punitive restructuring on its creditors.
However, some intrepid investors were keen to bet on a turnround in Latin America’s serial bond defaulter, leading to a flurry of hedge funds setting up Argentina-focused funds in 2013-14. The subsequent election of the reformist, centre-right government of Mauricio Macri in December 2015 has led to a sharp improvement in the country’s fortunes.
The government this year reached deals with most of its aggrieved creditors, “curing” the 2014 default and leading to a 33 per cent gain for the local Merval stock market and a rally in the country’s bonds. The turnround was encapsulated by a $16.5bn Argentine bond sale in April — its first international debt sale since 2001 and the biggest on record for a developing economy.
In a letter dated June 10 to investors in its Argentine fund, Gramercy said it began cashing in on its gains in the second quarter of 2016, and was in a position to begin handing money back to investors. A person familiar with the matter said the fund had redeemed all investors in the past two weeks.
Gramercy has begun to market a Argentina-focused fund to succeed its first two, according to the investor letter seen by the FT, arguing that the “recent normalisation events are only the beginning of a cycle of growth for Argentina”.
The new vehicle, GDAF III, will try to capitalise on what Gramercy terms the “next phase” in Argentina, targeting assets across the country with a broader investment mandate, including Argentine equities, corporate bonds and even ungraded securities such as trade claims and loans. The target size is $500m.
Nonetheless, despite the enthusiasm of international investors, some economists caution that Argentina has much work to do. The country’s economy and finances remain weak, and much will depend on the robustness of foreign direct investment, according to Siobhan Morden, head of Latin American fixed income strategy at Nomura.
“If there is not a pick-up in FDI for the second half of the year, this could undermine the otherwise positive credit risk perception with a strong economic recovery necessary for reassuring governability and the aggressive fiscal target,” she wrote in a note last week.
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