Hasenstab bets big on Argentina in another risky move

Hasenstab bets big on Argentina in another risky move

‘Bond king’s’ huge debt positions in troubled countries can reap windfalls, but not always

Bond fund managers often scoff at the big racy bets of equity investors, preferring the sweet sensation of a steady, diversified stream of coupon payments being made on time. Michae Hasenstab is not like most bond investors.
Franklin Templeton’s “bond king” is more softly spoken, unflashy and cerebral than other flamboyant fund managers that have been associated with that title — such as DoubleLine’s Jeffrey Gundlach and Pimco’s erstwhile founder Bill Gross — but over the years he has carved out a reputation for massive bets that make many of his counterparts blanch.

The latest example came this week, when it emerged that Mr Hasenstab had orchestrated and snapped up more than 75 per cent of a $3bn Argentine bond sale. At the end of the first quarter Franklin Templeton already held $4.1bn of Argentine debt, and the swoop likely made the San Mateo-based asset manager the country’s single biggest creditor.

The move raised eyebrows among rival fund managers, but is consistent with Mr Hasenstab’s playbook. He has periodically amassed huge positions in the debt of troubled countries such as Hungary, Ireland, Ukraine, Ghana, Nigeria and Mongolia. At one point he owned almost a tenth of the Ireland’s government bond market, shrugging off concerns over its stricken finances to ride the country’s recovery to a eye-popping windfall.

But sometimes these big bets have soured, most notably in Ukraine. Its already shaky finances were left in tatters by its 2014 revolution and subsequent Russian invasion, and the government eventually restructured and imposed a 20 per cent haircut on $18bn of its international bonds — a big chunk of which were held by Mr Hasenstab. More recently, his bearish view on developed bond markets has weighed heavily on performance.

In some respects, Mr Hasenstab acts almost like a private sector version of the International Monetary Fund, bailing out countries that find themselves in a bout of trouble and (hopefully) carrying them through to a recovery and big profits.

However, critics argue that Mr Hasenstab in practice profits from moral hazard, benefiting from the reluctance of the IMF to impose haircuts on bond investors when it has to get involved. Indeed, the bonds he buys are in some cases only repaid thanks to the IMF’s largesse.

Still, for Argentina his involvement will be a welcome boost as the government enters negotiations with the IMF. When Mr Hasenstab decides to go big he has often shown a steely determination to stay the course, doubling down when necessary. That indicates that Buenos Aires has found a valuable friend that will continue to support its efforts to become — in president Mauricio Macri’s words — a “ normal country ”.

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