The exodus caps six brutal years of losses estimated at billions of dollars, and marks the departure of one of Argentina’s most important financial backers for the past half decade, a span in which the nation battled a $65 billion default and a failed attempt at market-friendly reforms. Total, Franklin Templeton’s stake, which once exceeded $5 billion, dropped to about $250 million, not including divestments in October or November, according to data compiled by Bloomberg.
“The bet was horrendous and, on the one hand, Franklin Templeton can be blamed for making it because similar bets in Argentina have always ended in tears,” said Diego Ferro, founder of M2M Capital in New York. “At the same time, the people in the government were saying all the right things, they were credible at the time and they made a lot of promises,” adding that “of course, hindsight is 20/20.”
Hasenstab did not respond to multiple requests for comment, while Stacey Coleman, a spokeswoman for San Mateo, California-based Franklin Templeton, declined to comment on the company’s Argentine holdings or broader investment strategy.
An investment gone wrong
Hasenstab rose to fame more than a decade ago after massive and successful bets in struggling countries such as Ireland and Hungary, netting investors billions in profit.
But that same strategy would prove disastrous in Argentina.
He piled up the country’s bonds at the start of former President Mauricio Macri’s rise to power, betting the country was prepared to lead a rally on market-friendly policies.
Hasenstab was initially so optimistic about Argentina turning around that, in mid-2016, the fund manager decided to buy around $5bn in fixed-rate peso bonds, convinced that inflation would come down quickly. to half, according to a person familiar with the matter. The gamble was so big that Argentine authorities at first did not believe Hasenstab’s envoys were serious about the purchase, said the person, who asked not to be named due to private conversations.
When Franklin Templeton bought the notes in late 2016, he bought them at almost par. In recent months, as it continues to exit what remains of the position, some have traded below 30 cents, Bloomberg data shows, while the peso has weakened more than 90% in the span.
Hasentab’s Bet
Hasenstab’s bet took a turn at the beginning of 2018 when Persistent inflation, drought and the global trade war undermined investor confidence, sparking months of exchange rate volatility and market sell-offs that forced Macri to return to the International Monetary Fund to negotiate a record $56 billion bailout.
For that October, Hasenstab decided to personally travel to Argentina, furious that the country had made a deal with the IMF, that he believed he had been primarily responsible for leading Ukraine, another of his outsized bets, into a debt crisis years earlier.
The following year, Macri’s stunning defeat in the primary election sparked a sell-off that wiped nearly $2 billion out of Franklin Templeton’s stake in a single day.. Days later, he defaulted on the nation’s local debt and restored capital controls. That, along with the country’s decision to ultimately restructure its international bonds, would trap the company and other big creditors, even as the government offered buybacks and swaps for local bonds to help ease the pain.
Hasenstab has been trimming its position in Argentina since 2020, the documents show, when Argentina was emerging from its ninth default..
The efforts of the government of Alberto Fernández to reduce inflation are far from having a good performance as the CPI approaches triple digits, the nation’s international reserves plummet near a six-year low and capital controls draconians continue to limit international investment.
there are no more chances
Hasenstab was such a big player that the company’s withdrawal may complicate Argentina’s ability to refinance large debt maturities due next year, squeezing the country’s small local market.
“We are seeing a more saturated local market, with fewer bond inflows in pesos”said Carolina Gialdi, director of sales and negotiation of international markets at Max Capital in Buenos Aires.
Even with Argentines expected to return to a more market-friendly regime when they head to the polls in less than a year, Franklin Templeton has shown little sign that he is willing to give the country a second chance.
Last month, Fitch Ratings downgraded the nation’s credit rating by one notch to CCC-, citing the country’s declining debt repayment capacity.
“Once again, the country is in a place of stagnant growth and high inflation,” said Jared Lou, portfolio manager for emerging markets debt at William Blair Investment Management. “Although many expect regime change in next year’s elections, it is unclear how many dollars will remain in the central bank when a new government takes office, raising new concerns about Argentina’s ability to service its debts.
Source: Ambito
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