Star fund manager's bet on $4.3 billion worth of Argentine debt is dangerously close to unraveling


In a week where the country announced it would push back a $1.4 billion payment on local debt, many would agree it's a bad time to be invested in Argentine debt. Asset management firm Franklin Templeton and its star investor Michael Hasenstab hold billions in it. 

Bloomberg reported Friday that the firm holds at least $4.3 billion worth of Argentine bonds, at par value. 

That's as it's becoming increasingly likely that the government will have to restructure its debt. The country's Economy Minister Martin Guzman said Wednesday that Argentina won't let international financial firms "set the guidelines on macroeconomic policy." Instead, he said, the debt restructuring will be focused on reviving the Argentine economy after its currency and economy collapsed — that won't entail attractive terms for investors, Bloomberg reported. 

Argentina's distress has already contributed to absymal performance at Franklin Templeton: Its $26 billion global bond fund is one of the worst performing funds of its type, losing 3% over the past year, Bloomberg reporting showed. To be sure, at a 1.4% weight in that fund, Argentine debt is not the only bet that has dragged the bond fund's returns down, Bloomberg reported. 

But Templeton's bets on Argentina have been big, and spanned multiple funds. Its emerging markets fund, which is 5.6% Argentine assets, has done worse than 98% of its competitors this year, Bloomberg reported. 

This is not how things were supposed to play out. When Hasenstab opened his position in 2016, it was a bet that Agentina's economy would pick up. He's known for taking big bets on sovereign debt, and he's often profited from restructurings. Positons in Ireland, Hungary, and Ukraine all paid off big for him in years past, and that type of investing is what made assets under management in the funds he ran grow from $2 billion to $190 billion by 2013, Bloomberg reported. 

Hasenstab, who increased his stake in Argentina after its 2018 currency crisis, likely hopes that restructuring will provide relief and reward. But there's no guarantee that this restructuring will follow the same path that his European bets did, Bloomberg reported. 

Guzman said at a congressional hearing that debt restructuring would result in "frustration on the part of the bondholders," Bloomberg reported.

And if restructuring plays out poorly, it might be hard to get out of Argentina. Liquidity can be an issue in bond markets, meaning bets like Hasenstab's might be difficult to unravel quickly, Bloomberg reported. 

Templeton is not the only firm in Argentina — BlackRock and Fidelity are invested as well, and those two firms plan to create a bondholder committee in preparation for debt talks. Guzman said those talks will be rapid. He plans to present a proposal on the debt by mid-March and conclude talks by the end of the month, Bloomberg reported.