Will Argentina’s New President Drive Losses for Hedge Funds?

November 08, 2019

When Argentina President Mauricio Macri was elected in 2015, he brought along a pro-business agenda, which reopened the country’s financial markets bringing investors ­— including hedge funds — back into the country. As hedge funds returned, their investments in both debt and equity were on the presumption that Argentina would not default on its debt, and economic growth would strengthen. Unfortunately, those bets were hit hard following a disappointing showing for Macri in August’s primary election. Bonds across the Argentina complex sold off to distressed levels as investors expressed concerns that Alberto Fernández, the Peronist candidate, would return the Peronist movement back to power. Investors feared market overhauls made by Macri would be undone by Fernández and the Peronist party.

On October 27th, the Peronist movement was voted back into power when Fernández received 48% of the vote. Despite the election result, hedge funds remain invested across the Argentina debt complex with the view that Fernández will not allow Argentina’s bonds to default. It remains to be seen if that will happen, but hedge funds remain long on this distressed credit despite taking a large haircut to their positions in August. These managers have quite the hole to climb out of and only time will tell if they are on the right side of this trade; for those with exposure, all eyes will be on Fernandez and any new policies that arise from his regime that could impact these investments.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.