Pharo Macro Fund, with over $1.7 billion under management is up 6 percent for the year with under-performance of -1.2 percent in October. The highest monthly gains, +5.2 percent, were reported in September.
The monthly commentary cites the plunge in Argentine asset prices as a major detractor of October performance. Pharo Macro Fund is involved in a long position in Argentine sovereign asset classes and was shaken by the decision of a US appeals court, which granted Argentina immunity against the previous decision, which had ordered the government to pay in full to the holdout creditors. We have covered the news on the court case between Argentina and some hedge funds that chose to holdout on payments on restructured debt.
The ruling of the appellate court on October 26 triggered a selling frenzy across Argentine credit assets, which stirred a plunge in bond prices. Pharo is not thrilled about these developments and believes that the situation is forcing Argentina to default, even when the country has the capacity to pay off its debt. The fund will re-evaluate its position in Argentine sovereign credit in January of next year. Other than Argentina, Pharo also lost in Mexican sovereign credit, where the central bank was not as lenient.
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The positive performers in October were the fund’s long positions in Turkish bonds, Polish and Hungarian interest rate swaps, and in Italy and Spain’s sovereign credit, Korean won vs USD, and shorts in South African rand vs USD. In Turkey, a central bank led rally helped appreciation in treasury bonds, while in Italy and Spain, the fund profited from a tightening in bond spreads.
The fund is focusing on Greece, where it expected the official entities, like IMF and EFSF, to cut their hold in Greek debt. Once that happens, the restructured bonds will rally and Pharo is going to be positioned for profits. As we reported a while ago, Greece announced a bond buyback program worth 10 billion euros on Monday, the debt buy back has already triggered a rally in bonds, as the government announced better than expected terms.