Cullen Thompson, the well-regarded chief investment officer of Bienville Capital Management LLC, a hedge fund with approximately $500 million in assets, recently sat down for an interview with Bloomberg’s Simone Foxman to talk about their new Argentina Opportunity Fund, according to the latest edition of BloombergBriefs. The new fund launched in partnership with local partner Explorador Capital Management earlier this summer.
Argentina likely to bounce back with new government
When asked why invest in Argentina right now, Thompson answered that monetary policy change is in the wind with the upcoming elections, and that the new government is highly likely to be more pragmatic and business friendly than the current Argentine government. He said: “The next administration will be forced to roll back subsidies, restoring fiscal balance. They will stop monetizing deficits and implement an inflation-targeting regime at the central bank. To attract foreign capital, they need to remove the capital controls enforced since Cristina was reelected in 2011. Finally, they will need to resolve the holdout issue. All three leading presidential candidates recognize this.” Kyle Bass echoed these thoughts at a conference he spoke at in December 2013.
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Thompson is sanguine on Argentina over the medium term and believes there are a number of good opportunities for investment. “Argentina looks like a great investment. There are lots of good companies that are under-levered. Land for commercial development has been very cheap. There’s no long term lending, nor money going into the country, so good companies are capital starved.”
Strategy of the Argentina Opportunity Fund
Given his positive medium-term perspective on the country, Thompson says “equity-related investments represent the best risk-reward.” He notes that you can find “key companies in critical industries trading at very cheap multiples. Their top line has been restrained by tariffs while their bottom lines have been crushed by high inflation and costs.”
He goes on to say he believes policy normalization with a new government will bring major improvement. In describing the Argentina Opportunity Fund portfolio, he notes “…we own select companies that are relatively liquid, which allows us to de-risk the strategy if the thesis is invalidated. We’re deploying capital slowly, using pullbacks to our advantage.”
Thompson also highlights that he will be investing in the local universe, where some valuations are especially attractive. He points out: “It’s a very inefficient space. There’s virtually no sell-side coverage. As we get into 2015, we’ll begin participating in a handful of less liquid, but highly compelling special situation investments. We think we’ll probably end up doing two to three real estate deals, buying ‘critical assets’ and looking at logistics facilities.”
Argentina is attracting other investors
Bienville Capital Management aside, many investors, especially value investors are finding Argentina an attract play. The stock market has one of the lowest Shiller PEs in the world, and some are arguing that now is the time to buy stocks or bonds. Jim Grant who is buying up stocks in the country, compared the situation to BP Plc after their big oil spill. Dan Loeb, George Soros have also joined the party – as has Maglan Capital, a smaller hedge fund, but one with an impressive track record.