Franklin Templeton’s Michael Hasenstab has lost $3 billion on his Ukrainian bond purchases as the value of the securities collapsed as the conflict with pro-Russian rebels deepened an economic recession.
Michael Hasenstab is reportedly Ukraine’s biggest private creditor as he owns about half of Ukraine’s international bonds.
Michael Hasenstab loaded up over $7 billion Ukraine bonds
Michael Hasenstab’s fund has historically outperformed markets and his peers. However, he won’t be feeling so princely about his bet on Ukraine any more.
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Boris Korby and Charles Stein of Bloomberg highlight how one of the world’s most successful and famous, bond fund managers sees his $3 billion vanish in Ukraine.
According to the Bloomberg report, after loading up over $7 billion of Ukraine bonds, Michael Hasenstab has seen the value of the securities erode thanks to depleted foreign reserves and government calls for a debt restructuring. The bond fund manager’s investment, equal to almost half of all Ukraine’s foreign bonds, has currently eroded to just $4 billion, based on fund holdings from the end of the third and fourth quarters.
Last year, investors pulled a record $14 billion from the U.S. and European versions of the Templeton Global Bond Fund and Templeton Global Total Return Fund, which have a combined $150 billion in assets. His Global Bond Fund returned an average 10.1% annually over the past decade. However, the fund’s return dropped to 1.99% last year, dragging Hasenstab behind 53% of his peers. Bloomberg’s data reveal the slippage was more to do with the losses on Ukranian bonds than any other factor.
Franklin Templeton spokeswoman Stacey Coleman said: “Franklin Templeton’s Global Bond group often takes a contrarian approach to investing. It has the research capabilities, size and long-term perspective to buy and hold investments that are out of favor”.
Ukraine trades unraveled last year
Michael Hasenstab’s Ukraine trade started to unravel in the second half of last year following deteriorating government’s finances. According to Bloomberg data, Ukraine has to make $14 billion of foreign bond payments over the next three years, which is almost double the $7.5 billion of international reserves it has left. Moreover, prices on Ukraine’s benchmark bonds have dropped to 54 cents on the dollar from as high as 105 cents last year, highlighting that investors are anticipating a debt restructuring that will saddle them with losses.
Ukraine finance minister Natalie Jaresko indicated last week that she plans to negotiate more favorable borrowing terms with bondholders, while Christine Lagarde, the IMF managing director indicated the lender was also willing to support an extended fund facility that would replace a $17 billion loan provided to Ukraine in the aftermath of the toppling of President Yanukovych last year.
Last year, Michael Hasenstab indicated short-sighted panic-selling offered good opportunities to buy Ukraine’s dollar-denominated government bonds, which are backed by solid fundamentals.