product launch | holders of defaulted paper can exchange them for units in the fund
Merchant Bankers Associados (MBA) and Emergent Asset Management are set to launch a fund that invests in Argentine defaulted government debt.
The Patagonia Argentine Recovery Fund is designed to take full advantage of the recovery in Argentina through the exchange of defaulted Argentine government debt for units in the fund, or through cash investments.
The fund offers holders of defaulted paper an alternative to simply holding their defaulted bonds and passively awaiting an eventual restructuring, which, given its magnitude, the diffuse number of investors involved and the fact that the process has not yet begun, is expected to be long.
The minimum investment in the Bermuda-domiciled fund is $50,000, with a maximum capacity of $400m and it is listed on the Channel Island Stock Exchange.
Historically, crises in the Argentine economy are followed by dynamic recovery cycles, with capital gains ranging from 160% to 5,300% over one to four years respectively, depending on the asset class.
Martin Bendersky, European intermediary at Diamond Capital, said; "An investor can play the Argentina recovery by holding on to sovereign debt, or by playing the US$ denominated corporate debt and equity markets coupled with a likely appreciation of the peso.
"The most likely scenario is that the restructuring of Argentine sovereign debt could take a long time before it is completed and it starts delivering attractive returns to investors. Conversely, the Argentine corporate sector, debt and equity, may recover in value much faster as the economy recovers. What is interesting about the Patagonia Recovery Fund is that offers investors the option to exchange Argentinean debt for equity in an actively managed fund that may enable investors to potentially benefit faster from the Argentinean economic recovery," he says.
The fund is targeting very high returns of 80%-150% over its three-year life. In audited, actual pre-launch trading, the fund was up 13.25% over four months to 11 September, equivalent to 44% annualised.
MBA will be the investment manager for the portfolio. The investment strategy of the fund will include taking advantage of real peso appreciation, relative value strategies swapping sovereign for corporate risk, active participations taken in corporate restructurings and equities.
Pablo Taussig, head of asset management at MBA, said: "Apart from cash investors, the fund provides holders of the defaulted external debt an easy option to swap out of a messy restructuring and into receiving a return in one transaction - by allocating the defaulted debt to the fund."
The 700,000 retail investors holding defaulted Argentine sovereign bonds in Europe, Asia and US will never recover their original investment. Under the current terms, the most investors will ultimately recover is 25 cents on the dollar.
By investing in the Patagonia Fund, however, holders of the defaulted debt can swap out of the longer-term restructuring problem and into the fund. Consequently, they will start to receive a return now on the units in the fund received in the exchange by putting themselves in a position to benefit from the dynamic and profitable local recovery currently underway in Argentina.
Two global vehicles
'Further plug advice gap'
Must appoint separate CEOs and boards
Advisers do come out well
Will report to Mark Till