Hedge funds from Autonomy to Odey tumble on Argentine swoon

Big hedge funds thought they could manoeuvre through the minefields of Argentine politics. Instead, they got clobbered.

Autonomy Capital and VR Capital Group saw their gains for the year wiped away after starting August with wagers on the South American nation. Famed short seller Crispin Odey and Glen Point Capital also saw losses.

Market-friendly President Mauricio Macri shocked investors with his poor showing in the nation’s August 11 primary elections. That sent Argentina’s stocks, bonds and currency into a tailspin. The results have fuelled concern that opposition candidate Alberto Fernández and his running mate, former president Cristina Fernández de Kirchner, will bring back protectionist policies and restructure the nation’s debt.

Robert Gibbins’s Autonomy Capital lost about 16 percent in the first half of August, people familiar with the matter said. Gibbins, who manages about US$6 billion, said in April that he expected voters to elect a market-friendly candidate in October. His fund had been up seven percent through July.

In a call with investors last week, Gibbins said that while markets have rightfully priced a Fernandez victory, they’ve wrongfully priced a default on external debt, according to a person with knowledge of the call. Gibbins said he doesn’t think that’s likely.

More Losses

VR Capital also took a big hit. Its flagship fund lost 14.5 percent this month through August 16, according to people with knowledge of the returns. The fund had been up 10.3 percent through July. VR Capital, which specializes in distressed and event-driven or special-situation investments, oversaw about US$4.8 billion as of the end of February, according to regulatory filings.

Glen Point, a London-based macro hedge fund that invests in assets including emerging markets, slid four percent in the first half of the month, said people familiar. Meanwhile, Zach Schreiber’s PointState Capital lost about three percent, paring his gains for the year to about five percent. PointState was the largest institutional holder of US-traded shares of Pampa Energía SA as of June 30, according to regulatory filings.

Odey Asset Management also suffered losses in its flagship Odey European Inc. fund. The US$900-million fund counts Buenos Aires-based Banco Macro SA as one of its top 10 holdings.

“It was very painful to watch eight percent of one’s valuation destroyed in an instant,” the hedge fund manager wrote in an investor update seen by Bloomberg. Odey questioned how much more money he could lose after the peso tumbled to a record low of 60 per dollar. His fund was already down 0.6 percent in the first seven months of the year, the update showed.

Light Sky, BlueBay

Some managers escaped the bloodbath. Ben Melkman’s Light Sky Macro, which manages US$1 billion, started exiting positions in its US$100 million Argentina-focused fund between February and July, according to a person with knowledge of the matter. Melkman, a former Brevan Howard Asset Management partner, decided to close the fund on July 31 due to election risk.

Melkman, who notched gains betting on Argentina in the first quarter, told investors that he “reduced risk and took stock” because “highly contentious elections in EM countries typically coincide with increased volatility, populist rhetoric and loose fiscal policy,” according to a second-quarter letter seen by Bloomberg. His main fund is up about 12 percent this year.

BlueBay Asset Management also ditched its Argentina holdings ahead of the primary election, a spokeswoman confirmed. Money manager Graham Stock said the firm de-risked Argentine exposures in recent weeks after a trip to Buenos Aires in July. “The tail risks were so great that we had to go into the event flat risk,” he said.

Odey, who said the selloff created buying opportunities, warned that Macri may have a tough time gaining enough support to win in October.

“Macri has around three months to bring round that 33% which he failed to convince,” Odey said of the primary election results. “But I think he has the charisma of Theresa May. The only lucky thing is that I cannot understand a word that he says.”