'Famous' Bond Investor Turns Out To Be Nothing More Than A Glorified BTFDer

Submitted by Tyler Durden on 02/01/2015 20:00 -0500

• Bond
 
• Creditors
 
• Hungary
 
• Lazard
 
• Morningstar
 
• Poland
 
• Recession
 
• Reuters
 
• Ukraine

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"Michael Hasenstab is all about the big trade," is the 'masters-of-the-universe'-esque introduction by Bloomberg for Franklin Templeton's "famous" bond fund manager. “His success speaks for itself, but he does take bets,” notes one financial planner but it appears Hasenstab has BTFD one time too many - afterloading up on more than $7 billion of Ukraine's bonds (equal to almost half of all Ukraine’s foreign bonds) he has seen them almost cut in half to around $4 billion. And it appears clients are seeing the bond guru's BTFD-iness for what it is - extreme risk with OPM - as investors last year pulled a record $14 billion from the U.S. and European versions of the Templeton Global Bond Fund.

As Bloomberg reports,

After loading up on more than $7 billion of the country’s bonds, Hasenstab has seen the value of the securities collapse as the conflict with pro-Russian rebels deepened an economic recession, depleted foreign reserves and prompted government calls for a debt restructuring. His investment, equal to almost half of all Ukraine’s foreign bonds, is now valued at just $4 billion, based on fund holdings from the end of the third and fourth quarters.

As the losses mount, returns on Hasenstab’s two biggest funds -- standouts in the industry that have outperformed 99 percent of peers over the past decade -- have slipped, helping fuel client redemptions. Investors last year pulled a record $14 billion from the U.S. and European versions of the Templeton Global Bond Fund.

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“Franklin Templeton’s Global Bond group often takes a contrarian approach to investing,” Coleman said in an e-mailed response to questions. “It has the research capabilities, size and long-term perspective to buy and hold investments that are out of favor.”

The Ukraine trade started to unravel in the second half of last year as the government’s finances deteriorated.

It seems Hasenstab is nothing more than a well-paid knife-catcher?

He’s also made big investments in debt from South Korea, Hungary and Poland, Bloomberg data show. Hungary’s dollar bonds have returned an average 54 percent over the past three years, helping Hasenstab’s Global Bond Fund return an average 10.1 percent annually over the past decade.

The fund’s return, though, slipped to 1.99 percent last year, a figure that put Hasenstab behind 53 percent of his peers. The Ukrainian bonds were responsible for more of that slump in returns than those from any other country, according to data compiled by Bloomberg.

“The fund’s management team is nothing short of brilliant,”Gilbert Armour, a financial adviser in San Diego who owns the fund for clients, wrote in an e-mail. “I wouldn’t let a short-term dip in performance deter one from sticking with a long-term winner.”

But now - as holder of more than half of Ukraine's foreign debt, Hasenstab now finds himself in the position of having to decide how much, if anything, he’s willing to give up in restructuring negotiations.

The government has hired Lazard to advise it in talks with bondholders, Reuters reported Wednesday, citing people familiar with the situation.

Restructuring talks will likely have the support of the IMF, according to Lutz Roehmeyer, a fund manager who oversees $1.1 billion in emerging-market debt at Landesbank Berlin Investment GmbH. If IMF officials are showing a willingness to extend the terms of their financing to Ukraine, they will be looking for bondholders to make concessions too, he said.

“Nobody wants to fund Ukraine alone,” Roehmeyer, whose holdings include Ukrainian debt, said in a Jan. 22 telephone interview. “Not the U.S., not the EU and not the IMF. It’s a piecemeal approach, and of course creditors will have to contribute. If the IMF prolongs its loans, it will demand the same from bondholders.”

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We have a simple question - what were the 'fundamentals' that Hasenstab was seeing to BTFD in this?

“It’s a country that despite some of the short-term fiscal issues has very little indebtedness,” Hasenstab, 41, said in the April 5 piece. “So from a bondholder investor standpoint, it made a lot of sense. Then the crisis came, and what encouraged us was the response of crisis management.”

Two months later, Hasenstab was quoted in a Morningstar Inc. interview as saying that Franklin Templeton had made “a good amount of money” as Ukrainian bonds rallied. The selloff would start a few weeks later.

The math at this point isn’t encouraging: Ukraine has to make $14 billion of foreign bond payments over the next three years, an amount that’s almost double the $7.5 billion of international reserves it has left, according to data compiled by Bloomberg.

And the economy is in tatters. Government officials are predicting a 4.3 percent contraction this year following a 7.5 percent drop last year. The military conflict with separatists, which has claimed more than 5,000 lives since it began in April, has snarled business in much of the east of the country.

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Or is it yet another falling knife to catch - if it drops - oh well it's OPM... if it soars - hero bond manager knows all... Incentives anyone?

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