Another hedge fund blames a large quarterly loss on Argentina's recent market collapse

Getty Images/ Larry Busacca

  • Third Point LLC, a fund management company run by Dan Loeb, said its largest loss of the third quarter was on a sovereign bond investment in Argentina.
  • Argentine markets suffered the second-biggest crash in history when incumbent president Mauricio Macri lost an August primary in a surprise upset to Alberto Fernández and his running mate Cristina Fernández de Kirchner.
  • Third Point isn’t the first hedge fund to lose big on Argentina – Autonomy Capital reportedly shed $US1 billion after the August rout.
  • Read more on Business Insider.

Months after Argentina’s stock market suffered the second-largest crash in history, a hedge fund said its largest loss in the third quarter was its bet on the nation.

Third Point LLC, a fund management company in New York run by Dan Loeb, said in a shareholder letter Thursday that its “main detractors” of the quarter were “a sovereign bond investment in Argentina and single name shorts.”

The fund explained that it had invested in Argentine sovereign bonds because it believed that incumbent president Maurico Macri had a good chance of being reelected in October. Even if he was not, the fund said, the country’s economics and challenger Alberto Fernández’s “background suggested that the draconian restructuring the market feared was unlikely.”

Of course, that all changed after the August 11 primary, when Macri lost in a surprise landslide upset to the “market-unfriendly ticket” of Fernández and running-mate Cristina Fernández de Kirchner, setting them up to win the October 27 general election. That prompted Argentina’s S&P Merval Index to drop 48%, sent the peso plummeting to a record low, and stoked investor fear that another default may be in Argentina’s future.

Third Point wrote that its most significant mistake was failing to see that “Argentina would be rudderless for almost three months between the August primary and the October election and economic mayhem could ensue,” if Macri lost by a significant amount.

After the rout, Third Point reduced its position in Argentina “at higher levels than are prevailing today.” The fund expects debt restructuring efforts to begin following the October 27 election and anticipates that bonds will recover 30% to 50% more than current prices, even amid more volatility.

Third Point isn’t the first hedge fund to note losses from bets on Argentina. Autonomy Capital reportedly lost about $US1 billion in August on bullish wagers that Argentina would not default on its debt, including holding investments in the country’s 100-year government bonds.

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