Gecko Capital’s Maunakea Emerging Markets Debt Recovery Fund has delivered an impressive 74% return over the past year, and its managers are particularly bullish on the future of two South American economies. The fund’s manager, Jean-Jacques Durand, said the fund’s goal is to achieve double-digit returns annually in U.S. dollars, with the current yield of about 10% being a “conservative” estimate. It generates these returns by investing in bonds where borrowers often face difficult financial situations that may require restructuring or bailouts – known in the industry as “exceptional circumstances.” Where are the funds invested? Mauna Kea’s two largest positions are in Venezuela and Argentina, which Duran considers one of the “most compelling and attractive” trades he has ever made. Venezuela presented what he called the “case of the century” when bonds issued by its state oil company PDVSA were trading between 13 and 18 cents on the dollar until last October due to the threat of U.S. sanctions. Instead, the U.S. government partially lifted sanctions after the Venezuelan government began negotiations with the opposition. “So this is the first increase in prices, almost doubling [in price] Within days,” said Duran, who previously managed an emerging-market bond portfolio at Edmund Rothschild. The investor believes that Venezuela’s long-term potential, coupled with the possibility of sanctions easing and the country’s geopolitical importance, make it a viable option. However, he stressed the need to remain patient in these circumstances as elections are expected to be held on July 28 Held on 2020, this will be a critical moment for investment in the country. , will we eventually have a legitimate government and further lifting of sanctions by the EU or the US, or will we have a self-enclosed regime that will obviously become more and more powerful. This is where the problem lies. Lang cited the example that Venezuela has had “good faith” negotiations with bond investors before. “Typically, it’s pretty simple,” he explained. “If they want their oil business and their entire economy to function properly, they can’t afford it.” The consequences of years of being locked out of the market are in sharp contrast to the situation in Argentina, which has a history of defaults that have led to heavy losses for businesses that have been able to function even when the country was excluded from capital markets. When the opportunity arises, they will default. The manager is optimistic that Argentina will reverse its debt crisis as the country’s bonds begin to trade at junk levels, meaning “default is a real possibility.” That could be the next position,” he added.
