Third Point LLC’s largest loss in the third quarter came from a bet on Argentine sovereign debt, reflecting the rout that followed opposition candidate Alberto Fernández’s surprisingly decisive win in the August 11 presidential PASO primary, the New York-based hedge fund said in an investor letter.
Third Point, run by investor Dan Loeb, said Argentine notes generated “significant profits” for the firm from 2014 to 2016. The hedge fund said it miscalculated how handily the “market-unfriendly” Fernández would defeat President Mauricio Macri.
After the lopsided win, Argentina’s peso tumbled to a record low, stocks suffered their second-biggest sell-off of the past seven decades and concern of another wave of defaults grew. Macri imposed the capital controls he had lifted upon taking office in 2015. Now, Fernandez’s victory in Sunday’s general election is a foregone conclusion.
“In failing to anticipate the extent of Macri’s loss in the primary election, our most significant mistake was missing the second order thinking that in such a scenario, Argentina would be rudderless for almost three months between the August primary and the October election and economic mayhem could ensue,” Third Point said in the letter.
The firm said it sold some of its Argentina position at higher levels than those prevailing today. After the election, Third Point said it expects debt restructuring negotiations to begin. While that will result in greater volatility, bonds will ultimately recover as much as 50% from current prices, the firm said.