Thursday 27 October 2016

To the victor the spoils - star US investor nets €5.6bn from risky punt on Ireland

US bond investor's punt on Irish debt during financial crisis nets €5.6bn

Published 16/08/2016 | 02:30

Michael Hasenstab netted more than €5bn
Michael Hasenstab netted more than €5bn

A punt on Irish government debt by a US bond investor during the economic crash has paid off, reportedly netting a massive €5.6bn return on the investment.

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As a top money manager with US investment house Franklin Templeton, California-based Michael Hasenstab bought up Irish government bonds, or IOUs, in the middle of 2011 when few others would touch them.

The funds he controlled effectively lent money to Ireland at the height of the financial crisis - when the country was locked out of the international money markets - in return for holding the bonds.

This was regarded internationally as a risky investment.

At the time, the interest rate on the debt had soared to almost 14pc.

Ireland's debt rating had also been downgraded to junk status by ratings giant Moody's, amid concerns that the State was struggling to pull itself out of the crisis and fears that it might need another bailout.

Hasenstab's confidence in the Irish economy paid off
Hasenstab's confidence in the Irish economy paid off

But Mr Hasenstab remained confident about the prospects for the Irish economy.

That confidence has paid off, it now appears.

Mr Hasenstab's investment funds enjoyed a return of a massive 70pc, or around €5.6bn, according to financial newswire Bloomberg, which has carried an interview with him.

Franklin Templeton at one point was the biggest lender to Ireland after the International Monetary Fund and the eurozone rescue funds - a situation that was welcomed by official Ireland.

In 2012, fears that such a concentrated ownership of Irish bonds could be destabilising were dismissed by the then head of Ireland's debt management agency, John Corrigan.

Mr Corrigan, the then chief executive of the National Treasury Management Agency (NTMA), said at the time that he "would prefer if we had 10 Franklin Templetons, rather than one".

Over the years since the initial investment, Mr Hasenstab became a cheerleader for the previous government's efforts to turn the economy around, arguing that austerity was working.

He fully exited his Irish position earlier this year and has praised the country's recovery.

In the same year that Franklin Templeton began investing in Irish debt, Mr Hasenstab made a similar bet on out-of-favour Hungarian bonds, which also netted billions.


However, he hasn't always been as successful. His biggest bruise came when a high-profile multibillion-dollar bet on Ukraine soured with Russia's 2014 invasion of Crimea.

After loading up on 40pc of the country's bonds, Mr Hasenstab saw a major chunk of his investment wiped out as the conflict with pro-Russian rebels deepened an economic recession that had already drained the country's reserves.

"I'm comfortable going through periods of pain, sweat, and tears, knowing there's a reward at the end," he said.

Irish Independent

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