Sunday 17 November 2019

Star investors 'flip' Ireland

Some of the superstar traders who ploughed money into Ireland in the depths of the crisis are quietly 'flipping' their investments. Why are they selling out now?

BIG SWINGERS: Michael Hasenstab has been shrinking his exposure to Ireland
BIG SWINGERS: Michael Hasenstab has been shrinking his exposure to Ireland
BIG SWINGERS: Wilbur Ross has been shrinking his exposure to Ireland
BIG SWINGERS: Prem Watsa has been shrinking his exposure to Ireland

Sarah McCabe

Some of the world's most influential international investors are quietly but surely slashing their exposure to Ireland.

People who make money from recovering economies are, for the first time since 2010, turning their backs on Ireland. Their names are a who's who of the world's most respected investors.

The flight of capital spans everything from Irish sovereign debt to property and banking.

Michael Hasenstab, star trader at Franklin Templeton, who wagered billions of dollars on Irish sovereign debt in 2011, has orchestrated one of the biggest exits.

As Ireland's economy recovered and the perception of risk dropped, his firm made a fortune on paper. But the big returns are over and the Templeton Global Bond Fund - the largest bond fund in the world with more than $70bn under investment - is selling most of its holding in Irish bonds. They have returned 142pc from their lowest point.

Another player selling up is Siegmut Boehm. For years it has been rare for anyone other than Nama or a domestic bank to sell a large Irish property portfolio. But Boehm, who manages German family fortunes as head of AM Alpha Gmbh in Munich, recently sold a large Dublin office block, bought in 2012, for €49m, making an €11m profit. Boehm is now trawling Singapore for residential property.

Royal London Asset Management is also selling property. It is planning to offload eight retail properties and five offices with a combined value of €118m, having failed to sell them twice in 2009 and 2010.

In banking, BoI has seen a spate of major investors slash exposure in recent months. Canadian investor Prem Watsa cut his stake in the bailed-out lender in half six weeks ago, less than a year after New York's Wilbur Ross headed for the exit. The bank's shares have almost quadrupled since both bought in.

Ross and Watsa are not the only ones. Five of the bank's top 20 investors have reduced their holdings over the past 12 months, data compiled by Bloomberg shows.

Another member of their ranks is the Mainstay Marketfield Fund. It is one of the flagship funds of Mainstay Asset Management - the US firm which started life just eight years ago with $500,000 and was named after a street used as a 17th century Manhattan cow market.

Now it's one of the biggest mutual fund managers in the US.

Bank of Ireland is Mainstay Marketfield Fund's single biggest holding in common stock - it owned 539 million shares in the lender at the end of December with a value of $195m, exceeding the value of its investments in banking giants like Citigroup and Bank of America.

But just 12 months ago this stake was even bigger. Mainstay has cut its holding in BoI almost by half in the past 12 months.

Mainstay is led by Michael Aronstein, one of the world's most respected mutual fund managers. The reduction of his firm's stake in Bank of Ireland, he said, is not an indicator of any reduced faith in the bank or Irish economy.

It was prompted by fund outflows, Aronstein said - clients withdrawing money. The proportion of the fund bet on BoI in comparison to the size has actually risen, he pointed out, even though the volume of shares has fallen.

"We're still a big believer in the bank and in Ireland," said Aronstein. "We bought into Bank of Ireland around 2012, paying about 8c a share. We met with its management team at a time when the whole world looked like an emergency situation. Richie Boucher spent a long time with us. The guy is a rugby player and so we knew he could take a few bashes.

"I felt he was not only smart enough and had a strong plan, but was tough. Over the years they have said they will do things, and they have done them."

The Mainstay Marketfield Fund targets low double digit returns, "and we are very patient", says Aronstein.

"We have owned Bank of Ireland stock for three years and have held on to other companies for between five and seven years. If a management team has a plan and is delivering, we are comfortable to let them do that."

Permanent TSB and AIB are not as enticing, he says. His firm looked at taking part in Permanent TSB's recent fundraising round but decided not to take part.

"When push came to shove, at those prices Bank of Ireland was a better bet."

I will "take a look" at AIB, he adds, "but I tend not to favour companies that are under stress for non-exogenous reasons. And at this point we know Ireland is okay, there's no question of distress, so you are not getting the same pricing discounts across the menu of Irish assets."

There is "no question anymore that Ireland is in distress," says Aronstein. The country's housing market outperformed every other in the world in 2014, and the country's stock market has risen 27pc over the past year, more than double the gain in the S&P 500 Index. The yield on Irish 10-year bonds has plunged below 1pc from a peak of 14.2pc in July 2011, months after Ireland sought a bailout.

Yield-hungry investors are simply turning elsewhere - Singapore housing, distressed oil companies or Ukrainian government debt, where Franklin Templeton has sunk billions.

"The juicy distressed-debt trade that we had in Ireland, those days are long gone," said Russell Matthews, a portfolio manager at Bluebay Asset Management, which wagered on Irish sovereign and bank debt after the bailout.

"It's no longer a distressed credit, it's now a much more solid, dependable and stable name. That's the journey that the country has been on."

Ireland, Aronstein said, is now a good bet for more patient, risk-averse investors. It is seen as a relatively safe haven in an increasingly politically divided Europe.

"If you look at Ireland in contrast with Britain, Ireland is something of a safe haven. There is a more sensible approach to the relationship between private businesses... there's a fairly strong current of populism building in the West - and that is very risky if it becomes part of economic policy.

"The rise of the European left is not a good thing. Venezuela is the extreme example - but you can also look at what happened in France under quasi-socialism."

Mainstay is also invested in Irish property via holdings in Hibernia and Green REITs, Dalata and Merlin.

"Obviously the rate of ascent in the property market has to slow, but we are comfortable with our holding... We still feel there is a lot of value in Irish property.

His company does not hold any Irish sovereign debt, which until this month was trading at record low yields.

"We have called the bond market returnless risk for a long time. That's where the next big crisis is going to emerge, not banking."

So the days of big returns and big name investors appear numbered. "The opportunity to make five or more times an investment stake in six years has passed," Michael Shaoul, CEO of Marketfield Asset Management, which owns shares in Bank of Ireland, told Bloomberg recently.

But not everyone is leaving.

Some feel the Irish story has a way to go. Several major Bank of Ireland holders, like Blackrock, have, in contrast to Watsa and Ross, significantly upped their stake. In property, new names are still entering the market.

Marathon Asset Management is one example. The New York-based hedge fund recently bought a non-performing loan tied to almost 600 multi-family units in Dublin, chief executive Bruce Richards said last month. It's his firm's 12th Irish deal. Marathon has a European office in London but its executives are regularly in Dublin.

The company has not only invested in Irish property, said chief operating officer Andrew Rabinowitz, though he would not disclose its other Irish assets.

"We see Ireland's economy continuing to improve and continue to see opportunity in Irish real estate assets, led by continued deleveraging by banks," he said.

The company is interested in all kinds of Irish property, Rabinowitz added - commercial, residential and mixed-use. Richards was even more emphatic, telling Bloomberg TV's Market Makers programme that his company was "big-time bullish" on Ireland.

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