The bond investor who stuck with Venezuela is now reaping reward

When Venezuela defaulted on its bonds and trading all but seized up, most investors ran. Tina Vandersteel bought more.

Now, about eight years later, as funds rush to gain exposure to a suddenly resurgent market, the Boston-based asset manager at Grantham Mayo Van Otterloo & Co. finds herself holding much of the debt that others are chasing.

“I have all the bonds,” Vandersteel said in an interview this month. “If you’re distressed hedge fund XYZ, you want to start now, you have zero.”

That shift – from one of the few willing buyers to market-maker in one of the world’s most politically fraught sovereign debt trades – helped the GMO Emerging Country Debt Fund deliver the strongest risk-adjusted excess returns among global sovereign debt funds since the Iran war erupted, according to data compiled by Bloomberg.

Vandersteel, who oversees around $9.5 billion, has spent decades investing in emerging markets. She joined GMO in 2004 from JPMorgan Chase & Co., where she had started in 1990. Today, she sees some trading opportunities in the Middle East as well – particularly in Israeli debt.

But few trades have paid off like Venezuela. That was built over years of accumulating the country’s bonds at deeply distressed prices on the belief that its vast oil wealth would eventually make them worth something again.

Then came the Iran war. As energy prices skyrocketed and countries looked for alternative suppliers, Venezuela’s oil reserves became strategically important.

“You just had to wait,” she said. “Someday they will pull oil out of the ground and pay bondholders.”

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The trade traces back to Venezuela’s default in late 2017, after which escalating US sanctions and collapsing oil production sent bond prices plunging. American restrictions on trading Venezuelan debt left many investors effectively unable to buy or sell, prompting some funds to mark their positions at levels near zero.

“We worked with Treasury to have those lifted,” she said, making the point that the trading curbs were hurting existing investors rather than preventing new financing for Caracas.

Washington eventually eased some of those restrictions, helping Venezuela’s bond prices rebound to about eight or nine cents on the dollar. Investors then rushed to exit positions they had long written down – often with Vandersteel as one of the only buyers.

“The lower the price, the more I’ll buy,” she added. “After a while at these very, very low prices, I had accumulated something like $1 billion in face value of Venezuelan bonds.”

By the end of 2025, Vandersteel had about 4% of her fund’s weighting in Venezuela sovereign bonds and debt issued by state-owned companies, compared with 1% in the benchmark.

The big moment came in January, when Trump seized President Nicolás Maduro in a military operation, fueling speculation that Venezuela could eventually normalize relations with Washington and reopen its oil sector to foreign investment. At stake was about $170 billion of defaulted bonds, loans and legal judgments owed to creditors ranging from Wall Street firms to China.

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Bond prices surged to around 40 cents, delivering a windfall for investors like Vandersteel who have stuck it out.

The Iran war, which broke out late February, has made Venezuela even more valuable for oil markets. “Now the incentive of an ExxonMobil or Chevron or whoever to take a flyer on Venezuela has gone up materially,” she said.

Vandersteel profited by selling some of the bonds. After more than three decades investing in debt markets, she called the trade the kind of opportunity that comes along “twice, maybe three times in your career.”

“This is stuff built up years ago that through these circumstances – you never know when your option’s going to pay off,” she said.

The fund posted a 22% return last year, outperforming the benchmark’s 14%, according to the firm. Over a three-year period, it gained more than 17% compared with the benchmark’s 9.5%.

Bloomberg’s Methodology:

The GMO fund posted the highest information ratio among about 300 sovereign-bond peers, according to data compiled by Bloomberg. The metric measures excess returns relative to a benchmark, adjusted for volatility.
The analysis covered funds launched before January 2022 with at least $500 million in assets. Eligible funds primarily invest in sovereign bonds and allocate at least 80% of assets to debt securities. Funds with a duration measure of interest-rate sensitivity below two were excluded.

Middle East

Vandersteel sees another geopolitical trade emerging. One of the biggest underpriced risks, she said, is in Gulf Cooperation Council debt. Spreads over dollar overnight indexed swaps remain too tight despite the Iran conflict, and countries including Qatar, Kuwait, the UAE, Oman and Saudi Arabia fall into that category.

Israel, in her view, is the only market in the region that carries a significant war premium. Vandersteel compares the dynamic to Russia before its 2022 invasion of Ukraine, when strong credit fundamentals were overshadowed by geopolitical fears.

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“You could buy Russian bonds and buy credit protection on Russian bonds in a basis package,” she said. “You can create that in Israel.”

Vandersteel is buying both Israel’s dollar bonds and credit default swaps – derivatives that insure against default. Such a strategy generates income from the bonds while using part of those returns to fund the protection. With the bonds trading about 50 basis points cheaper than the cost of insuring them, the trade aims to profit from that gap rather than making a direct wager on whether Israel ultimately repays or defaults.

Her investment approach is built around what she describes as “certainty.” In client presentations, Vandersteel contrasts Sir Isaac Newton with Socrates as a way of distinguishing between trades with clearly defined outcomes and those driven by unpredictable factors like inflation, oil prices or interest rates.

Instead of trying to predict those variables – “we try to stay away from those like the plague” – her team focuses on what she calls duration relative value, taking long positions in some countries’ bonds and short positions in others while keeping overall exposure neutral.

“I don’t want to get chopped around,” she said.

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