<\/p>\n
When Venezuela defaulted on its bonds and trading all but seized up, most investors ran. Tina Vandersteel bought more.<\/p>\n
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.<\/p>\n
\u201cI have all the bonds,\u201d Vandersteel said in an interview this month. \u201cIf you\u2019re distressed hedge fund XYZ, you want to start now, you have zero.\u201d<\/p>\n
That shift \u2013 from one of the few willing buyers to market-maker in one of the world\u2019s most politically fraught sovereign debt trades \u2013 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.<\/p>\n
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 \u2013 particularly in Israeli debt.<\/p>\n
But few trades have paid off like Venezuela. That was built over years of accumulating the country\u2019s bonds at deeply distressed prices on the belief that its vast oil wealth would eventually make them worth something again.<\/p>\n
Then came the Iran war. As energy prices skyrocketed and countries looked for alternative suppliers, Venezuela\u2019s oil reserves became strategically important.<\/p>\n
\u201cYou just had to wait,\u201d she said. \u201cSomeday they will pull oil out of the ground and pay bondholders.\u201d<\/p>\n
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The trade traces back to Venezuela\u2019s 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.<\/p>\n
\u201cWe worked with Treasury to have those lifted,\u201d she said, making the point that the trading curbs were hurting existing investors rather than preventing new financing for Caracas.<\/p>\n
Washington eventually eased some of those restrictions, helping Venezuela\u2019s bond prices rebound to about eight or nine cents on the dollar. Investors then rushed to exit positions they had long written down \u2013 often with Vandersteel as one of the only buyers.<\/p>\n
\u201cThe lower the price, the more I\u2019ll buy,\u201d she added. \u201cAfter a while at these very, very low prices, I had accumulated something like $1 billion in face value of Venezuelan bonds.\u201d<\/p>\n
By the end of 2025, Vandersteel had about 4% of her fund\u2019s weighting in Venezuela sovereign bonds and debt issued by state-owned companies, compared with 1% in the benchmark.<\/p>\n<\/p>\n
The big moment came in January, when Trump seized President Nicol\u00e1s 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.<\/p>\n
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Bond prices surged to around 40 cents, delivering a windfall for investors like Vandersteel who have stuck it out.<\/p>\n
The Iran war, which broke out late February, has made Venezuela even more valuable for oil markets. \u201cNow the incentive of an ExxonMobil or Chevron or whoever to take a flyer on Venezuela has gone up materially,\u201d she said.<\/p>\n
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 \u201ctwice, maybe three times in your career.\u201d<\/p>\n
\u201cThis is stuff built up years ago that through these circumstances \u2013 you never know when your option\u2019s going to pay off,\u201d she said.<\/p>\n
The fund posted a 22% return last year, outperforming the benchmark\u2019s 14%, according to the firm. Over a three-year period, it gained more than 17% compared with the benchmark\u2019s 9.5%.<\/p>\n
Bloomberg\u2019s Methodology:<\/p>\n
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.
\nThe 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.<\/p>\n
Middle East<\/p>\n
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.<\/p>\n
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.<\/p>\n
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\u201cYou could buy Russian bonds and buy credit protection on Russian bonds in a basis package,\u201d she said. \u201cYou can create that in Israel.\u201d<\/p>\n
Vandersteel is buying both Israel\u2019s dollar bonds and credit default swaps \u2013 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.<\/p>\n<\/p>\n
Her investment approach is built around what she describes as \u201ccertainty.\u201d 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.<\/p>\n
Instead of trying to predict those variables \u2013 \u201cwe try to stay away from those like the plague\u201d \u2013 her team focuses on what she calls duration relative value, taking long positions in some countries\u2019 bonds and short positions in others while keeping overall exposure neutral.<\/p>\n
\u201cI don\u2019t want to get chopped around,\u201d she said.<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#bond #investor #stuck #Venezuela #reaping #reward<\/p>\n","protected":false},"excerpt":{"rendered":"
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