Hedge fund managers like to think of themselves as pretty sophisticated guys. It’s that professed sophistication that allows people like Autonomy Capital’s Robert Gibbins to charge his investors so much in fees. But Gibbins’ and his peers’ dealings with Argentina betray something quite different from sophistication.
“We have several issues here which show a flagrant abuse of the overall international financial architecture for Argentina’s specific purpose,” said Mr Gibbins. “If they want a sustainable offer, [the government] should have no problem with agreeing . . . to go back to documents which are less easily abused by bad faith manipulation.”
Argentina? Negotiate in a way hedge fund managers and others on Wall Street are likely to see as bad faith? Why, whoever could have seen that coming? Certainly not those, like Gibbins, who raced to invest in Argentine bonds just as soon as the country (briefly) rejoined the community of bills-paying nations, in spite of it having been all of three years since its previous default. These same highly sophisticated investors are the same who were shocked and appalled when their preferred president wasn’t reelected after they browbeat and bullied him into all sorts of unpopular and ultimately disastrous fiscal policies, all the while whining that he wasn’t being austere enough for their taste.
These are not the actions and reactions of sophisticates but of suckers. And of suckers who, it must be said, could credibly be accused of some bad faith themselves. After all, the issue here are the collective action clauses that Argentina belated began inserting into its bond offerings in 2005. It did this because its failure to do so in the past was what allowed Paul Singer to hold out for more than a decade for full repayment, much to the chagrin of some other hedge fund managers eager to cut some kind of deal.
Singer insisted, however, that terms are terms, and legally binding at that, and won. Well, the terms now are as follows: Bonds issued since 2014 have carried collective action clauses requiring 75% of creditor approval to impose a restructuring on the Paul Singers of the world; those issued earlier require much higher participation. Well, Gibbins would quite like to be the Paul Singer in this situation, and so demands that Argentina act as if the 75% requirement endorsed by the international community—the “international financial architecture,” one might say—is actually the much higher, older number.
Mr Gibbins claims the government is “misusing the CACs at every step”, threatening to exclude certain series of bonds from the votes, even after they are cast, to ensure it meets the agreement thresholds…. “People are being forced or threatened with a disadvantaged situation if they don’t agree to the government’s position,” said Mr Gibbins.
Well, as Paul Singer might say, the terms are the terms, and perhaps Gibbins should have read them before investing. Certainly, Argentinian President Alberto Fernández seems to have.
Anna Gelpern, a sovereign debt expert at Georgetown University who has criticised the government’s attempted use of CACs she had a hand in drafting, likened the bondholders’ demands to reverting to an antiquated operating system.
“If the argument is that Argentina is a repeat offender, then I would think the answer is not to go back reflexively to Windows 5.0, but to think harder about how to have more sophisticated controls and more safeguards,” she said.