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June 29, 2016  

Owl Creek Touting Returns of Argentina Play

A move by Owl Creek Asset Management to double down on Argentine sovereign bonds at the height of the country’s debt crisis has paid off for investors.

A co-investment vehicle Owl Creek launched in June 2014 has delivered a two-year cumulative profit of 17%, compared to an 8% increase for the S&P 500 Index over the same period. The vehicle, Owl Creek Argentina Recovery Fund, is now fully liquidated. The New York firm expects all investor capital to be returned by next month.

The win comes at an opportune time for Owl Creek, whose main fund has underperformed the past couple of years. Owl Creek Overseas Master Fund, which accounts for a little more than half of the firm’s $2.9 billion of assets, lost 2.9% last year, following an 8% loss in 2014. This year, however, it was up 3.1% at the end of May — presumably boosted by a position in Argentine debt.

In June 2014, Argentina defaulted on so-called exchange bonds it had issued in 2005 and 2010 to investors that held sovereign debt from an earlier default in 2001. “While some investors perceived [the 2014] default as a negative, Owl Creek saw it as an opportunity and a logical step toward an ultimate resolution to the Argentine debt crisis,” founder Jeffrey Altman and debt chief Daniel Krueger wrote in a June 25 note to investors. “We viewed it as Argentina’s intent to reform, given factors such as high inflation, capital needs, projected reserve drawdowns and limited access to international relief.”

Owl Creek and other event-driven shops — most notably Paul Singer’s Elliott Management — cashed in when the government of newly elected pro-business president Mauricio Macri reached a settlement with holders of the exchange bonds in February.

Owl Creek raised more than $200 million for its Argentina fund — the firm’s first co-investment vehicle in its 15-year history. The results now have Altman and Kreuger contemplating other such offerings in the future. “We look forward to presenting you with similarly asymmetric investment ideas,” they wrote.

In addition to Overseas Master Fund, the firm’s other offerings include Owl Creek Credit Opportunities Master Fund and Owl Creek Asia Master Fund. Since its inception in 2002, Overseas Master Fund has delivered an 11.3% annualized return, including the losses in 2014 and 2015.