Bloomberg News

Gross’s Pimco Trounced by Chilean’s Junk-Fueled 371% Gain

March 21, 2013

Gross Trounced by Chilean Posting 371% Bond Return

While his two biggest holdings, in state-owned oil producer Petroleos de Venezuela SA and Mexican cement maker Cemex SAB de CV, have returned at least 23 percent in the past year, Tisne is also the biggest bondholder in 21 of the 22 unrated notes that his fund owns, according to regulatory filings. Photographer: Susana Gonzalez/Bloomberg

Chilean fund manager Fernando Tisne is delivering the world’s best emerging-market bond returns as he profits from distressed and junk-rated Latin American corporate debt.

His $980 million Moneda Deuda Latinoamericana fund returned 371 percent in the past 10 years, trouncing 439 emerging-market debt funds with more than $100 million in assets, including the 178 percent gain for the $7.2 billion Pimco Emerging Markets Bond Fund (PIMEMBI), according to data compiled by Bloomberg. The fund has also gained 14.7 percent in the past year, more than Pimco’s 10.8 percent return and higher than the 9.5 percent average.

Tisne, 42, has become the most successful debt investor in emerging markets over the past decade because he’s been willing to pile money into the bonds from Latin American companies that haven’t been analyzed and graded by credit-ratings firms. While his two biggest holdings, in state-owned oil producer Petroleos de Venezuela SA and Mexican cement maker Cemex SAB de CV, have returned at least 23 percent in the past year, Tisne is also the biggest bondholder in 21 of the 22 unrated notes that his fund owns, according to regulatory filings.

“We have had the same team managing the fund all along, which allows us to really get to know the companies,” Tisne, who started the fund in February 2000 with $15 million, said in a telephone interview on March 19. “We do have some lesser- known and less-liquid companies. A lot of companies we have known for 12 years and watched how they lived and survived.”

‘Cheap Bonds’

“It allows us to make good decisions quickly,” he said. “It’s a combination of clipping coupons and capital gains -- buying cheap bonds.”

Mark Porterfield, a spokesman for Newport Beach, California-based Pacific Investment Management Co., didn’t reply to phone and e-mailed messages seeking comment. Bill Gross and Mohamed El-Erian are co-chief investment officers of Pimco, the world’s biggest bond fund manager.

Adjusting for price swings, the Moneda Deuda Latinoamericana fund’s 52 percent return was also the best globally, data compiled by Bloomberg show. Risk-adjusted returns are calculated by dividing total return by volatility, or the degree of daily price variation.

Tisne joined Moneda Asset Management in 1994 as an equity analyst after graduating with a business degree from Chile’s Pontifical Catholic University in Santiago. The company was founded a year earlier and ran a small- to mid-cap Chilean equity fund before adding debt investments. As of the end of January, the Moneda fund had 30 percent of its assets in Brazil, 27 percent in Mexico and 10 percent in Peru.

Bond Returns

Latin American junk bonds have returned 245 percent over the past 10 years in dollar terms, more than double the return for the region’s investment-grade debt or emerging-market corporate notes, according to Bank of America Corp.

“It’s one thing to be lucky and in the right assets, and it’s something else to be the best manager of the right assets,” said Eric Conrads, a former chief investment officer of Chilean pension fund company AFP Capital who now manages $750 million of Latin American equities at ING Investment Management in New York. Tisne is “very methodological and detail-oriented. He has a process and he sticks to it.”

Average Rating

As of the end of October, the average rating of the bonds in the fund was B, five levels below investment grade.

Bonds from PDVSA, as the Venezuelan oil company is known, have rallied over the past year as investors piled into the country’s debt to profit from the end of President Hugo Chavez’s reign.

Cemex’s notes due in 2020 have returned 35 percent in the past year as the biggest cement maker in the Americas reached an accord to extend maturities on $6.7 billion of loans and as it benefits from a rebound in the U.S. housing market.

Cemex’s bond yields exceeded 20 percent in October 2011 on concern the company would fail to meet terms of a $15 billion loan that helped it avoid a default in 2009. They have since fallen to 7.19 percent.

Among Tisne’s biggest holdings are also bonds of Bio Pappel SAB de CV, the Mexican paper maker that defaulted twice in the past decade. Yields on Bio Pappel’s dollar-denominated notes due 2016 have tumbled 5.2 percentage points to 9.77 percent in the past year as increased demand for paper and cardboard packaging boosted earnings.

Not all of Tisne’s investments in speculative-grade companies have panned out. He held bonds sold by Banco Cruzeiro do Sul SA, the Brazilian lender that defaulted on $1.6 billion after the central bank said it would be liquidated in September.

Celpa Bankruptcy

Tisne also invested in bonds issued by Centrais Eletricas do Para SA, the Brazilian utility known as Celpa that unexpectedly filed for bankruptcy in February 2012, and its parent Rede Energia SA. Celpa’s notes due in 2016 have lost 86 percent in the past year, according to Bloomberg estimates.

Rede Energia defaulted after Brazilian President Dilma Rousseff ordered a takeover. Those bonds have plunged 75 percent from their high of last year.

“We have a small participation in that restructuring and we are very concerned about the government’s interference,” Tisne said. “The treatment of foreign investors has been very discriminatory.”

Tisne’s fund lost 30 percent in October 2008 as markets plunged following the bankruptcy of Lehman Brothers Holdings Inc. The decline was among the worst in emerging markets, underperforming the JPMorgan Broad Latin American High Yield index, which dropped 22 percent.

‘Russian Roulette’

“The environment in Latin America has been very supportive but there are always tail risks that can hit your holdings very hard,” said Carlos Legaspy, who manages about $350 million of emerging-market debt as president of Insight Securities Inc. “In the U.S., you can diversify, but here there aren’t enough names so there’s a Russian roulette of who will blow up and you happen to be holding it.”

The yield on Chilean 10-year fixed-rate bonds in pesos dropped two basis points, 0.02 percentage point, to 5.58 percent at 11:51 a.m. in Santiago. The 10-year inflation-linked bond yield was unchanged at 2.57 percent. The two-year swap rate decreased two basis points to 5.20 percent.

The extra yield, or spread, investors demand to buy Chile’s 10-year dollar bonds instead of U.S. Treasuries rose four basis points to 92 basis points, close to the 93 basis point high since the bonds were sold last year.

Default Swaps

The cost of protecting Chilean bonds against default for five years was little changed at 65 basis points. Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements.

The peso was little changed at 473.15 per dollar.

Tisne is chairman of the Chilean association of investment funds managers, which is pressuring Congress to approve a bill that would allow foreign investors to invest in Chile-based funds without paying double taxation. The bill, first sent to Congress in 2011, was approved by the finance committee of the lower house earlier this month.

Javier Montero, who joined in 2009, is a co-portfolio manager with Tisne, and Christopher Park, who also joined in 2009, heads structured investments. Former Chilean central bank economist Esteban Jadresic is Moneda’s global investment strategist and chief economist.

“‘We found a niche that wasn’t much covered, which was high-yield credit in Latin America,” Tisne said. “We have been doing it for 10 years, which has allowed us to have the returns and growth we have had.”

To contact the reporter on this story: Sebastian Boyd in Santiago at sboyd9@bloomberg.net

To contact the editors responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net; Michael Tsang at mtsang1@bloomberg.net


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