How Two Top Emerging-Market Managers Ditched Pemex Just in Time
(Bloomberg) -- They were holding onto Pemex, until an abandoned airport convinced them not to.
Fund managers Anupam Damani and Katherine Renfrew had been skeptical about Andres Manuel Lopez Obrador’s plans for Petroleos Mexicanos, the world’s most-indebted oil company. AMLO, as he’s known, won a resounding victory in the Mexican presidential election last July, putting a populist who made some investors nervous into office. Then, before he was sworn in, he announced in October that he would cancel a partially built, controversial $13 billion airport project the government had helped fund.
Damani and Renfrew, who run the TIAA-CREF Emerging Markets Debt Fund, took that as a sign: volatility could come to any government entity -- including Pemex. The fund quickly got rid of a chunk of its holdings in the national oil company. Pemex bonds have plunged since, further cratering on Wednesday after Fitch downgraded the debt to just one notch above junk.
“We do think that its credit ratings could come under some degree of pressure,” Renfrew said in an interview last quarter. There are too many questions: How will Pemex manage expectations for increased capital spending as it faces a mountain of debt? Basically, she said, “where does the business go from here?”
Damani and Renfrew, who oversee about $13.5 billion, have a track record with such emerging-markets bets: Their fund produced returns of 8.6 percent over the past three years, a better performance than 93 percent of its peers, according to data compiled by Bloomberg. That’s even with the fund being down 3.4 percent in the last 12 months, which Renfrew attributed to unexpected shifts in currencies and the pair being overly optimistic about synchronized global growth.
Emerging-markets investing is a volatile arena, rocked by political instability and wild currency swings in countries as diverse as India and Argentina. Damani and Renfrew work within a 15-person team that is mixed in gender, race, background and language -- staff members speak seven, including Korean and Mandarin, at last count.
“There’s multiple views, sometimes there’s tension, we don’t always agree,” said Renfrew. “But we have dialogues that ultimately make us do a great job.”
Damani grew up in India, where she said she saw “front and center the trials and tribulations of a real EM.” Her parents encouraged her to challenge the social norms that had seen her aunts get married at 15. She studied political science and economics and has a Master of Business Administration. Renfrew holds both economics and engineering degrees.
The two have worked together for 13 years, investing in sovereign and corporate debt from countries within most of the world’s continents.
“Emerging markets are such a multi-faceted asset class,” said Damani. “It brings together politics, economics, social coherence, cultural backgrounds of how countries think about debt and about opening markets.”
And as for Mexico and Pemex, the pair want to see a concrete plan from the government about how the oil company can tackle increasing production. Pemex had $107 billion in debt as of September last year. Investors have been disappointed by the failure of AMLO’s administration to inject fresh funds into the company, and the stress is spilling over to rattle the country’s currency and sovereign bonds.
“AMLO doesn’t want to make bondholders suffer unduly, but they have to have better detail, blueprint, what is the game plan going forward?” Renfrew said.
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