Battered Bond Star Pulls $1.6 Billion From Colombia

(Bloomberg) -- Franklin Templeton, the largest foreign owner of Colombian government peso bonds, slashed its holdings of the securities by half this year as its star fund manager retreated from emerging markets.

Franklin’s funds, including several managed by Michael Hasenstab, began ditching Colombian debt in the first quarter. Hasenstab rose to fame by taking sizable and ultimately hugely profitable bets on struggling countries after the financial crisis. His biggest fund, the $30 billion Templeton Global Bond Fund, pulled more than $800 million out of local Colombian debt, according to a tabulation of quarterly filings.

Franklin Templeton cut its overall exposure to Colombia’s peso-denominated government bonds to 5.7 trillion pesos (about $1.6 billion) at the end of the third quarter. That’s down from a holding of 11.2 trillion pesos of the local bonds known as TES at the start of the year, according to data compiled by Bloomberg.

Hasenstab has been cutting his exposure to emerging markets this year. In August, a rout in Argentina contributed to a multibillion dollar loss for his flagship fund. Investors are increasingly raising warning flags on emerging-market risks amid social unrest from Chile to Lebanon, the fallout from the U.S.-China trade war, and fears over political shifts such as the election in Argentina Sunday of left-wing populist Alberto Fernandez.

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While Colombia largely avoided the recent turmoil that has troubled its neighbors, it fell victim to Franklin’s change to a more bearish outlook on emerging markets. The investment manager had initially plowed money into the nation in 2016 as oil prices and the peso soared. Colombia’s debt has returned 4.8% this year, trailing the Bloomberg Barclays Emerging Markets Market Local Currency Government Index’s 7.2% return this year.

Franklin has “generally been reducing the overall risk in the emerging market,” while hedging against exposure in some markets, such as local currency Brazilian bonds, Hasenstab wrote in a paper published this month. He’s also boosting cash balances, increasing investments in safe-haven assets such as the Japanese yen and shifting the focus of his U.S. Treasury short to those with longer maturities.

A representative for San Mateo, California-based Franklin Templeton declined to comment.

The impact of Franklin Templeton’s sales has been mitigated by other foreign investors, who have taken up the slack. In total, foreign inflows have risen 1.4 trillion pesos this year, according to Finance Ministry data, as investors including BlackRock Inc., one of the world’s largest asset managers, increased their purchases of Colombian debt.

BlackRock, Colombia’s second-largest debt investor, upped its holdings in treasuries by 32% this year. Funds managed by Baltimore-based Legg Mason Inc., London-based Ashmore Group, and Allianz SE’s California-based Pacific Investment Management Co. were also net buyers this year, according to data compiled by Bloomberg.

As a result, Colombia relies less on a single whale, which is a positive for the market, said Juan David Ballen, an analyst at Casa de Bolsa, a brokerage in Bogota.

“There is a greater diversification of investors,” he said. “Other funds have had appetite to buy.”

To contact the reporters on this story: Ezra Fieser in Bogota at efieser@bloomberg.net;Oscar Medina in Bogota at omedinacruz@bloomberg.net

To contact the editors responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, Matthew Bristow, Alec D.B. McCabe

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