James Dondero, the CEO of Highland Capital Management, knows a good investment when he sees one. The Dallas-based Highland Capital has more than $19 billion assets under management, and the company wants to add more assets to that impressive number. Dondero laid the groundwork to achieve that goal when he decided to take a chance and buy $4 billion in Argentinian bonds in 2014. At that time, Cristina Fernández de Kirchner was president of Argentina and her economic track record was less than stellar. In fact, Argentina was in bad shape thanks to de Kirchner’s inability to pull the country together. Cristina Fernández de Kirchner mentality was shaped by the Peronist chapter in Argentina’s history, and that group hasn’t done the country any economic favors over the last 20 years.
But James Dondero knew that there was mounting evidence that the people of Argentina were unhappy with their government when he decided to take the risk and invest in debt bonds while she was president. He knew that Argentina had the capability to rise from the enormous defaults that plagued the country and hedge fund investors like Paul Singer. Highland Capital has an office in Sao Paulo, Brazil, so the company had been watching the political unrest unfold for months.
Dondero is an expert when it comes to investing in emerging markets, and he used all his connection when he made the call to bet that Argentinians would elect a pro-democratic leader at the end of 2015. And Dondero was right. Mauricio Marci was elected president in December 2015. Marci, a civil engineer, is a pro-democracy guy with strong leadership abilities. One of the first things Marci did after the election was to agree to a $4.65 billion cash payment to the creditors that refused to restructure the old debt after the country defaulted in 2001. That moved paved the way for Marci to reenter the international debt bond market.
The second thing on President Marci agenda was to make the announcement that Argentina would offer $12 to $15 billion in new bond offerings once the legal issues were resolved. Dondero knew Marci has what it takes to get the country moving again, and he wanted a piece of the largest issuance of hard currency bonds in emerging markets in the last 20 years. Mexico issued $16 billion in 1997. Dondero believes Highland Capital’s investment in Argentinian bonds will be worth it, and other hedge fund investors feel the same way, according to a recent Bloomberg.com article.