Don't Cry for Me, Argentina

The Triad Perspective

Triad Investment Management, LLC is a SEC-registered investment adviser based in Newport Beach, California. We manage portfolios, including retirement and corporate accounts, and provide investment counsel to our select group of clients, which include:

Business owners
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Don't Cry for Me, Argentina

Let's assume your brother-in-law comes to you and needs some money. He's hurting, financially. He needs to borrow. Again. So, against your better judgement, you loan him some money. Again. This is the sixth time he's borrowed from you.

He's never repaid any of his previous borrowings. Why on earth are you thinking about lending money to him again? Actually, you're not really lending him money if he never repays you. It's more like a gift.

But this time he comes to you, there's a twist. He'd like to pay you back in 100 years. Of course, he'll be dead, but he assures you that his grandchildren, or maybe his grandkid's grandkids will repay the loan. As the saying goes, "once bitten, twice shy." Or in your case, six times bitten, I'm outta here. Should you make this loan?

If you got this one wrong, then there might be a job for you in high finance!

In 2017, I asked myself why would some of the largest investors on the planet loan money to Argentina? Several large investment firms--who shall remain nameless to protect the guilty--loaned the country almost $3 billion. Argentina defaulted on previous borrowings six times. Oh, one other small detail. The repayment isn't due until 2117.

Why would large, "sophisticated" institutional investors lend $3 billion to a proven deadbeat? I'm anticipating hatemail from Argentines at this point. Because pension plans, in this low-income world we inhabit, are desperate for income to satisfy their obligations. Their " agents " (aka investment managers) need to satisfy these pension plan clients. The alternative is getting fired.

So, the agents--hired guns--invested client money--at a high 7% yield--in a loan they'd probably never make with their own funds. One hundred years is a long time. The managers will be dead when this loan comes due. Not their problem. And not their money. As the chart below shows, the price of this bond has dropped roughly 30% since its 2017 debut:

We attempt to avoid the agent/principal issue by co-investing with our clients in many of the same investments we select for client accounts. We think that this helps align our interests with those of our clients. Had the Argentina bond buyers done this, they might have concluded that the chance of getting stiffed a seventh time wasn't worth their money. Or even their client's money.

-John Heldman, CFA

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