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US Investor is Ireland’s Biggest Creditor

Robin Wigglesworth and Jamie Smyth
Sunday, 2 Sep 2012 | 8:55 PM ET

A leading US figure in bond investment has emerged as Ireland’s single biggest private sector creditor by aggressively buying Irish government bonds.

Dublin, Ireland
Dennis Flaherty | Photographer's Choice RF | Getty Images
Dublin, Ireland

The large bet on the country’s economic recovery has been placed by San Francisco-based Michael Hasenstab, who runs the Templeton Global Bond Fund .

Franklin Templeton funds, mostly managed by Mr. Hasenstab, at the end of June held Irish government debt to the value of €6.1 billion, according to FT calculations. Most was owned by Mr. Hasenstab’s Templeton Global Bond Fund.

Rival fund managers warned that the large Irish bond holdings could pose problems if Ireland’s economic recovery wilts, or if the eurozone crisis worsens. The Irish bond market is small and illiquid and exiting such a large position would be impossible without painful losses, they said.

“If they get it right they’ll be heroes but if they ever have to get rid of some of their position it will be very difficult,” a rival bond investor said.

The US asset manager is now the largest owner by some distance of Ireland’s six biggest debt securities after adding to its positions throughout the year, according to traders, including at the country’s July bond sale – the first since being bailed out by the eurozone.

The size of Irish bond purchases by Mr. Hasenstab’s fund has raised eyebrows at some asset managers, who say the robust performance of Ireland’s bond market this year has been caused partly by its aggressive purchases.

“It’s a punchy bet,” said one senior rival bond investor. “It’s quite unusual to hold such a large position...Templeton building up such a large position has been a major driver for Ireland’s performance this year.”

Mr. Hasenstab told the FT that while the fund manager might have large positions in smaller markets, they remained small compared with the fund’s total assets, and it could always quickly hedge its exposure in the credit derivatives market.

He also reiterated his positive view on Ireland. “It will be challenging but Ireland continues to take the necessary steps on the road toward recovery,” he said.

In Ireland, Franklin Templeton’s purchases are seen as a welcome vote of confidence in the beleaguered economy.

“They see Irish debt as very good value and have taken a firm decision that the Irish economy is recovering, has turned the corner and they will be paid back,” Brian Hayes, Ireland’s deputy finance minister, told the FT.

“They will yield a substantial dividend from it,” he said.

The international bond department of Franklin Templeton, of which Mr. Hasenstab is a co-director, manages $158 billion in assets, including the main $61 billion Templeton Global Bond Fund. The performance of the funds under his management has drawn comparisons with Bill Gross, the legendary founder of Pimco.

The Templeton Global Bond Fund has outperformed Pimco’s flagship Total Return Fund eight years in the past decade, only disappointing with negative returns last year and in 2005. Mr. Hasenstab’s main fund has rebounded from last year’s loss with a return of 8.7 per cent so far in 2012, driven largely by big bets on Ireland, South Korea and Hungary.

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