Hedge funds are not shying away from Ukraine and Russia as the crisis between the two countries continues to unfold.
Greylock Capital Management, the Carlyle Group and GoldenTree Asset Management have all actively traded in one or both of the countries since the Ukrainian protests against pro-Russian President Viktor Yanukovich broke out in November. Sovereign debt has been a popular play, although some of the funds have also invested in corporate bonds.
Both countries are “extraordinarily cheap,” Artemis Wealth Advisors’ Peter Rup told Bloomberg News. GoldenTree’s Steven Tananbaum notes that Russian sovereign debt is currently 50 to 100 basis points cheaper than fair-value models would suggest.
Greylock is focused on Ukrainian debt, under the aegis of director Andrey Popel, a native of the country.
“Ukraine has the unique opportunity to get rid of kleptocracy and cronyism and emerge as one of the least corrupt, pro-human rights, pro-business, pro-West countries in Eastern Europe,” he told Bloomberg. “Unfortunately, the Crimean situation”—Russia’s annexation of the Ukrainian province—“diverts attention from this cleansing process and makes it a lot more difficult.”
Greylock originally sold its Ukrainian sovereigns in December, after Russia pledged $15 billion to Yanukovich’s government. It bought them again last month after Yanukovich’s ouster, but has since cut its holdings to just 2%, moving on to higher-yielding Ukrainian companies.
As for Russia, Popel believes the rewards are still not commensurate with the risk.
“It’s very tempting in a way,” he said of Russian corporate bonds, “but given the long-term outlook, we expect further economic slowdown that would put more pressure on bonds. We’re looking at Russian assets, but we haven’t seen capitulation.”
LNG Capital’s Louis Gargour agrees, telling Bloomberg, “The effect of the sanctions on Russia will be limited. There may be further encroachment on Ukraine sovereignty. It’s better to play Ukraine directly.”