Pimco Wins Big From Betting On Colombia While Other Funds Fled

Pacific Investment Management Co. is now the dominant foreign player in Colombia’s local debt market after a buying spree that more than offset outflows by other overseas investors. Pimco funds added about 41 trillion pesos ($13 billion) during the presidency of Gustavo Petro, lifting their share of foreign holdings to 27% from just 1.4% four years ago. Without Pimco’s buying, overseas funds would have been net sellers of local peso bonds, or TES, during the leftist leader’s 2022-2026 term, according to data compiled by Bloomberg. The California-based asset manager declined to comment on specific investments. So far, Pimco’s bet is paying off. Colombian local bonds have returned 38% in dollar terms this year, compared with a 3.2% average gain in a Bloomberg index of emerging-market local-currency debt. Returns were turbocharged by the world’s biggest currency rally, some of the highest yields in emerging markets and optimism over the election of the more market-friendly Abelardo de la Espriella, who took office this month. Investors navigated a turbulent period under Petro, as the government suspended the fiscal rule that curbed its ability to borrow, the fiscal deficit widened to nearly 8% of gross domestic product, and the nation’s credit rating was cut to BB- by S&P Global Ratings this year, Colombia’s lowest-ever score. That turmoil reshaped Colombia’s foreign investor base. Before Petro took office, its largest overseas bondholders included sovereign and pension funds from Singapore, Norway, Canada, the Netherlands and the Middle East. While some remain major investors, most reduced their exposure. Pimco did the opposite. Its funds had already more than tripled its TES holdings in the first 11 months of last year, to $1.9 billion. Then came a series of year-end debt-management operations by the Treasury, including a $7.5 billion private placement with Pimco. By the end of December, Pimco funds held about $8 billion of TES. They have continued adding to the position since. Singaporean state investors and Franklin Templeton funds each cut their holdings by at least $1.3 billion over the period. Both had ranked among the largest foreign holders of Colombian debt. Others exited altogether, including Japan’s Government Pension Investment Fund, Vanguard funds and Dutch pension manager PGGM. As Colombia’s credit profile deteriorated, its investor base shifted toward those willing to hold junk-rated securities. De la Espriella began his four-year term earlier this month pledging to repair the fiscal outlook. That effort, however, faces an early challenge after a devastating earthquake struck Colombia on Aug. 10, with damages expected to run into the billions of dollars.