Hedge funds reap gains on Argentina bets as Trump steps in

Hedge funds that wagered big on Argentina in recent months notched bumper gains in October after a US rescue package and a resounding win for President Javier Milei’s party in midterm elections sparked a surge in the nation’s financial markets.

Two funds overseen by Redwood Capital Management posted a combined gain of about US$129 million on Argentina bets last month, according to a person with knowledge of the matter. Shiprock Capital Management advanced 6.4 percent in October, its second-best month on record, according to an investor letter seen by Bloomberg. The gains were mostly driven by positions in Argentine sovereign and sub-sovereign debt, as well as corporates. Emerging markets-focused fund managers including VR Capital Group and Broad Reach Investment Management also posted strong returns on Argentina trades, people familiar said.

The Latin American country of 46 million has become a popular – if volatile – trade for hedge firms betting that Milei, who swept to power two years ago pledging to rein in government spending and open markets to foreign investment, would unleash a rally in asset prices.

Markets were rattled in September when the libertarian leader’s party suffered a major defeat in the Buenos Aires Province, threatening his political footing. In early October, US Treasury Secretary Scott Bessent intervened amid a sharp sell-off, announcing a sweeping rescue package that included a US$20-billion currency-swap deal. It was followed by a strong showing for Milei’s party in congressional midterms, sending stocks and bonds surging and helping to steady the peso.

“The core of our thesis with Argentina is the anticipated US aid package, which we believe will provide critical support to the country’s economic outlook,” Shiprock wrote in the note to clients.

Representatives for Redwood, Shiprock and VR Capital declined to comment on their Argentina holdings or performance.

Redwood, which oversees US$10.6 billion in assets, notched 1.98 percentage points of return in its master fund and 3.14 percentage points of return in its drawdown fund from Argentina bets last month, said the person familiar, who asked not to be identified discussing private information.

VR Capital’s Global Fund, which manages around US$8 billion, and Broad Reach Investment Management’s main fund, which manages around US$1.5 billion, gained 6.8 percent and 4.3 percent, respectively, in October, according to separate people. Around two thirds of Broad Reach’s gains were driven by Argentina bets.

Brazilian hedge fund Vista Capital saw one of its main funds climb 9.9 percent in local-currency terms last month, according to a person with knowledge of the situation. Its exposure to Argentina, primarily via US depositary receipts, remains one of the fund’s core holdings, the person said. The firm declined to comment.

Sophia Drossos, a strategist at Point72 Asset Management in New York, called the US rescue package “unprecedented.” In addition to the US$20-billion currency-swap deal, it also included roughly US$1 billion in peso purchases and a commitment to help secure an additional US$20 billion in financing from private banks. 

The pledged support covers all of Argentina’s external financing requirements in the next two years, according to Bradley Wickens, chief executive officer of Broad Reach, meaning Argentina is “relatively riskless for the next two years.” The losses incurred by Milei’s opposition in the midterms – in particular the left-wing Peronists, which have ruled the country for most of the past two decades – also indicate his economic reform programme can continue in the coming year, Wickens added.

“Peronists disintegrated in this election,” he said in a phone call. “The electorate decided very clearly that they don’t want to go back to Kirchner-era socialism,” he said, referring to the left-leaning populist governments of Néstor Kirchner and Cristina Fernández de Kirchner, whose interventionist policies dominated Argentina from 2003 to 2015. “That’s extremely powerful for what it means in 2027” elections. “It massively increases the likelihood of continuation of this policy mix.”

Following the Trump administration’s intervention and prior to the country’s congressional elections, Argentina was the top position in Broad Reach’s fund, with 90 percent of the portfolio in dollar-denominated bonds and 10 percent in hydrocarbon-related equity, Wickens said. The hedge fund is betting the latter will be the beneficiary of foreign direct investment.

Still, the US commitments are not binding. The swap line and other elements of the rescue package remain at Washington’s discretion, and could be withdrawn or reduced if Milei’s government loses momentum on reforms or if markets sour again on Argentina’s currency policy.

What’s more, the crisis-prone nation must repay about US$9 billion to global bond investors in 2026 and faces a heavy principal and interest burdens over the next three years. Argentina has defaulted on its financial obligations multiple times in recent decades, and owes the International Monetary Fund roughly US$55 billion following repeated bail outs.

Some remaining long positioning, however, indicates there may be some bullish factors yet to play out, Jorge Suárez, founder of macro and geopolitical consultancy firm Nauqali Strategies, said in a call. Vista Capital, for its part, said in a note to clients that its Argentina wagers likely have further to run, citing renewed fiscal discipline, international support, and low valuations and elevated yields as ‘significant’ upside catalysts.  

“The US provided a lot of breathing room for Argentina,” said Point72’s Drossos. “But the government still needs to deliver on its policies – and fundamentals are going to matter.”