The U.S. involvement in Venezuela has turned into a lucrative opportunity for investment firms that acquired the nation’s undervalued bonds at bargain prices.

Hedge funds based in London, such as Broad Reach and Winterbrook Capital, are reportedly reaping the benefits as Venezuelan bonds experience a surge. This comes in the wake of former President Donald Trump’s decision to deploy troops aimed at removing President Nicolas Maduro from power.

Meanwhile, asset management giants Allianz Global Investors and RBC BlueBay are also seeing positive returns from their investments.

In a related development, shares of Ashmore Group, a UK-listed fund manager specializing in emerging markets and with significant Venezuelan bond holdings, have soared to their highest level in a year.

The increase in bond prices, which encompass various forms of debt issued by Venezuela and its state oil company PDVSA, is driving these profits for investors.

Edward Cowen, CEO of Winterbrook, commented to the Financial Times, stating, “Venezuela is out of the deep freeze and back in play.”

Venezuelan bonds rallied after the US intervention

The country – wracked by US sanctions and economic mismanagement – had defaulted on its debts in 2017.

It meant bonds with a face value of $60bn were trading for as little as 16 cents on the dollar as recently as a year ago.

But some investors saw an opportunity, piling in at rock-bottom values. And the prospect of the oil-rich economy reopening – and a bond restructuring that could deliver at least part of their value back to investors – has sent them soaring.

Venezuela’s bonds were the world’s best performing last year – doubling in price as Trump ratcheted up pressure on Maduro with a military build-up in the Caribbean.

On Monday they surged further, by as much as 10 cents to 40 cents on the dollar, in the wake of the US raid.

That provided a boost for the likes of Winterbrook, which advises and manages more than $220m in Venezuelan assets, according to the FT.

Broad Reach, an emerging markets specialist with $2bn in assets, said it had begun building in a position in Venezuelan debt and PDVSA bonds ahead of Trump’s 2024 election victory and added to it early last year after seeing ‘signposts’ of change in the country.

Germany’s Allianz Global Investors bought Venezuelan bonds for about 10 cents on the dollar during the pandemic.

Alexander Robey, a portfolio manager at Allianz, said it had ‘anticipated a positive investor reaction towards any regime change’ and ‘maintained exposures to benefit from the positive price action we see today’.

‘However, as bonds have approached our assessment of future recovery value, we are becoming more cautious,’ he added.

Aggressive US hedge fund Elliott Management is reportedly among other investors with outstanding bets on the country, having recently won a legal battle to take control of a major refinery previously controlled by PDVSA. Completing the deal would need US approval – now seen as more likely.

Elliott has previously pursued debt owed by Argentina – even seizing one of its naval ships while it was docked overseas as part of the battle.

JPMorgan analysts, who had predicted the ‘strong bounce’ in Venezuelan bonds, said investors ​were focusing on who is likely to now ​be in charge in Venezuela and the path to a debt restructuring.

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Others pointed to a complex way ahead before investors get their money back.

Citi analysts said it ⁠would require ‘a multi-track, multi-year settlement framework’, given the sheer amount of debt involved, the highly fragmented creditor base and the tangle of legal and US sanctions issues.

‘We expect Venezuela’s debt restructuring to be exceptionally complex, arguably comparable to Greece’s (in) 2012,’ they said in a research note.

Chris Preece, investment manager for emerging debt at Pictet Asset Management, said: ‘Upside potential from here is more muted after such a strong run.

‘We do however still see an opportunity for market prices to increase as the narrative surrounding a post Maduro world continues to emerge.’

The investment firms are not the only ones to have profited from the US intervention in Venezuela.

An unknown trader has raked in about $410,000 after betting that Maduro would be ousted. The trader built up positions on the Polymarket betting platform worth about $34,000 before the weekend which subsequently surged in value.

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