Sat February 18, 2012
Investor Counting On Ireland's Better Days
SCOTT SIMON, HOST:
As Phil reported, things are still pretty tough for the people of Ireland, but there's one man who thinks things there will start to look up before too long. He's prepared to put money on it, billions in fact.
Michael Hasenstab is what's known as a contrarian investor. He's just about the only person prepared to bet that Ireland's fortunes will greatly improve over the next couple of years. Michael Hasenstab joins us from Templeton Investments in San Mateo, California.
Thanks for being with us.
MICHAEL HASENSTAB: My pleasure, thank you.
SIMON: So, what kind of investments you have in Ireland?
HASENSTAB: So, back in the early parts of the summer of last year, we started to make some very significant multibillion-dollar investments into the government bond markets; the sovereign debts of Ireland.
SIMON: You have bet two and a half billion dollars on the Irish economy that, I gather, a lot of other smart investors aren't willing to. Why?
HASENSTAB: Well, you know, there's a couple of things. We always take a long-term perspective on any of our investments. We're looking for the right policy mix. We're looking for good long-term economic fundamentals. And we're looking for something that everyone else hates. And really, Ireland fit that bill quite closely. They had just been downgraded. They had been lumped together alongside Greece and Portugal, which were very troubled. And they were trading at very distressed levels.
But then the question really was: What approach does Ireland take? Is it denial and procrastination? Or was it really tackling the problems head-on? And that Ireland's case, they really tackled it head on. They accepted significant declines in real wages, which had huge social consequence and costs and not something easy to do. But as a result of those large declines, they regained competitiveness, started to boost exports and began to grow again.
SIMON: So is it safe to observe that you see an opportunity in this distress that other people simply don't, or at least aren't willing to invest on?
HASENSTAB: Yeah, I mean this is a very research-intensive process. We have a team of over 40 people in 10 different countries that we draw upon, to really dig into macroeconomic and political and country-level analysis. But then putting that analysis in the long-term context. So not focusing on what's the next quarter, what's the next quote couple quarters, but what are the prospects over the next couple years?
And I think it's really that fact anchor of long-term perspective that allowed us to make a contrarian view. It's very hard if not impossible to be contrarian if you don't have that long-term perspective.
SIMON: For someone who knows this territory, what kind of bet on, or investment would you make in, or - if I might put it this way - against Greece?
HASENSTAB: Well, you know, we looked at Greece, you know, that same team of 40 people really drilled into the math and looked at the politics in Greece - going back to late 2009 or early 2010. And we came away from that assessment that it wasn't sustainable long-term. They would be in a debt trap, which was the more austerity you put in place, the weaker growth, the lower the tax revenues, the bigger the deficit, the more austerity need, and the spiral is going to continue.
The type of structural reforms that were needed to make the economy competitive seemed insurmountable.
SIMON: Mr. Hasenstab, have you been to Ireland recently?
HASENSTAB: I was there last year. And one of the things that really was attractive about our perspective, when we were in Ireland, was the high degree of social and political consensus. Unlike what we're seeing in many countries, including here in the U.S., where you have very divisive politics, you have huge social divides. In Ireland's case, you had a lot of social and political consensus on what needed to be done even though it was very difficult.
SIMON: You've been looking at property there?
HASENSTAB: Well, after the housing market crashed there certainly is a lot of property and it is a really beautiful country. But no...
(SOUNDBITE OF LAUGHTER)
HASENSTAB: ...not personally.
SIMON: Michael Hasenstab of Franklin Templeton Investments in San Mateo, California, thanks so much.
HASENSTAB: My pleasure. Thank you for having me. Transcript provided by NPR, Copyright National Public Radio.