Pacific Investment Management Co. has warned the US Treasury of the fallout on investors from tough sanctions pushing Russia into default.
Executives at the asset management giant have briefed the US Treasury on the losses US pension funds would face if fund managers were forced to write down their Russian holdings, according to people familiar with the matter. They also argued that a Russian default would allow President Vladimir Putin to retain foreign currency reserves that would otherwise have been paid to creditors, giving him more money for the war effort, the authorities said. people, who asked not to be identified because the matter is private.
Pimco held the equivalent of about $1.8 billion in Russian sovereign bonds as well as exposure through credit default swaps in its largest fund, the $124 billion Income Fund, according to its report on first quarter holdings released last month. Pimco had $2.2 trillion under management at the end of the year.
“Pimco — given its fiduciary duty to its customers — has engaged with the U.S. Treasury to express some of the key consequences of Russia’s default,” a Newport Beach-based Pimco spokesperson said. in California, in a press release.
Russia has argued that it has met all of its obligations even as its bond payments are blocked on their way to foreign investors by tougher US and European sanctions. This has left fund managers who hold the country’s external debt in an awkward position – arguing for payments that end up being made to their clients while running the risk of appearing to be telling governments to soften their response to a conflict. which has already cost thousands of lives.
A representative from the US Treasury Department’s Office of Foreign Assets Control declined to comment on any discussions with Pimco about Russian sanctions.
The US Treasury further tightened financial sanctions against Russia last week by banning investors from buying the country’s debt on the secondary market. The new rules mean US companies can hold or sell Russian corporate or sovereign debt, but cannot buy it. JPMorgan Chase & Co. and Goldman Sachs Group Inc. are pulling out of managing Russian debt transactions following the move, Bloomberg reported this week.
The ban comes as Russia tries to avoid a sovereign default on foreign currency debt by finding a way around sanctions that prevent it from providing money to bondholders. Two payments totaling approximately $100 million due May 27 are blocked at Euroclear Bank SA. Meanwhile, a missed interest payment triggered all of Russia’s outstanding credit default swaps, which covered $1.5 billion in net Russian debt at the end of last month.
Fund managers have spent months sifting through the legal fine print of Russian debt documentation to figure out what might constitute a default. Despite the technicalities, there is no doubt that Russia risks sinking into its first external bond default since the aftermath of the 1917 revolution.
–With assistance from Daniel Flatley.