Three years ago, Daniel Melhem was kicked off a government delegation from Argentina that was trying to drum up investors from the Middle East after he said no one would be interested.

Now, the 44-year-old investment adviser says he’s gotten so many phone calls from clients asking about Argentina in the past year he decided to start a hedge fund dedicated to buying the nation’s securities. Melhem, who headed Morgan Stanley’s private-wealth management for Brazil, Argentina and Chile before founding Knightsbridge Partners Ltd. in 2003, plans to raise $150 million from 10 to 20 wealthy families from Latin America, the Middle East and Europe and start investing before year-end.

While President Cristina Fernandez de Kirchner is no closer to resolving a decade-long debt dispute with creditors that pushed the nation into default in July, Melhem says there’s money to be made even as Argentina’s bonds slump to an eight- month low and Bank of America Corp. recommends avoiding the country altogether. With elections 12 months away and Fernandez barred from re-election, he’s betting that a new administration is just what Argentina needs to end its isolation from international markets and open the economy to foreign investors.

“The new regime will bring big political and economic change,” Melhem, who advises clients with about $1 billion, said in an interview from his office in Buenos Aires. “Clients are asking if it’s time to get in. It’s like playing soccer. You can’t score a goal if you’re not on the field. Now it’s time to get on the field.”

Soros, Perry

Knightsbridge’s Argentina Recovery hedge fund has raised $100 million and will buy the country’s dollar-denominated bonds and American depositary receipts starting December and return investor money in three years, unless they choose to withdraw their assets before then.

Melhem, who is investing in Argentina for the first time since 2007, said his clients obtained 25 percent annual returns on real estate investments in the nation between 2004 and 2007.

Hedge funds, including billionaire George Soros’s Soros Fund Management LLC, Perry Capital and Third Point LLC boosted their stake in Argentina’s state-run energy company YPF SA’s ADRs in the second quarter, while others including Noctua International LLC and Callaway Capital Management LLC in the past year opened funds dedicated to the country.

U.S. Treasuries

Most recently Bienville Capital Management LLC started its Argentina fund in July, for which it plans to raise $250 million by year-end. Gramercy Funds Management LLC started a second Distressed Argentina Fund last month overseeing $175 million, according to a person familiar with the fund.

Investors demand 7.9 percentage points more than U.S. Treasuries to own Argentina’s debt securities, according to data compiled by JPMorgan Chase & Co. The yield premium, which narrowed 0.02 percentage point at 10:15 a.m. in Buenos Aires, is the biggest in emerging markets after Venezuela and Ukraine.

Since a U.S. court order prevented Argentina from paying interest on its bonds by July 30 as Fernandez refused to pay defaulted bondholders at the same time, Argentine bonds lost 7.5 percent, compared with a 0.6 percent decline in emerging markets, according to JPMorgan.

Argentina hasn’t borrowed money in overseas markets since its record $95 billion default in 2001. Investors who held about 7 percent of the debt, known as holdout creditors, refused to swap their bonds at about 30 cents on the dollar for new securities in restructurings in 2005 and 2010. Settling the dispute with those holdouts would pave the way for Argentina to to borrow abroad again.

Borrowing Costs

“The country’s assets and property, whether it’s corporates, equity or real estate are under-held by investors globally,” Michael Roche, an emerging-market fixed-income strategist at Seaport Group LLC, said in a telephone interview. “The end of that legacy is approaching.”

Borrowing costs will probably contract to about 5 percentage points over U.S. Treasuries, Roche said.

Sergio Massa, an opposition lawmaker and former cabinet chief under Fernandez, had 26.8 percent support in a poll conducted by Raul Aragon & Asociados from Sept. 19 to 26. Buenos Aires Province Governor Daniel Scioli and Buenos Aires city mayor Mauricio Macri both had 23.6 percent. The poll of 3,001 people had a margin of error of 1.8 percentage points.

Argentina will hold presidential elections Oct. 25, 2015.

Peso Weakens

Since the default, the economy has worsened. The peso has weakened 16 percent in the black market, the government has restricted imports and industrial output contracted 2.9 percent in August. Central Bank President Juan Carlos Fabrega, who had carried out a devaluation and increased interest rates, resigned on Oct. 1.

That’s reason enough for Bank of America to cut its recommendation on Argentine bonds to underweight. They have returned 48 percent on average since congressional primaries last August showed Fernandez wouldn’t have enough support to seek re-election.

“Bonds have been too resilient given the strong deterioration in the economy,” Jane Brauer and Claudio Irigoyen, strategists at Bank of America said in an Oct. 7 report.

For Melhem, who moved to Argentina from Mexico when he was seven years old and lived in Buenos Aires until the second year of college before getting his bachelor’s degree in economics and international business at Babson College, the deterioration of the economy ahead of the next administration is an opportunity to buy the nation’s securities before a rebound.

“Anyone who comes in will start from less than zero, and there will be huge upside from there,” Melhem said.