August 14, 2022

Hedge Funds Seeking Gains in Greek Crisis

Algebris, a $1.3 billion fund that focuses on global financial stocks, was down about 7 percent for the year through late June because of shares it held in European financial companies. Those stocks fell sharply recently amid fears they could have losses if Greece defaulted on its debt.

Still, undaunted by the risks that the Greek crisis could spread to other countries, managers at Algebris decided to buy more shares of European financial companies on the cheap.

“The volatility in the market gave us the opportunity to buy a number of stocks of European banks and insurance companies where we think there is tremendous value and the risk of systemic meltdown was very low,” said Eric Halet, a co-founder of the fund.

As Greece’s fiscal turmoil has rattled global equity, bond and currency markets, hedge funds have scrambled to figure out how to make the big score.

Last week, financial markets rebounded sharply on news that the Greek Parliament had approved a tough austerity package, a move that staved off a default and was a condition for further international assistance.

Over the weekend, European ministers agreed to finance Greece through the summer but deferred crucial decisions on a second bailout.

After a two-hour conference call late Saturday, the finance ministers from the 17 euro zone countries said they would sign off on an 8.7 billion euro, or $12.6 billion, loan to Greece, part of a 110 billion euro package agreed upon last year. The board of the International Monetary Fund was expected to approve its part of this installment, 3.3 billion euros, or $4.8 billion, within days.

Without the loans, the Greek government faced the prospect of insolvency in weeks. But with Greece still struggling to shore up its finances, European finance ministers also need to put together a second package of loans to help it through 2014. That bailout is expected to amount to 80 billion to 90 billion euros but, because of conflicts over the extent of private sector involvement in the effort, the package may not be agreed upon until September.

Wolfgang Schäuble, the German finance minister, said that the new program could “be completed before the release of the next tranche in the autumn — provided, as always, that the implementation of the program in Greece takes place as planned,” Reuters reported from Berlin.

“Greece has enough cash over the summer so the very acute worry that Greece would be unable to pay in July has gone,” said Nicolas Véron, senior fellow at Bruegel, an economic research institute in Brussels. “But Europe has not been proactive for some time, and it will probably remain in strong crisis management mode over the next few weeks.”

Constrained by the unpopularity of bailouts at home, political leaders appear able to act only at the 11th hour, when they have no alternative, Mr. Véron said.

“The E.U.’s institutions are not effective, and the bigger the crisis, the less effective they are,” he said. “Discussion is driven by governments accountable to domestic constituencies and not to the E.U. as a whole.”

The twists and turns of the crisis and the whipsaw market activity are making it tough for some hedge funds to maneuver.

While it is possible that a hedge fund received a hefty payday from betting that the euro would rise in value against the dollar or that Greece would not default on its debt, no big winners have emerged, several hedge fund investors and managers said.

Only nine out of the more than 300 hedge funds tracked by HSBC’s private bank through mid-June showed double-digit returns this year, and the best-performer, Jat Capital, which bets on high-flying technology and Internet stocks, was up about 19 percent. In a separate survey, hedge funds tracked by Lyxor Asset Management showed that almost every fund across nearly every strategy lost money in June.

Some investors said that many hedge funds appeared to have sat out much of the euro zone crisis, particularly in bets involving Greek sovereign debt, concluding it was a “no-win situation,” said Gerlof de Vrij, the head of the global asset allocation team at APG Asset Management in the Netherlands, which oversees $395 billion in investments for seven Dutch pension funds.

Stephen Castle contributed reporting.

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