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Money managers under the microscope

Hedge funds: Greece is the word

March 4, 2010

This week’s Reuters Hedge Fund and Private Equity Summit gave us some new insights into how hedge funds are betting on Greece’s debt crisis and their attitude to talk that politicians and regulators may clamp down on their activities.

According to Cheyne Capital, for instance, buying Greek CDS is an “old trade” that many hedge funds have moved out of. Many have instead moved to short bets on the euro, as the single currency comes under pressure from the debt of some southern European countries.

Then again, two managers from GLG, ranked by Eurohedge this week as Europe’s 6th biggest hedge fund firm, said they are actually long the euro.

The rationale, according to fund manager Karim Abdel-Motaal, is that the euro is the least ugly major currency and hasn’t seen the same quantitative easing used elsewhere.

In addition, the strength of France and Germany’s economies coming out of recession means interest rates could rise sooner than expected, boosting the single currency.

They were also quick to dismiss the idea that banning or limiting CDS would somehow improve the situation.

“Let’s assume you ban credit default swaps, and Greek spreads automatically go to the same level as German spreads … Would you rather hold a German bond at a spread of 1 percent or a Greek bond at a spread of 1 percent? You’ve just made Greek debt unfinanceable.”

Abdel-Motaal argues that such short bets have an inbuilt “natural self-discipline” and are by no means an easy, one-way bet for hedge funds. After all, “when you’re wrong, you get toasted”, he says.


The perks of Greece have simply gone away,
Their money’s down the drain,
It’s such a crying shame.
The EU nations now just turn their face,
With nothing good to say,
The friends of yesterday,
Greece is the word.

Not long ago the youth groups ruled the streets,
Hurt cops and then they ran wild,
Just like an angry child.
The Reds took government but nothing’s changed,
They whipped up quite a stir,
But things are still as they were,
Greece is the word.

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