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Net Net: Promoting innovation and managing change

Hedge funds unfazed as Greece drama continues

A woman takes a drink in front of the Parthenon temple on Acropolis hill in Athens, June 18, 2015.
Paul Hanna | Reuters

The small group of hedge funds betting on a Greek recovery remain invested, still hoping that assets like government bonds and bank stocks will rally once a political solution is reached on the nation's financial obligations.

"[There's] no change on the expectation of a deal," Diego Ferro, co-chief investment officer of $1 billion global investor Greylock Capital Management, said in an email. "This problem has been political from the beginning, the amount of money involved is not that big. So you would expect some bickering to last until it is signed."

Greylock owns government bonds and bank stocks.

Waiting for a Greek deal

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Other hedge funds to bet on a Greek recovery include Third Point and Alden Global Capital via Greek recovery-focused funds. Perry Capital and Knighthead Capital Management are among those that own Greek government bonds, according to recent conversations with people familiar with the situation.

"Although the situation will likely continue to deteriorate before it improves, we maintain that the probability of Greece exiting the [European Economic and Monetary Union] is closer to 10 percent and therefore Greek assets are significantly mispriced at current levels," Perry wrote in an April 23 letter to investors. It said the market was pricing in a more than 60 percent chance of exit.

Representatives for Perry, Alden, Third Point and Knighthead declined to comment or did not respond to requests.

Some hedge fund managers aren't convinced of the Greek opportunity.

"Greece is but one instance of the enormous economic lie that governments have created," Mark Spitznagel, chief investment officer of $6 billion Universa Investments, said in an email via a spokesman. "The wool is slowly being pulled away from our eyes, and our eventual simultaneous acceptance of this unsustainable economic position will mean a swift and dramatic market repricing."

Universa holds no positions in Greek securities.

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Ferro of Greylock said banks are a great bet—if an agreement is reached.

"Bank stocks represent the investment with most upside if a deal happens. But if Greece leaves, they will suffer," he explained.

Ferro declined to name the bank stocks, but Greylock has previously owned Athens-based Alpha Bank.

Alden also owns a relatively small amount of shares in National Bank of Greece, according to a March 31 Securities and Exchange Commission filing. Alden manages $1.6 billion overall and its new Greece-focused fund was seeded with $40 million of internal capital.

Ferro said the certain bonds already owned by private investors (called PSI or private sector involvement debt) are "very likely to continue performing even if Greece leaves the euro" and that "it is a very nice risk reward" even if the value changes initially.

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A Greek deal could also help other European investments.

Mike Novogratz, who co-manages a macroeconomic-themed hedge fund at Fortress Investment Group, said recently at the HedgeFund Intelligence European Summit that Greece has made for constant tension in Europe and that he was confident that the region's equity market rally could resume once there is a Greek deal.

A spokesman for Fortress did not immediately respond to a request for additional comment.