Hedge fund GLG bullish on euro, avoids Greece

Date: Thursday, March 4, 2010
Author: Reuters

Hedge fund firm GLG Partners (GLG.N) is bullish on the euro and believes bets on Greek bonds are unattractive, in views contrary to the high-profile trades some hedge funds are making on Greek's debt crisis.

While a number of hedge funds are betting that the huge budget deficits of Greece and other Mediterranean countries will put pressure on the single currency, Karim Abdel-Motaal and Bart Turtelboom, who run around $2.7 billion at GLG, expect the euro to rise.

"I'm bullish on the euro," Abdel-Motaal, whose portfolios include the GLG Emerging Markets fund, told the Reuters Hedge Fund and Private Equity Summit in London.

"Within the constellation of currencies that are ... performing an 'ugliness' contest -- the dollar, sterling, the euro and the Japanese yen -- by which I mean central banks printing money, the euro is in a better place than most."

He also cited encouraging German and French economic growth.

"I do also believe the positions in the cycle of Germany and France in particular are such that it is conceivable that interest rates start rising in Europe earlier and faster than elsewhere."

He also said that his funds have no position on Greek bonds or credit default swaps (CDS) -- insurance against default that has gained notoriety as speculators have profited from Greece's debt mountain.

"We don't believe it (Greece) is as large a problem as the market is making it out to be," said Abdel-Motaal.

"We are certainly not short in the face of what we believe is very likely a German-led bailout. Nor are we particularly enamored with spreads for us to be long, expecting some big rally. So we're sort of indifferent on Greece."

DEALING WITH THE "SYMPTOM"

His comments come amid reports that the activities of hedge funds and other speculators in buying CDS and shorting the euro have drawn the attention of regulators.

EU officials will meet industry experts and supervisors on Friday to discuss debt speculators amid concerns traders are worsening Greece's borrowing problems.

However, Abdel-Motaal said any clampdown would be dealing "with the symptom rather than the illness."

"It's a natural self-discipline. When you're wrong, you get toasted," he said.

Banning CDS or limiting sales to investors hedging their positions could actually worsen Greece's problems, he said.

"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 spread of 1 percent or a Greek bond at a spread of 1 percent? You've just made Greek debt unfinanceable."

Similarly, limiting CDS to those who own the bond would make things worse, he said: "You just made the insurance buying side of the market limited to one participant. Surely this will make the market less deep, less liquid, and ultimately distort the price."

Meanwhile, Turtleboom said market uncertainty unleashed by Greece's ballooning deficit is opening up opportunities in Central European markets aspiring to enter the eurozone.

Over the past four to six weeks the fund has doubled interest rates and currency positions on such countries.

"Right now a super interesting trade is Central Europe -- Poland, Hungary and the Czech (Republic). They are on Euro ascension plan and it is not obvious to us that the Greek scenario will slow that process," he said. "In fact, if anything, it will speed things up."