Reuters is reporting this morning that hedge funds are preparing a lawsuit against Greece over a complicated settlement, which may cause large loses to some of the funds. The details seem to change by day, but it is highly dependent on a mid march date. If a deal is not worked out by by mid-March, which is when a 14.5 billion euro bond is due, Greece may not have the funds it requires from either the European Union or other lenders to avoid an orderly default.
We mentioned earlier that many hedge funds, including Boaz Weinstein’s Saba Capital, is buying Greek debt at a large discount to par.
The hedge funds might be getting themselves into trouble due to the current economic environment. With the populist occupy wall street movement taking a strong stand against the wealthiest, the hedge funds are running a risk. With Greece on the verge of default, and massive unemployment, right or wrong this could be a pr nightmare for hedge funds. Additionally, the suicide rate has risen 40% since the last year, as many people have come under dire economic straits.
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With the rise of ethical investing, combinded with Occupy Wall Street movement; funds might lose more money as investors yank funds. We have already witnessed investors pulling money out of big banks in favor of credit unions. A commercial showing a billioniare hedge fund manager’s 5th avenue apartment contrasted with starving kids in Greece, can go a long way.
We have not even touched on the legal aspects. As Reuters notes, hedge funds are still fighting Argentina over its default 10 years ago. The potential Greek bankruptcy would be on the order of $450 billions, a far larger amount than Argentina’s debt load at the time. It might be tough for hedge funds to win in court, especially as other European countries risk default.
Although hedge funds may win the war in court, nowadays, the war on the street seems even more vital to win. Any funds that take part in lawsuits against Greece could lose more potential investors, than any money gained from winning a lawsuit.