While the eurozone was shaken by the rumblings of an EU breakup in the first half of past year, the developing debt crisis in countries like, Greece, Spain, Italy, Portugal and the resultant unlimited bond buying programs and Outright Monetary Transactions, opened new avenues of investment for hedge funds.
The bet was full of risk but for those who made it, big returns came their way. It seems that the interest in Europe continues to grow every day, even the conventional investors are joining in with fervor. Seth Klarman, the legendary value investor, is making big bets in Greece.
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
His firm Baupost Group profited from opportunities in Greek debt last year, and it seems that his excitement for these assets is not dialing down any time soon as the firm expressed solid plans to expand on these investments. Other than pricing the opportunities in distressed sovereign debt, Baupost just disclosed a long position in Greek Gambling firm, OPAP SA (Athens:OPAP). with a 5.2 percent stake.
Is OPAP doing really great? Not exactly, its gambling rules were called illegal by EU’s Court of Justice, just last week. The stock did not like the treatment and shares plummeted more than 20 percent. The interest in the gambling monopoly comes from Greece’s plan to sell out its entire share in the company to raise 2.6 billion euros. It is not just Baupost investing in OPAP, Fidelity Investments and Silchester Investments both have a 5 percent stake in OPAP. Moreover Dan Loeb’s Third Point and TPG Capital are also among interested buyers who are looking to invest when another 33 percent of OPAP is sold in late 2013.
Nobody has profited as much from sovereign debt as Loeb has in the past year. He reportedly made $500 million from his $1 billion bet on Greek government bonds. It was also one one of the largest positions of his firm in last year. He still holds a chunk of this position and is confident of another rally.
Pharo Macro manages $1.7 billion and also made a winning bet in Greek debt and gained from its position in November and December. Additionally the fund also made gains from Italian government bonds as well according to its year end letter, the fund was up 12.53 percent in 2012.
In terms of Greek equities, Prem Watsa’sFairfax Financial Holdings Limited (TSE:FFH) accumulated a 5.4 percent stake in JUMBO SA (PINK:JUMSF), a toy and stationary items company, over the last year. Other holdings of Prem Watsa in Greece include a 19.12 percent stake in Eurobank Properties and 7.68 percent of Sarantis.
Jumbo is also owned by FMR with 13.18 percent stake, Franklin Templeton with a 9.8 percent stake and First Eagle Investment Management holds 5.35 percent of the company. Other foreign holders of Sarantis include, KAS Depositary Trust Company (5.026%) and FMR (5.08%). Capital Group holds 9.1 percent of Firgoglass while Lansdowne Partners, UK’s leading hedge fund, owns 5.03 percent of THPA.
The interest of investors does not end with Greece; lately peripheral European countries, Spain, Portugal and Italy have also appealed to the hedgers. Wilbur Ross, another noted investor, has expressed solid interest in Spanish assets and has said at one point that his firm is looking at opportunities in Spain. The most successful investor of all time, Warren Buffett, has done business with Spanish lender, Caxiabank.
On the other end Tiger cub, David Gerstenhaber of Argonaut Capital made a profitable bet in Portuguese sovereign debt in the last two quarters of 2012 and holds the position into 2013 as well. Famous U.K. investor, Crispin Odey’s hedge fund, Odey Asset Management was largely successful in last year. The firm’s Odey Odyssey Fund (up 14 percent) has highest exposure in Spain and Italy, after U.S. The fund has long positions in Spanish, Italian and Portuguese government bonds and futures. North Asset Management’s MaxQ fund holds long positions in Spanish government bonds.
The list of interested parties in European economy keeps on growing; several market valuations from reputable analysts see a rally in the distressed countries’ assets led by ECB’s OMT program. Going forward interest in equities that are up for sale by these governments is also a significant factor directing investor interest.