Hedge funds are stepping up their interest in Greece despite
the beleaguered countrys small number of listed equities
and largely illiquid bond market.
After 2015s Grexit fight, the countrys banks
were recapitalized and the broader economy started to show
signs of life, prompting a handful of asset mangers, including
Zurich-based RBR Capital Advisors, Worldview Capital
Management, and PVE Capital, to start Greek
funds. Now there are 17 hedge funds focused on Greece or
based in the country, plus six Greece-focused private equity
funds, according to Preqin data.
On the surface, Greece may seem like the type of market that
would draw only battle-hardened emerging-markets investors. On
Tuesday, following a
mass protest by the countrys farmers, Greek Prime
Minister Alexis Tsipras said the country would not accept the
additional austerity measures that Europe Union and the
International Monetary Fund are calling for to ensure the
delivery of another bailout package this year.
Greece has essentially been resisting austerity measures
since it passed the first round of tax hikes and deep budget
cuts required to keep the country afloat in the wake of the
financial crisis. But now theres a difference. Despite a
recent small contraction, the Greek economy is improving, and
the fragile recovery that could support Greeces future
debt payments hangs in the balance if the EU and the IMF
maintain their hard-line stance.
We are encouraged by the growth in GDP, says
George Elliott, founder and portfolio manager at hedge fund
Orasis Capital, which typically invests in Greek-listed
equities across all sectors and recently bought some
nonperforming loans from Greek banks. Retail growth has
been one of the biggest surprises, he says, noting that
consumer confidence seems to be coming back despite the capital
controls and heavy taxation that defines the new Greek
The estimated 20 billion in cash hiding under Greek
mattresses after investors rushed to withdraw cash amid Grexit
fears is making its way into local shops and restaurants,
market observers have speculated.
On the credit side, Greylock
Capitals Diego Ferro says he still sees upside in the
bond market despite recent volatility. Greylock, a $1 billion
hedge fund firm based in New York, has been investing in Greece
since 2012, when it was the only hedge fund involved in
Greeces restructuring. He sees the country as a long-term
value opportunity. Each time there is weakness, we add to
our position, Ferro explains. We bought some 2017
bonds with yields of 10 percent. We think there is value
Meanwhile, Greek banks, which have teetered under the weight
of a significant number of nonperforming loans, have been
identified as turnaround targets.
At a Swiss Financial Services event last June, Rudolf Bohli,
CEO of RBR Capital, called Greeces Piraeus Bank a
candidate for turnaround in his presentation. Piraeus, which
has about 30 percent of the Greek banking market, has used its
recent capital infusion well and is working to clean up its
loan book, according to Bohli.
For fund managers, the key to Greece is to look beyond the
headlines, even if there is volatility as a result of political
brinkmanship in the short run.
Despite a lot of populism in the politics of the EU
these days, there is strong support for remaining in the euro
zone, says Nick Gartside, international chief investment
officer for global fixed income at J.P. Morgan Asset
Management. He adds that the smart money in Greece and Europe
generally has learned to trade behind the headlines and around
the various idiosyncrasies that define the Continent.
Greylocks Ferro agrees. This is a familiar
pattern with Greece, where all the parties blame each other and
then eventually come to a compromise, he says. He notes
that as long as the market fails to understand this, hell
gladly take the profit.