Risky bets on Greek bonds have made a handful of hedge funds huge amounts this year.
Risky bets on Greek bonds have made a handful of hedge funds huge amounts this year.

Story highlights

U.S. hedge fund makes $500 million profit betting on Greece staying in eurozone

Third Point has sold back $1bn position to Greece as part of the country's bond buy-back scheme

The hedge fund, led by billionaire investor Dan Loeb, is one of few to have profited from the euro crisis

Financial Times —  

One of the world’s most prominent hedge funds is sitting on a $500m profit after making a bet that Greece would not be forced to leave the eurozone, bucking the trend in a difficult year for the industry.

Third Point, headed by the billionaire US investor Dan Loeb, tendered the majority of a $1bn position in Greek government bonds, built up only months earlier, as part of a landmark debt buyback deal by Athens on Monday, according to people familiar with the firm.

Read more: Grexit ‘dead’ as €34bn loan agreed

The windfall marks out the New York-based firm as one of the few hedge fund managers to have profited from the eurozone crisis. Standard & Poor’s, the rating agency, raised its assessment of Greece’s sovereign debt by several notches on Tuesday, citing the eurozone’s “strong determination” to keep the country inside the common currency area.

Mr Loeb is one of only a handful of hedge fund titans to have made big returns this year. The $2tn hedge fund industry – made famous by investors such as George Soros, who bet against the British pound and “broke the Bank of England” on Black Wednesday in 1992 – has struggled to find its confidence after two years of lacklustre returns.

Read more: Eurozone still has mountain to climb

John Paulson, the hedge fund manager who correctly called the US housing crash, has been among those wrongfooted. Mr Paulson has seen his bets on a US economic recovery and a deterioration in the health of Germany’s bonds both unravel. Since 2010 his flagship fund has lost more than 60 per cent of its value.

Audacious bets in Greek bonds, which have made a handful of managers huge amounts this year, have been a rare exception to the industry’s record. Third Point is the largest hedge fund holder of Greek bonds, according to traders.

The Greek government swapped holdings of its own debt for notes issued by one of the eurozone’s rescue facilities at a value of 34 cents on the euro. Third Point had scooped up holdings of Greek debt earlier this year for just 17 cents on the euro.

The firm has also retained a sizeable position in Greek debt because Mr Loeb believes there could still be a long way for the bonds to rally further next year. Analysts at the firm believe the bonds could rally by a further 40 per cent.

A spokesperson for Third Point, which manages assets of $10bn, declined to comment on the trade.

Third Point has made its investors a 20 per cent return so far this year, compared with 4.9 per cent for the average hedge fund.

Mr Loeb, who has earned a fearsome reputation in the investment world for penning acerbic, but acutely observed public letters to those he disagrees with – from recalcitrant corporate board members to President Barack Obama – is one of the US’s most successful hedge fund managers.

Mr Loeb, who turned 51 on Tuesday, has recently moved the focus of his firm away from shareholder activism towards making bets across a range of asset classes. The fund has been particularly active in Europe in recent years.

Third Point began buying up Greek bonds after profiting from a rally in Portuguese debt at the beginning of the year. Analysts from the fund have kept close tabs on Greek politicians and advisers and have been in ongoing discussions with the Greek government.