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Cheyne Capital CIO: ‘Hedge funds move on to euro after Greece CDS bets’

Date: 18 Mar 2010 / Author: admin / Views: 335 / Comments: 1

According to Reuters, hedge funds are currently shifting their bets on Greece's debt problem to the euro as it seems too many speculators have recently purchased default security for it to be a profitable trade, says the hedge fund firm Cheyne Capital.

Chief Investment Officer Chris Goekjian said a more interesting trade for hedge funds was to bet that the euro will get weaker as the EU decides how to help the Southern European countries that are currently struggling to pay off their debt.

"I think it's (credit default swaps) an old trade. Everybody knows about it. I don't think anybody's playing it out," Goekjian told the Reuters Private Equity and Hedge Funds Summit in London.
"There's much more interesting trades. The euro's a better story ... It's a more liquid underlying and it's probably a broader story," said Goekjian, whose firm manages $5.5 billion in assets.
The cost of insuring against a Greek default more than tripled since end-October to a record of around 420,000 euros per 10 million euros of exposure, although this has fallen back and on Monday to 336,800 euros.
"A couple of our funds have done some trading on Greece, Portugal, Spain, Ireland, the related countries ... Everybody uses CDS," he said. "We've definitely looked at it at some point and traded some of those countries."

Cheyne Capital's Goekjian said that betting on the euro -- which at the time of writing has already fallen to around $1.3520 on the Monday from around $1.509 at the end of the previous year on concerns over its future as concerns over financing a bailout mount -- was a way of betting on the debt problems of other Southern European states.

"The euro's getting weaker, why's it getting weaker? Because everybody's taking the big picture and saying 'let's not talk about Greece but let's add Greece, Spain, Italy, Portugal.'
"'Let's put all that together and say Germany and the EU have got deep pockets but how much can they really help out here? And how are they actually going to resolve the fiscal situation? And if you add these together, aren't these very, very big numbers?' And hence the currency's getting weaker."
Goekjian from Cheyne Capital said the positions it had taken recently were not large, but declined to say what the firm's current positions were but.

Speculation has also risen that political pressure in Europe may cause regulators to decide to take action on hedge funds purchasing CDS, but Goekjian said the firm had so far not come under any pressure.
He said "Nobody's called us up. We haven't had any public pressure one way or the other," One source states, Germany's financial watchdog has undergone steps to identify speculators in Greek debt to make sure that they do not profit unduly from any rescue of Greece that might occur.