Boston/New York - Two decades ago, George Soros rose to fame
and fortune on his now-historic trade in which he took on the Bank of England
and shrewdly wagered on a devaluation of the British pound.
But it's unlikely the current European monetary crisis and
worries about Greece's potential exit from the eurozone will give rise to an
investing legend like Soros, who made $1bn in 1992 by betting on a decline in
the price of the pound.
Instead, there are a multitude of strategies to play
Europe's troubles, and many different participants, according to US hedge fund
"There is not room for one player to have such
impact," said John Brynjolfsson, whose California-based Armored Wolf hedge
fund has been betting against the euro for quite some time.
"Financial markets are so much bigger today."
A spokesperson for Soros, who last year converted his Soros
Fund Management to a family office and stopped managing money for outside
investors, could not be reached for comment.
Brynjolfsson and several other US money managers who are
trying to profit from Europe's misery say they expect the current crisis to
produce a lot of winners.
So far this year, the euro is down 3.3% against the US.
US money managers say it's hard to swing for the fences the
way Soros did because institutional investors are far more squeamish about
having too much money riding on any single trade.
There is also heightened sensitivity from pensions and
endowments to taking an investment strategy that might spark political outrage
from European leaders.
Another thing working against the rise of a new Soros is
that trading the eurozone, or even the fallout from a Greek exit, is a much
more complicated than betting against a single currency.
Money managers are playing the eurozone crisis by trading
currencies, wagering on the direction of bank stocks or using derivatives like
credit default swaps to bet on potential corporate and bank failures.
Greenlight Capital's David Einhorn recently said he is
bullish on gold and gold miners, in part because of concern about the fallout
from a eurozone meltdown.
Some managers are even going both short and long on
different European sovereign debt, depending on their views of the financial
stability of different countries.
Adam Fisher, manager of the $320m Commonwealth Opportunity
Capital hedge fund, noted that Soros faced a "single country, not 17
different countries, one decision maker, not 17".
Fisher's fund, which has more than 80% of its money invested
in Europe, is taking a somewhat contrarian position by owning the European
sovereign debt of Germany, the Netherlands, Italy and Spain.
Hedge fund managers point out that given the up-and-down nature
of the eurozone crisis, most hedge funds have been in and out of trades or
forced to adjust positions depending on the changing political winds.
Earlier this year, for instance, it looked like concern
about Greece exiting the euro had passed. But with the recent results of the
Greek election at odds with the austerity measures demanded by its currency
partners, the risk of a Greek departure from the eurozone has risen
Recently, Fisher said his Los Angeles-based fund had reduced
the size of some of its more bullish sovereign debt trades because he believes
there will be "violent" market swings this summer.
"It is going to be incredibly difficult to manage risk
through that environment," said Fisher, whose fund was up 8.8% through
April. "I don't think hedging will do anything. The way you hedge, is you
sell. You don't subtract risk by adding risk."
Brynjolfsson, a former top portfolio manager for bond mutual
fund firm Pacific Investment Management Co, is betting on Greece exiting the euro.
He said it will be hard for European leaders to take the
necessary steps to appease the Greek government without infuriating politicians
in other eurozone countries.
"As the wheels began falling off the bus, we adjusted
to have a short bias and that has worked out," said Brynjolfsson, whose
$750m hedge fund is up 2% this year, largely on its short bet against the euro.
Axel Merk, president and chief executive officer of Merk
Investments, an investment advisory firm that specialises in currencies, said
the growing problems with Greece and the eurozone led him recently to dump all
the euros in his $517m Merk Hard Currency Fund, which is up 2.29% for the year.
Merk now favors the Singapore dollar, which has climbed
1.34% since January.
Ray Dalio's $120bn Bridgewater Associates gained 23% in 2011
in part because of profits made from a series of European bets, said a person
familiar with the Westport, Conn-based fund who declined to discuss specifics
of the strategy.
In a recent interview with Barron's, Dalio said European
banks "are now over-leveraged and can't expand their balance sheets"
and European nations "don't have enough buyers of their debt".
Dalio may be the US money manager who comes closest to
rivalling the Soros of two decades ago. His hedge fund is the industry's
largest and he widely regarded as one of the most successful managers.
Among the ways funds are playing the European turmoil, some
are betting against the fortunes of Spanish and Italian banks instead of simply
focusing on sovereign debt.
John Paulson, among others, bets against European sovereign
debt as way to hedge the overall portfolio of his Paulson & Co hedge fund
Daniel Loeb's Third Point fund put on a long position in
Portuguese sovereign bonds in the first quarter because the New York-based
manager believed the nation is in better shape than others in the eurozone.
"Portugal's debt profile is more consistent with
Italy's than Greece's, its banks are substantially healthier than Spain's, and
its government has enacted more aggressive labour reforms and is more stable
than regimes in both countries," Loeb wrote in a May 16 investors' letter
seen by Reuters.
If nothing else, the European crisis is forcing managers to
keep coming up with new strategies to trade. One might say it's almost become
an incubator for hedge fund managers to stretch their investment acumen.
Merk said he might look again at Europe if the political and
financial situation gets more clarity. But he would likely do it a bit
"If there is clarity in the process again, then we will
certainly look at Europe again," he said.
"But not through Greek debt, but through German