BOSTON/NEW YORK (Reuters) - 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 euro zone will give rise to an
investing legend like Soros, who made $1 billion 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 U.S. hedge fund
managers.
"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 spokesman 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 U.S. 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 percent against the U.S. dollar.
U.S. 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 euro zone, or even the fallout from a Greek exit, is a much more
complicated than betting against a single currency.
Money managers are playing the euro zone 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 euro zone 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 $320 million 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 percent 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 euro zone 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 euro zone has risen
dramatically.
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 percent 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 euro zone countries.
"As the wheels began falling off the bus, we adjusted to have a short
bias and that has worked out," said Brynjolfsson, whose $750 million
hedge fund is up 2 percent 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 specializes in currencies, said the
growing problems with Greece and the euro zone led him recently to dump
all the euros in his $517 million Merk Hard Currency Fund, which is up
2.29 percent for the year.
Merk now favors the Singapore dollar, which has climbed 1.34 percent since January.
Ray Dalio's $120 billion Bridgewater Associates gained 23 percent 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 U.S. money manager who comes closest to rivaling 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
firm.
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 euro zone.
"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 labor 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
differently.
"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 bills."
(Reporting By Svea Herbst-Bayliss and Katya Wachtel; edited by Matthew Goldstein, Jennifer Ablan, Martin Howell)
,
by Maneet Ahuja, and he is one of the more interesting. Now in his
60's, he has stepped down as Co-CEO but remains one of three Co-CIO's of
the company. The investing strategy that has been successful for
Bridgewater since the 1990's is still in place and has driven the firm
to be the largest hedge fund in the world. Bridgewater has a portfolio
of alpha-generating positions, normally around 15 or so. Bridgewater is
able to tailor risk to each client by investing a portion of the assets
in this alpha portfolio, and then the rest in a passive, index portfolio
that only has beta. Thus, each investor can achieve optimum levels of
risk and still have exposure to alpha. 
