* Investors voice anger at idle, expensive hedge funds
* Barclays pension fund CIO says cannot ignore low prices
* Hedge funds bets derailed by sudden policy change
By Tommy Wilkes and Laurence Fletcher
MONACO, June 20 (Reuters) - Euro zone turmoil has turned Europe's hedge fund managers into shadows of their former selves: haunted by ghosts of failed bets and as deeply divided on the fate of the indebted union as the leaders responsible for keeping it afloat.
The community of financiers, the so-called 'masters of the universe' considered able to make fortunes in all economic conditions, are no longer dictating markets but are nervously eyeing trades which could win or lose on a politician's whim.
"It's difficult to make a call on Europe. There are certainly some cheap valuations there but there is a lot of political risk which is very difficult, if not impossible, to forecast," said Ian Prideaux, chief investment officer at Grosvenor Estates, hinting at the paralysis of many hedge funds.
Once seen as decisive and quick-witted, the industry is starved of conviction, leaving investors to wonder what their high fees are paying for.
Executives gathering in Monaco this week for an annual get-together of the hedge fund industry, have talked much about where to invest their cash but a sense of uncharacteristic fear is palpable.
Reflecting the uncertainty, delegates asked to predict the outlook for German Bunds - the instrument of choice for investors seeking a safe haven in the crisis - could not reach consensus on whether Germany was ripe for a short-selling raid.
Its annual borrowing costs are hovering around zero but half the audience said these would jump to between 1.5-2.5 percent as Europe's paymaster reluctantly shares more of its balance sheet with its indebted euro zone member states.
The other half said Germany was safe from the fickle investor sentiment that reversed Monday's brief rally sparked by a pro-bailout result in Greece's election.
It's not clear how long investors will give hedge funds to make up their minds and rediscover their Midas touch.
Jonathan Hook, chief investment officer at Ohio State University, told Reuters he has reduced exposure to long-short equity funds to around 16 percent of the portfolio and increased his position in long-only to 20 percent. Both were equally weighted before.
Frustrated with tumbling equities and slumping bond yields, pension funds like Ohio's have poured millions of pounds into hedge fund managers in recent years and are desperate to see them pounce on bargains in crisis-hit Europe, which they reckon now offer some of the best returns around.
The chief investment officer of the 22.5 billion pound ($35.41 billion) pension fund of UK bank Barclays, for example, said after years of expanding his exposure to emerging markets, the "extreme pricing" of some European assets was tempting him back.
"The prices of securities in Europe are getting to levels that cannot be ignored," Tony Broccardo told Reuters.
The pension fund, which has around 30 percent of its funds in alternative assets including hedge funds, currently has a very low exposure to continental Europe.
Several managers said they like the look of European stocks, especially those which are European-headquartered but earn much of their revenue elsewhere, such as Spanish bank Santander and telecoms giant Telefonica.
These companies often have strong balance sheets but their stock is dragged down by their association with home markets struggling with recession.
"Europe is going to be a bargain, sooner or later. It's probably going lower but it's a bargain now on a three-to-five-year view," Lee Robinson, the former head of Trafalgar Asset Manager and founder of Altana Wealth, said.
"The question is, will their businesses be around in three-to-five years' time? With retailers it's not obvious. But telcos, oils and pharmas look good value," he said.
Robinson, one the industry's best-known managers, said that if the companies' mid-cycle earnings rise from six times to 12 times - around the long-term average - investors could double their money. Investment grade corporate credits could also get a boost from investors shifting out of government bonds.
But hedge funds remain cautious about the timing of any trades, with bets too often distorted by policymakers acting to fix the euro zone crisis and sending markets into a tailspin.
Mark Poole, co-founder of BlueBay Asset Management, which runs more than $40 billion, said a shift into European corporate credit has been stifled by euro currency risk, discouraging global investors even if they like the fundamentals.
"If you are a non-euro-based investor why would you take that risk?" he said.
Big U.S. investors said they would consider trimming long-short equity investments, unimpressed by their returns and high fees.
"People need to find ways to make money in these markets. There are a lot of wonderful ways to make money now but you actually have to do work. The easy ways are gone ... There will be a natural culling (of managers)," Jane Buchan, CEO at $8.5 billion fund of funds house PAAMCO, said.