* European trade much more complex than Soros' on pound
* U.S. hedge fund managers using many different strategies
* Greece turmoil causes some to pull back on bullish
By Svea Herbst-Bayliss and Katya Wachtel
BOSTON/NEW YORK, May 28Two 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. 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
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
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
"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
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
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."