Hedge fund Cube cuts bank positions in market rally

LONDON Wed Jul 4, 2012 3:45pm IST

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LONDON (Reuters) - London-based hedge fund firm Cube Capital has sold positions in bank debt and stocks during the market rally of recent weeks, betting that prices will fall back again as the euro zone's ongoing debt crisis continues to drive big swings in markets.

However, senior portfolio manager Nick Linnane said the growing scandal over the rigging of the Libor interest rate - which on Tuesday saw Barclays CEO Bob Diamond quit and which has seen investigations into more than a dozen banks - looks unlikely to affect the price of bank subordinated debt.

Linnane, who runs the Cube Global Opportunities fund, told Reuters he had increased his position in subordinated bank debt earlier last month but has recently reduced the stake after seeing it rally during June.

He has also sold down some bank stocks in France and the UK over the previous 10 days, although he declined to name the stocks.

"When the market is rising you probably want to be selling," he said in a recent interview.

"We've been cutting exposures. The market has run up a bit this month. Our view is that the European situation, with risk-on risk-off, is going to continue for an extended period of time."

Over the past month the MSCI World Equity index .MIWD00000PUS has rallied 8 percent and the STOXX Europe 600 banking index .SX7P has jumped 14 percent on growing hopes Europe's debt crisis can be contained.

Investors were buoyed by Friday's decision by euro zone leaders to let their rescue fund inject aid directly into stricken banks from next year and intervene in bond markets to support troubled member states.

LIBOR

Linnane said possible U.S. litigation over the Libor rigging scandal would "hang over their (banks') equity prices" but that much of the scandal was already priced into shares in Barclays (BARC.L), which is paying $453 million to U.S. and British authorities to settle allegations it manipulated Libor.

"Movements in Barclays' share price over the last week - and in particular its movement relative to other banks involved in the Libor setting process who also have substantial U.S. businesses - indicate there is now quite a lot priced into Barclays stock as far as Libor price-fixing exposure goes," he said late on Monday.

Linnane added that potential litigation settlements were unlikely to affect banks' subordinated bank debt.

"Could the losses be big enough to impair subordinated debt of banks? We currently don't think so and the market is currently reacting consistently with that view."

Meanwhile, Cube CEO Francois Buclez said the hedge fund firm is eyeing opportunities in debt-stricken Greece after a recent trip organised by a local contact.

"We've just come back from a week-long trip to Athens, where we've started to identify opportunities that have not yet matured," he said.

"The opportunities could be equity, or in restructured bonds, which have risen after the elections, but there could be another bite at the apple. We're watching that market closely."

Cube, which manages $1.3 billion in assets, said on Monday it has opened its $100 million Global Opportunities fund, an event-driven fund that invests in stocks, bonds and derivatives, to external investors.

Buclez said he hoped to raise another $400 million for the fund.

The first $50 million of investors will be in a special seed class, with a 1 percent management fee and 20 percent performance fees charged on gains of more than 5 percent. Investors after that will pay a 2 percent management fee and 20 percent performance fees on all gains.

(Editing by Mark Potter)

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