Hedge funds underestimating Europe’s will to force Greek losses

Hedge funds seeking to wring profits from a Greek debt restructuring are underestimating the will of policy makers to impose losses on them, according to investors who say trying to beat the politicians is too risky.

?It?s hard for us to come up with an investment thesis that makes it interesting,? said Robert Rauch, a partner at New York-based Gramercy Advisors LLC, a $2.7 billion hedge fund that has avoided investments in Greek debt. ?It?s not clear to us that out of this process you can make any money.?

Greece?s talks with private creditors, led by the Institute of International Finance, have dragged on for more than two months as the nation?s European partners pressure creditors to accept lower interest rates on new debt to ensure a sustainable debt load for the Mediterranean nation. The agreement must be voluntary so as to avoid triggering credit-default swaps.

Bruce Richards, who runs Marathon Asset Management LP, said two weeks ago that a swap would be struck that gives his firm and other investors new bonds paying an annual interest rate of as much as 5 percent. His view proved optimistic after European officials pushed for steeper losses of 70 percent or more, leading to average coupons of about 3.6 percent.

European banks own most of the 200 billion euros ($263 billion) of Greek debt held by non-government investors. Hedge funds, pension funds, sovereign wealth funds and other ?non- regulated investors,? own a further 60 billion euros, according to estimates by Pavan Wadhwa, JPMorgan Chase