SOCIETY

Greek math whiz at Irish hedge fund tells the tale of two crises

greek-math-whiz-at-irish-hedge-fund-tells-the-tale-of-two-crises

Konstantinos Drakakis sips an espresso next to his hedge-fund office in Dublin and says any deal to keep aid flowing to his Greek homeland will make little difference.

“It’s like giving money to a drug addict,” said the 40- year-old Athenian, who is chief quantitative officer at Probability Dynamics on the banks of the River Liffey in the Irish capital. “He’s going to spend it and ask for money again later. Greece has lots to learn from Ireland.”

The bearded mathematician arrived in Ireland in 2006, four years before the nation followed Greece into an international bailout. Since then, he’s had a front-row seat as the fortunes of his old and new homes have drifted apart. While Greece has stumbled from crisis to crisis, Ireland is now the fastest- growing economy in the euro region.

The yield on 10-year Irish government bonds has plunged to 1.6 percent, compared with 14.2 percent in July 2011. The yield on the Greek 10-year bond rose to 10.5 percent in Athens on Thursday as Prime Minister Alexis Tsipras continued his five- month battle to unlock new bailout funds.

“Ireland’s strategy has been to under-promise and over- deliver on the budgetary front,” said Alan McQuaid, an economist at Merrion Capital in Dublin. “This is set to be the case again this year, and limit any contagion from a possible Greek exit from the euro zone.”

Writing algorithms

Drakakis, who is the same age as Tsipras, left Athens 17 years ago to study mathematics at Princeton University. He moved to Edinburgh University in Scotland before arriving in Ireland to lecture at University College Dublin eight years ago. He then joined Probability Dynamics, where he writes algorithms to predict price movements.

While the company doesn’t invest in Ireland or Greece, he endeavored to make himself an expert.

“Everyone kept asking me about it, so I had to educate myself,” said Drakakis, who heads the Hellenic Community of Ireland, which brings together some of the 1,000 or so Greeks in Ireland. “Before the recession, people talked about their trips to the Greek islands. Now, the first thought to come to mind is different.”

While Greece has remained mired in crisis, Ireland exited its bailout in 2013. The economy will grow about 3.6 percent this year, the European Commission forecast last month, while Greece has gone back into recession.

Taxing companies

Drakakis attributes Ireland’s revival in part to a 12.5 percent corporate tax rate that’s drawn companies from Google Inc. to botox maker Allergan Inc.

Among efforts to get his creditors to approve his budget plans, Tsipras this week offered to introduce a new levy for companies with annual net income of more than 500,000 euros ($559,000) and raise the main company tax rate. Greece’s creditors have rejected some of his proposals.

“One of the great things in Ireland is low corporate tax – – the Greek government doesn’t believe in it,” he said. “When Greece looks to other countries, it’s not looking at Ireland, it’s looking at more socialist countries.”

Ireland also isn’t out of the woods yet. Banks are still grappling with billions of euros of soured loans, and unemployment has only just dropped below 10 percent. Bond yields have risen from a record low 0.7 percent over the last month over the renewed threat of Greece leaving the euro.

“Bond prices were definitely weaker on the back of the Greek situation,” said Ryan McGrath, a Dublin-based analyst with Cantor Fitzgerald LP. “If a Greek deal is done I would expect a small relief rally but yields are unlikely to return to the low levels that we saw earlier in the year.”

Yet, Drakakis says Ireland’s travails are minor compared with Greece’s. While Greek debt has swollen to 180 percent of the economy, Ireland’s has dropped to about 107 percent from 123 percent in 2013,

“Compared to the problems Greece has, I would say Ireland never had any real problems,” Drakakis said. “We need to restructure the Greek state over 50 years.”

[Bloomberg]