Hedge Funds Scramble in Face of Eurozone Break

February 5, 2012 James Heinsman Economic Barometer

As concerns of a breaking Eurozone heighten, hedge funds are scrambling to protect themselves in the face of what may be an unprecedented downfall.

Though the prospect of countries detaching from the Eurozone seems unlikely, negotiations and talks have shown little or no results as governments become more and more desperate. Hedge fund are trying to come up with flexible strategies for scenarios such as a 50% fall in European stocks, 45% slide in oil prices, etc.

Many have already cut back on risks and are flocking to credit default trades, while others are digging through their records to learn about older European currencies.

“You can’t conceive what this event will be like, but it doesn’t absolve you of looking at it,” the chief risk officer of a hedge fund said, asking to remain anonymous.

“People are asking the questions: ‘Do I have the historical records on how things worked when there was a deutschmark?,’ and ‘Did I throw away those computer programs?’.

Mark Wightman of SunGard Asia-Pacific explained: “Anyone who’s a chief risk officer is running these scenarios—say if the euro falls 15%, stocks fall 25%, if the possibility of default increases, what if recovery rates fall, which prime brokers, administrators get hit?

“The scenarios are getting quite complicated and people are starting looking at correlation between the things to understand the likely impact.”

EU, European Debt Crisis, Eurozone Break, Eurozone Separation, Hedge Funds,

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