Greek Debt Buoys Third Point In Sept.

Oct 8 2012 | 11:49am ET

The Greek debt crisis may once have looked like an impending global catastrophe—but it isn't anymore, according to Dan Loeb, and his investors are profiting from that fact.

Loeb's Third Point has built up its holdings of Greek debt to such an extent that they are now among the hedge fund's top five holdings, Reuters reports. Third Point also more broadly increased its holdings of European credit in July and August, and it's paid off: Third Point's $5 billion flagship Offshore Fund rose 3.4% in September and is up 10.9% this year.

European Central Bank chief Mario Draghi's "campaign to save the euro began in late July, and reinforced our belief that the probability of a Greek default was probably overstated by the market," Loeb wrote in his quarterly letter to investors. He said the fund had bought up some Greek bonds for an average of 17 cents on the dollar. The bonds are now trading higher.

Loeb quoted the later rapper Tupac Shakur's "Keep Ya Heads Up" in the letter, noting that Shakur said he was "tryin' to make a dolla outta 15 cents."

"While we may not have achieved the over six-fold return that Mr. Shakur (Tupac) earned plying his trade, we believe the potential risk-adjusted return on [Greek bonds] is more favorable, particularly when adjusted for the risk of potential regulatory intervention he faced," Loeb wrote.

Loeb added that, in addition to Greek debt, Third Point profited from its bets on Ally Financial, gold and Yahoo!, while losing on American International Group and Enphase Energy.

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