Dromeus Turns Cautious On Greece

Mar 28 2013 | 11:16am ET

Dromeus Capital has earned its clients big returns as one of Greece's biggest cheerleaders. But the hedge fund fears things may be moving too far, too fast in its home country.

The firm has pulled back somewhat from Greece, increasing its cash balances for the first time since its debut six months ago. It's bullish attitude towards Greece has been a boon to investors, with Dromeus returning more than 50% since inception.

"Greek asset prices have been through a tremendous rally over the last three quarters, but future prospects increasingly depend on budget execution and output recovery, and we have doubts on both," founder Achilles Risvas said.

For instance, Dromeus is not sanguine that the Greek economy will shrink only by the 4.2% called for in the official forecast.

"There is no hard evidence that the economy is bottoming out," analyst Nektarios Papagiannakopolous said. "Our model shows that there is a strong chance Greece will not deliver its primary surplus this year as tax revenues will be weaker than projected."

Risvas said that budget gap would be between €2 billion and €4 billion.

"Markets have celebrated the news on the primary surplus, but we are concerned the ordinary budget forecasts are going to miss indirect and direct revenue expectations as well as social security costs," he explained.

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