| Willem (Hans) Humes, Greylock Capital |
Willem (Hans) Humes, the chairman and CEO of Greylock Capital Management, specializes in turnaround situations. Two years ago he bought Greek debt at less than 20 cents on the dollar and earned double-digit returns; today he thinks there is still plenty of turnaround potential in Greece, although it will require patience. Most recently Humes has found opportunity in Greek bank warrants, which give the holder the right to acquire shares at a set price in the future. “I hope we’ve seen the trough,” he said at a panel at a Greek Investment Forum hosted by the Athens Exchange Group and the American-Hellenic Chamber of Commerce in New York on Wednesday. “We’ve seen improvements and cost cutting across the board in the banking sector.” Greylock has earned 120 percent on warrants from Alpha Bank in the past year and 140 percent on warrants from Piraeus Bank since December, he said.
Humes, 49, started his career trading sovereign debt for the Philippines and Yugoslavia. Since founding New York-based Greylock in 1997, he has been a presence on almost every emerging market debt restructuring committee in the world, as well as on the committee that restructured Greece’s sovereign debt. Greylock is a relatively small hedge fund manager, with about $850 million in assets, but Humes’ ability to scope out when a country’s debt and capital markets have hit bottom have served it well. The flagship Greylock Global Opportunity Fund has had only one down year since its inception, and that year was 2008. He was at the Greek Investment Forum to talk about where the turnaround opportunities in Greece are now — and that he did. But he’s also keeping an eye on what he thinks might be the next debt crisis, and it’s a long way from southern Europe.
“We recognized that something was going on [with Greece] in 2009, and by 2010 it was obvious what was going on,” says Humes. “Let’s not kid ourselves about where there is too much expansion of credit now — it’s in Brazil and China.”
If there is a blowup in either Brazil or China, Humes will likely buy the sovereign debt when the price hits rock bottom, then profit from any rise in price. That strategy helped the Greylock Global Opportunity Fund earn a stunning 93.22 percent in 2009, partly from Argentine warrants, and 33.5 percent in 2012, fueled to a large extent by Venezuelan and Greek bonds. Earnings in the last two years have been more modest: 4.65 percent this year through April and 5.08 percent in 2013.
But Humes thinks Greece has more to offer. The countries formerly known as the PIIGS (Portugal, Italy, Ireland, Greece, Spain) are no longer on the verge of default; they began to pull out of the danger zone after the European Central Bank announced a policy in 2012 to make liberal purchases of Eurozone sovereign bonds. Greece went back into the Euro bond market in April 2014, with an issue of $4.1 billion in five-year bonds that had yields below market expectations, at 4.95 per cent, and was seven times oversubscribed.
All of the peripheral countries now have fairly low yields. Humes said it has never been in the interests of the EU, the ECB, or any government entity to let Greece blow up, and all of the EU peripherals are probably too important to fail. But Humes said Greece is a better bet than, say, Portugal, because of the popular Eurobonds.
“The trick going forward is that Greece needs a diverse economy,” Humes said while speaking on the panel. “You have to hope there will be a real effort to jump start privatization.” That was a hope that nearly all speakers at the forum expressed: that Greece needs to give a big push to such industries as energy, chemicals, pharmaceuticals, technology hospitality and real estate.
Meanwhile collateralized debt obligations on Greece are trading again, though not heavily, at least in part because the EU has a ban on what it calls “speculative positions” in sovereign debt. Humes wouldn’t go that route anyway.
“Credit default swaps are stupid,” he says. Spoken like a man who has made his money by waiting until the debt hits bottom then helping it come back up, rather than betting on default.
