The coup de grace
Roxane McMeeken met with John Kyriakopoulos, the man whose huge bet on Greek bonds paid off dramatically for the country’s largest pension institution
For a man who says he has just been sacked, John Kyriakopoulos is in a remarkably good mood. IPE met the ebullient former managing director of the Hellenic Pension Mutual Fund Management Company (HPMF) on a sunny day in Athens to find out what went wrong and what’s next for him and Greece.
In January, IPE reported, thanks to a daring allocation to Greek government bonds, that HPMF almost doubled its assets under management in six months. Kyriakopoulos, the man behind the performance, says he was fired one month later, at the end of February.
HPMF, which manages pooled funds exclusively for Greek state retirement schemes, had seen its assets under management slump from €496m in January 2012 to €384m at the end of June. Then, as at 23 January 2013, assets had leapt to €674.6m.
Kyriakopoulos told IPE in January that the dramatic turnaround was down to a “huge bet” on Greek sovereign bonds. The fund suffered losses in the write-down of Greek government debt on 12 March 2012 but then in July started buying the new Greek bond strip, which was then at between 13% and 24% net present value and has since risen considerably, to 54% at the time of writing.
When we meet in Athens’ upmarket Kolonaki district, the tall, sun-tanned Kyriakopoulos was all smiles, despite the circumstances. He says almost immediately that after his investment decision paid off, he expected to be treated “like hero”. Instead, he claims he lost his job as a direct result of the bond investment which, he says, the management board saw as too risky.
HPMF declined to comment for this article, although it told IPE that Kyriakopoulos’ contract had expired. However, the decision not to renew it speaks for itself.
HMPF is in effect government-controlled. Although nominally a private company, the entity was set up in 2000 to manage money for three state pension schemes (IKA for general workers, OGA for agricultural works and OAEE for the self-employed) and the National Bank of Greece. Its board of directors is comprised of representatives of the four institutions as well as the government ministers for labour and the economy. The managing director of HPMF reports on its investment portfolio to the finance minister monthly.
Kyriakopoulos admits that the dramatic investment decision was “almost entirely my idea” and further, that the move, made at the height of the fears that Greece would leave the euro-zone, caused him – literally – to have sleepless nights.
But he is unrepentant: “Greece needs to take risks right now, it needs innovation.”
Greece’s strained, conservative and almost exclusively first pillar pension system requires bolder solutions, he says, “otherwise we will just continue to try to use salaries to pay pensions”.
He insists that his Greek sovereign bonds play was rational: “I made the decision to overweight Greek bonds because I believed Greece would stay in the euro. This was not due to any patriotic sentiments, it was an objective view, albeit combined with my local knowledge.”
This optimism goes some way to explaining why Kyriakopoulos may be bruised but remains essentially unbowed by recent events. He has started a new role with the US hotel group, Carlton, as executive vice-president of Greece, and continues to work as a self-employed lawyer.
This latter role is far from a sideline and continues to see Kyriakopoulos’s fate tied to Greek bonds. On 10 May, he was appointed to lead a class action by the union for Olympic Airlines workers, OSPA, against the National Bank of Greece. The law suit is on behalf of 2,900 workers who were made redundant in 2011. Their compensation deal, overseen by the National Bank of Greece and totalling €150m, comprised 70% Greek government bonds. The securities of course lost half of their value in the following year’s debt restructuring, known as public sector involvement (PSI).
Kyriakopoulos says: “We won’t win the right to repeal PSI because then everyone who lost money would have to be compensated but I believe we can prove negligence in selling the bonds to the public.”
Kyriakopoulos has other plans. He is bursting with ideas for attracting investors – above all from China – to Greece and particularly to the country’s tourist industry, but would not reveal them at this stage.
He is also encouraged by a law passed in April making it easier for mutual funds to operate. The law has lowered capital requirements and abolished the need for a mutual fund to be co-managed by either a bank or insurance company. In fact, Kyriakopoulos believes Greece is rapidly on the way to becoming “the [most] attractive country in the world for real estate investment funds.”
Why real estate in particular? The idea is based on the fact that even the ageing population of Europe presents an opportunity for Greece, says Kyriakopoulos. “Western societies are producing increasing numbers of ‘centennials’, who will live much beyond forecasted expectations, and will need an intensive healthcare system as well as elevated hospitality services, preferably provided in warmer climates within Europe. This will become a tremendous opportunity for the real estate sector of Greece, as well as a desperately-needed GDP stimulus.”
Kyriakopoulos is in the camp of commentators currently talking about Greece turning a corner. He says: “The light is at the end of the tunnel for Greece. We will have a primary surplus from the beginning of 2014, the stock market is going up and Greek post-haircut government bonds will reach face value soon – they are already above 50%.”
Kyriakopoulos adds that he believes the reforms taking place in Greece offer further hope.
He says the opening up key professions, such as accountants, engineers, lawyers and pharmacists, sweeping away fixed fees and limits on entering the professions, will encourage the competitiveness the economy needs.
He is also enthused by the privatisation programme, despite recent setbacks including only one bidder for the Greek gambling monopoly OPAP. Since the interview the programme suffered a further blow with the resignation of both its chief and a senior finance ministry official after they were charged with breach of duty in their former roles at state utility PPC.
As for Greece’s creaking pension system, Kyriakopoulos believes that further, much-needed reform will happen. “I believe that with the collapse of the already heavily dysfunctional ‘pay as you go’ system with all its anomalies of the last 30 years, the time has come for the second pillar to emerge.” Indeed, he expects long-discussed occupational pension funds to launch in 2014.
Back at HPMF, Kyriakopoulos has been replaced by Themistocles Hantzaridis, former head of asset management at the small Greek financial services firm Fortius Finance. However, HPMF’s performance is published daily on its website and Kyriakopoulos, as he cheerfully polishes off his gnocchi, says he is “still proud” of what he achieved there. Perhaps he will be better appreciated by his new employers.