Even as Greece struggles with it’s economy in the face of deep government spending cuts, some of the world’s leading hedge funds are putting money into the Greek banking sector in expectation of big potential returns.

Farallon Capital, York Capital Management, QVT Financial and Dromeus are among the hedge funds that are set to participate in the recapitalisation of the country’s banks.

The hedge funds are involved in GBP550 million (US$844 million) share issues from Greece’s lender Alpha Bank. According to few of the hedge fund managers, a wager on the country’s banks could prove even more lucrative than other bets.

Achilles Risvas, the managing partner of Dromeus said: "This is the mother of all recovery trades. The situation is hugely attractive because of the asymmetry of the pay-off."

The private sector investment in Alpha Bank is to be matched by an EUR4 billion cash injection by the EU-backed Hellenic Financial Stability Fund.

Although Greek authorities hope to repeat the success of Alpha Bank’s fundraising with other banks, hedge funds are more cautious. Some are looking at participating in the parallel Piraeus Bank recapitalisation. But the case may be different for the National Bank of Greece, a more likely candidate for near-total nationalisation.

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By GlobalData