Dalio Will Lose on EU Bank `Big Short,' Algebris CEO Says

(Bloomberg) -- Billionaire Ray Dalio’s “big short” bet against Italian banks will cost him dearly, according to Algebris Investments Chief Executive Officer Davide Serra.

Serra, whose London-based firm oversaw 10 billion euros ($12 billion) as of September, said there’s “tremendous value” in the continent’s lenders, which will receive a “big margin expansion” once the European Central Bank starts normalizing policy and raising interest rates. “Profitability of Italian banks will go up strongly,” he said in a Bloomberg Television interview on Monday.

Dalio’s Bridgewater Associates, the world’s largest hedge-fund firm, has amassed a $22 billion bet against Europe’s biggest companies, including Italian bank Intesa Sanpaolo SpA. That lender’s shares have risen 4 percent since the start of October, the month that Bridgewater disclosed its short position, indicating Dalio’s firm may have lost money.

Algebris, on the other hand, has been betting on Italy’s lenders, with 20 percent of its assets under management invested into bank equity and credit in the nation as of September. Its holdings included UniCredit SpA, Intesa Sanpaolo and Banco BPM SpA, Serra said at the time.

The Algebris Financial Credit Fund, the firm’s largest money pool with about 5 billion euros, gained 10.3 percent last year and was up 1.6 percent in January, according to a letter to investors seen by Bloomberg. A spokeswoman for the investment firm confirmed the figures.

Hedge funds gained 8.6 percent on average in 2017, according to Hedge Fund Research Inc.

As for Italy’s prospects more generally, the nation’s economic reforms are already paying off, with growth finally returning, according to Serra. He said the upcoming elections won’t be disruptive to markets.

--With assistance from Sonia Sirletti Francine Lacqua and Nishant Kumar

To contact the reporters on this story: Steven Arons in Frankfurt at sarons@bloomberg.net, Gavin Finch in London at gfinch@bloomberg.net.

To contact the editors responsible for this story: Neil Callanan at ncallanan@bloomberg.net, Paul Armstrong, Elisa Martinuzzi

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