BOSTON, Feb 2 (Reuters) - Hedge fund titan Paul Singer blamed government policies for encouraging traders to make concentrated bets in "overpriced" securities and markets and said it is "nutty" to hold bonds at their current high levels.
Singer, who founded the $25 billion Elliott Management Corp, has long railed against government and central bank policies, blaming years of low interest rates for pushing markets to unjustified highs and pushing the work of structural reforms down the road.
"Today's trading levels of stocks and bonds reflect 'thumb on the scale' valuations driven by persistent and massive government asset purchases and zero percent (or lower!) short-term policy rates, as well as an essentially unlimited tolerance for risk on the part of large segments of the international investing community," Singer's hedge fund Elliott Associates wrote to clients in a letter seen by Reuters.
"We think it is actually quite nutty to continue holding long-term developed-world government bonds at current levels," said the letter, dated Jan. 30.
Last year the firm's Elliott Associates LP fund gained 8.2 percent, beating the average hedge fund's 3 percent gain. Distressed securities helped the portfolio but fixed-income arbitrage hurt. The firm did not give a return for January, when many hedge funds were likely hurt by the rising Swiss franc, fresh concerns about Greece and a dip in U.S. stocks.
While Singer called bond prices too rich, he warned that his firm needs to make money and the risk of taking iconoclastic views could result in being bloodied.
"We believe strongly that today's prices and yields are extreme and unsustainable, but our wish not to be run over trumps our view that long-term bonds are overvalued," the letter said.
Looking ahead, the firm said it likes a handful of event arbitrage trades "that seem reasonably attractive," but warned that governments could make up "rules to suit their ideologies rather than following law and precedent."
Last year a planned merger between Shire and AbbVie Inc was scuttled when the Obama administration signaled plans to crack down on so-called inversion trades where companies try to take advantage of lower tax rates abroad.
Singer also criticized governments and central bankers anew for failing to address structural problems.
Europe's recently announced quantitative easing program, for example, is unlikely to solve the region's economic problems but could have "large negative repercussions" it if triggers a general loss of confidence, the letter said.
Editing by Matthew Lewis