By Jemima Kelly and Patrick Graham
LONDON (Reuters) - Hedge funds, whose speculating contributed to the pound's devaluation in 1992, have yet to make major bets on Britain leaving the European Union because few expect it to happen and most doubt a big payout from market moves around the June vote.
Asset managers and hedge fund desks at major banks contacted by Reuters said "tail risk" funds which bet on major financial events such as the euro zone's debt crisis or the global credit crash think the risk of a pound meltdown is just too small.
And many of the shorter-term day-to-day speculators appear to have missed the bulk of this year's 9 percent drop and do not see a 'big short' on the pound as worth the risk, they said.
"It's not a high-quality exposure to have on," said GAM portfolio manager Anthony Lawler in London, who invests about $25 billion in hedge funds. "People don't think Brexit will happen, first of all, and now the price of sterling has fallen and the price of an implied volatility option is high."
Most bookmakers - watched more closely than opinion polls in financial markets after calling a series of major political events in the past decade more accurately - show only a 1 in 3 chance of a British vote to leave the EU on June 23.
But even if that does happen, hedge fund managers say the uncertainty over the aftermath is too high to make a large "short" sterling position - a bet that the currency will fall - in the run-up or immediately after the vote an attractive play.
Some even reckon the euro currency may fare worse over the long term if Britons vote to leave the wider 28-nation EU bloc.
"The big funds have been fairly uninvolved in the Brexit trade," said the European head of hedge fund sales at one of the top 10 currency trading bank.
"There has been interest, but most have not participated in the (sterling) move from $1.50 to $1.40," he added. "It already looks too pricey for them to make the jump."
The pound <=GBP> has just put in its worst three-month performance since the depths of the financial crisis seven years ago, losing almost 9 percent against a basket of currencies since the start of December on Brexit worries and as investors pushed back their bets on a rise in interest rates.
Against the dollar, sterling hit seven-year lows this week, within 3 cents of lows last seen when it was en route to a 1-for-1 exchange rate (parity) with the dollar in the mid-1980s .
Speculators reduced net bets for a weaker British pound to their lowest in six weeks in the week up to last Tuesday, during which time the pound tumbled over 2.5 percent, data on Friday showed, suggesting hedge funds played no major part in that fall.
Most macro hedge fund managers, who can take long or short positions on a range of assets based on macroeconomics, do not think the risk/reward ratio of shorting sterling is skewed in their favour.
COSTLY TO HEDGE
The currency market's number four bank, UBS, this week predicted sterling might fall to parity with the euro in the aftermath of an "Out" vote. Several other banks - including Citi, HSBC and Goldman Sachs - have all said the pound could lose up to 20 percent of its value on a Brexit.
However, investors say currency options - derivatives which provide for payouts under a variety of future conditions - which are the natural place to bet cheaply on big falls in sterling, have become too expensive.
The difficulty is that overseas companies and big institutional investors with UK share portfolios are buying the same options to protect themselves against a sterling collapse.
That has driven the price of options that allow investors to hedge against further big falls in sterling against the dollar over the next six months to a 4-1/2-year high of over 13 percent.
"The risk premium priced across the curve is quite significant and that has left lots of people thinking it is too expensive," said the head of FX sales with one of London's top six banks. "The majority of the flow (has been) dominated by slower moving accounts like real money and corporates."
Equity portfolio managers who already have exposure to sterling through their stock holdings are being forced to take a view which is, largely, that sterling is likely to be weak in the run-up to the referendum.
London-based Liontrust Macro Fund manager Stephen Bailey, who invests in equities from a fundamental view point, has increased the proportion of U.S. stocks that he invests in to the maximum 20 percent that the fund allows, effectively backing the dollar against the pound.
Others think a short euro position is more attractive, arguing that Britain's debate could encourage eurosceptic parties in other EU states, including those using the euro.
"If the market takes a risk-negative view on Europe based on the political dynamic it will suit our portfolio," said Omni Macro Fund portfolio manager Christopher Morrison.
"In this instance, we are not short the euro but following the political developments in the euro is of more interest than Brexit."
(Additional reporting by Maiya Keidan; editing by Anna Willard)