Greenlight Capital Is Dead, Long Live Einhorn

David Einhorn, Greenlight Capital founder, manages some $10 billion, having started out with just $900,000, half of which was borrowed from his parents. Greenlight is now a mammoth in the industry and is particularly famous for some timely shorts, including the Lehman Brothers short in mid-2007. With that, the fund has managed to generate 20% annualized returns since inception in 1996. I have a feeling that be about to change.

The current market have not been kind to Einhorn.

His big bet on gold, to take advantage of quantitative easing, hasn’t worked out, to say the least. The trade started out profitable enough and has since gone to hell in a handbasket.

If only that were it. There’s a number of other dark spots in Einhorn’s portfolio, all of which, I would argue, are somewhat commoditized companies. The semiconductor devices company, Micron Tech, and coal company, Consol Energy, are leading losers.

Last month was the second worst monthly performance we’ve seen from Greenlight since October 2008.

Now, back then, Greenlight rebounded to generate massive gains. Einhorn, once the specialist in shorting weak financial firms, is a bit out of his league with gold and energy. Greenlight’s concentrated equity portfolio has only further added to the pain - with its top five holdings making up 40% of the long-only part of the fund.

His largest long bet is on Apple, a company I’m not a huge fan of. His second biggest position is SunEdison [previous thoughts here], which looks like a heck of a value trap. However, Einhorn added to Micron and Consol Energy [Einhorn’s Consol thesis here] last quarter. General Motors and Time Warner are a couple big companies that are among his biggest holdings. Other notable holdings Einhorn has been adding to include Bank of New York Mellon (an activist target), Applied Materials and Michael Kors.

Now, something that Einhorn took a lot of flack for is his short Pioneer Resources thesis, which he called the “mother fracker” at the Sohn Investment Conference [Sohn recap here]. On the other side of that trade is Seth Klarman [Klarman’s performance is also hurting], who has a $500 million bet on Pioneer. Pioneer shares are down 25% since Sohn. 

Many people call Einhorn an activist, but he’s far from it. Einhorn has filed four 13Ds, two in 2007 and two within the last two years. The most recent ones being Civeo and CNX Coal Resources - both the result of spinoffs of other holdings of his.  

The writing was on the wall - Near the start of 2015, Greenlight was ranked 53rd out of 58 hedge funds, with a D grade, in the Institutional Investor’s Alpha Hedge Fund Report Card. Einhorn's portfolio looks to be one the best value traps among major funds.  

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