Einhorn Stresses His Frustration While Sticking to Value Wagers

(Bloomberg) -- Hedge fund manager David Einhorn reiterated his disappointment with his firm’s performance this year, while affirming his commitment to value-investing.

“This has been a frustrating environment for us and for value investing styles,” Einhorn said Thursday on an earnings call for Greenlight Capital Re Ltd., the Cayman Islands-based reinsurer where he is chairman. “The market is cyclical and given the extreme anomaly, reversion to the mean should happen sooner rather than later, we just can’t say when.”

Greenlight’s main fund lost 0.3 percent in July, bringing the decline for the year’s first seven months to about 19 percent, the firm said in a letter to clients. Einhorn said in a separate July 31 letter that while the firm’s results for the second quarter were “far worse than we could have imagined,” he won’t be backing down.

“We have been accused of being stubborn, but one person’s stubbornness is another person’s discipline,” he wrote Tuesday. “We will continue to be disciplined.”

His value-investing strategy has under-performed the U.S. stock market, with the S&P 500 Index returning 6.5 percent this year through Tuesday, including reinvested dividends. The HFRX Global Hedge Fund Index, an early indicator of industry performance, was down about 1 percent as of July 30. Hedge Fund Research’s Fundamental Value Index, which measures value strategies among equity hedge funds, gained about 1 percent in the first half of the year.

Einhorn, who founded the New York-based firm in 1996, saw his worst start to a year on record in the first half of 2018. With the exception of May, the hedge fund manager has lost money every month this year. Wagers against a “bubble basket” of companies including Netflix Inc. and Amazon.com Inc. have backfired, while on the long side four of his five biggest U.S. equity holdings as of March. 31 are down on the year.

“Right now the market is telling us we are wrong, wrong, wrong about nearly everything,” Einhorn wrote in Tuesday’s letter. “And yet, looking forward from today we think this portfolio makes a lot of sense.”

His losses for this year bring the decline for Greenlight since the end of 2014 to roughly 28 percent, one of the worst showings among his peers. Investors have bolted, pulling almost $3 billion out of the firm in the last two years, Bloomberg reported in May. At $5.5 billion, Einhorn’s assets were less than half of where they were at their peak.

The share price for General Motors Co. -- which Einhorn said Wednesday remains his highest-conviction long position -- is another frustration. Markets haven’t paid enough attention to what Greenlight sees as good news: a restructuring of the company’s Korean operation, the retirement of the chief financial officer, and most importantly, an investment from SoftBank Group Corp. in its autonomous driving unit, Cruise Automation. Greenlight slightly reduced its holding of the company when shares rallied in June on the back of that transaction, he said.

The billionaire said Tuesday that he was happy the lease on his Tesla Model S sedan had ended, citing worsening problems with its touch screen and power windows. In addition, the carmaker’s shares surged 29 percent last quarter, making Einhorn’s short the second-biggest loser for his fund.

He described Tesla Inc. Chairman Elon Musk’s behavior over the quarter as “erratic and desperate” and noted the company’s production problems. “We doubt the entry-level Model 3 will be produced profitably anytime soon, if ever,” he said.

At the end of the second quarter, Greenlight’s largest disclosed long positions were Bayer AG, Brighthouse Financial Inc., CNX Resources Corp., GM and gold.

--With assistance from Simone Foxman.

To contact the reporter on this story: Katia Porzecanski in New York at kporzecansk1@bloomberg.net

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Vincent Bielski

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