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Can Einhorn’s Greenlight Keep Outperforming after a Dismal 2018?

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David Einhorn’s Greenlight Capital

While 2018 wasn’t a good year for hedge funds in general, it turned out to be the worst on record for David Einhorn’s Greenlight Capital (GLRE)Vastly underperforming the broader markets, the fund lost 34% in 2018—the worst year in its 22-year history.

In comparison, the S&P 500 Index (SPY), the NASDAQ Composite Index (QQQ), and the Dow Jones Industrial Average (DIA) saw returns of -6.3%, -1.0%, and -5.7%, respectively.

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Peer performance

Among Greenlight’s peers, Third Point fell 11.3% in 2018, and Bill Ackman’s Pershing Square outperformed the broader markets with a loss of just 0.7% in the year. In contrast to most other funds, Ray Dalio’s Bridgewater flagship fund, Pure Alpha, posted a gain of 14.6% in 2018. Read How Ray Dalio Beat the Market and Peers in 2018 for more on the fund’s outperformance in 2018.

Huge redemptions

Due to poor performance, Greenlight Capital was hit by huge investor redemptions in 2018. The fund’s assets under management were under $2.5 billion at the beginning of 2019 compared to $12 billion in 2014 and $5.5 billion in the middle of 2018. Greenlight Capital is now focusing on fewer names with high conviction. During Greenlight’s fourth-quarter earnings conference call, Einhorn said, “We entered 2019 with a portfolio consisting of fewer names than it did a year ago, but one that is more concentrated in our highest conviction investments.” In January, the fund’s performance rebounded with gains of 13.4%, outperforming the broader markets.

In this series, we’ll discuss Greenlight’s high-conviction bets and try to gauge its outlook. We’ll also analyze some of the comments made by Einhorn regarding these names.

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