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Einhorn’s Greenlight Continues to Lag Market

David Einhorn’s Greenlight Capital continues to struggle this year. The hedge fund manager, who ran nearly $7.9 billion at year-end, did not fully participate in the stock market’s surge in the second half of April.

David Einhorn’s Greenlight Capital continues to struggle this year. The hedge fund manager, who ran nearly $7.9 billion at year-end, did not fully participate in the stock market’s surge in the second half of April.

Einhorn was only up 0.8 percent for the month and is still down by 2.6 percent for the year, according to disclosures made by Greenlight Re, a Bermuda-based reinsurance company of which Einhorn is chairman. The insurance company says investment returns are based on the total assets in its investment account, which are managed by DME Advisors, LP and include the majority of its equity capital and collected premiums.

The S&P 500 was up 2.85 percent in April and is up 8.43 percent for the first four months this year.

Einhorn is president of Greenlight Capital, which he co-founded in January 1996, and senior managing member of DME Advisors, LP. Greenlight Capital and DME Advisors are affiliates of Greenlight Re.

At the end of April, Einhorn’s largest disclosed long positions in his investment portfolio were Arkema, Delta Lloyd, gold, Pfizer and Vodafone Group. All but Delta Lloyd have been his largest positions for several quarters.

Keep in mind that Einhorn has been fairly hedged for awhile. At year-end, he was 101 percent long and 75 percent short. In his year-end letter, Einhorn expressed skepticism that Federal Reserve chairman Ben Bernanke can pump up the economy without causing a rise in inflation,. “As for the future, we’re 100 percent certain of nothing,” Einhorn told clients at the time. “The good news is that our job is not to know the future but rather to understand that it is uncertain and to construct a portfolio that should generate attractive results under a wide variety of outcomes.”

In an April letter to clients discussing first quarter results, Einhorn asserted that fears of quantitative easing would be a net harm to economic activity appear to be playing out. He noted that food, energy and healthcare costs were rising for consumers.

“While Chairman Bernanke claims that quantitative easing has succeeded in raising stock prices, it seems that equities have gone up for the opposite reason he proposed,” Einhorn wrote. He explained that Bernanke reasoned that Fed purchases of bonds would drive up their prices and lower interest rates, making housing and equities more attractive. This would cause individuals to buy houses and stocks.

However, he argued the opposite has occurred, as inflation-fearing individuals have sold bonds, causing rates to rise, thus scaring away potential homebuyers. “A key question for the remainder of 2011 will be how consumers react to higher prices and how much of the cost pressure in the supply chain will be absorbed by the corporate sector,” Einhorn added.

This said Einhorn established three new positions in the first quarter: Best Buy, Delphi Automotive and Yahoo. His average exposure to equities and fixed income was 106 percent and 68 percent short.

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