David Einhorn Hedges Greenlight Re’s Portfolio as Fiscal Cliff Looms

David Einhorn Hedges Greenlight Re's Portfolio as Fiscal Cliff Looms


Greenlight RE recently announced third quarter results. Greenlight Capital Re, Ltd. (Greenlight Capital Re), is a holding company. Greenlight Capital Re, Ltd. (NASDAQ:GLRE) is a casualty reinsurer and global specialist property. The Company conducts its reinsurance operations through two entities: Greenlight Reinsurance Ireland, Ltd. (GRIL), based in Ireland and Greenlight Reinsurance, Ltd. (Greenlight Re) based in the Cayman Islands.

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We have obtained a transcript of the conference call, below is David Einhorn’s comments on the quarterly call (readers will note many similarities between Einhorn’s comments on the call, and Einhorn’s comments in Greenlight Capital’sthird quarter letter).

David Einhorn – Greenlight Capital Re, Ltd. (NASDAQ:GLRE) – Chairman

The Greenlight Re investment portfolio was up 8.8% in the third quarter of 2012 bringing our 2012 return for the first nine months to
12.1%. Our long portfolio, led by Apple, Arkema SA (EPA:AKE), [Gold], Seagate Technology PLC (NASDAQ:STX) and Sprint Nextel Corporation (NYSE:S), gained over twice as much as the S&P’s 6.4% return. Our short portfolio lost less than 1% and generated positive alpha as we had one undisclosed short equity position which made a material contribution to the quarterly return. An undisclosed macro position was the only loser of consequence in the quarter.

In 2012, the prices of stocks have more closely reflected the fundamental results of the underlying businesses. We’ve been fortunate to have captured most of the market return with an average net exposure of about 37% through the course of the year. Despite rising markets, which have been supported by the various Central Bank monetary policies of continual printing, we are concerned about several headwinds which conclude an economic slowdown in Europe, Japan and China, a rise in key commodity prices including food and energy, and a slight deterioration in corporate earnings growth.

During the quarter we cut our net exposure in half and we ended the September more conservatively positioned at 26% net long. Our gross short exposure increased from 53% to 70% and we had a modest decrease in our gross long exposure as we took some profits in the rising market.

I recently shared my thesis about long positions in both CIGNA Corporation (NYSE:CI) and General Motors Company (NYSE:GM) at the Value Investing Congress on October 2nd. I also updated my thinking on our short position in Green Mountain Coffee Roasters Inc. (NASDAQ:GMCR) and discussed the challenges facing Chipotle Mexican Grill, Inc. (NYSE:CMG). Later on in the month, I spoke about the challenges facing the iron ore market and the companies in the iron ore ecosystem.

We continue to closely watch the actions of the Central Bankers and maintain a sizable position in physical gold as well as other asymmetric risk/reward macro hedges to help protect against potential negative ramifications of desperate monetary policies, the tenuous fiscal position of many countries, and the risks associated with the coming US election and fiscal cliff in early 2013.

I just returned from our quarterly board meeting in Cayman. The team is energized and the current portfolio is sensible given the continuing soft market. We did not grow our premiums much over the last year which reflects the existing opportunity set. Our commercial auto liability contracts have been frustrating and I agree with Bart that we need to do better. I believe that we have learned much from this experience.