Greenlight Masters Up 10% For 2012; Third Point On, Pershing Gone?

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Greenlight Masters Up 10% For 2012; Third Point On, Pershing Gone?

Greenlight Capital’s fund of funds (FOF), Greenlight Masters returned in the range of 9.5-9.8 percent in 2012. According to a shareholder letter David Einhorn’s hedge fund of funds added investments in two more funds in last year (Mangrove Partners and Sessa Capital) and all of the invested funds returned positive except one (JMB Capital).

Notably we did not find Pershing Square in the list of Greenlight Masters’ largest allocations. Bill Ackman’s Pershing Square was one of the largest external allocations of the FoF, according to a 2Q2011 obtained by ValueWalk. However in the most recent breakup of asset allocation, there is no sign of Pershing, instead Lakewood Asset Management and North Run Capital take position in the top five allocations. In 2012, the top five external profit contributions came from East Bridge, North Run, Third Point, Firefly Value Partners and Philadelphia Financial.

Investment in North Run was profitable due to a number of buyouts announced in its top positions, Jda Software Group Inc (NASDAQ:JDAS) and PSS World Medical, Inc. (NASDAQ:PSSI). Third Point benefited from many opportunities in the eurozone, especially distressed debt.

Interestingly, Greenlight Capital’s own portfolio  lost from the rally in European sovereign debt while Greek government debt was Third Point’s star winning position in 2012. Firefly’s profits were also up in last year and the future looks good with the fund’s short positions in the phone directory businesses. India-focused hedge fund, East Bridge profited from their long bet on United Spirits Limited (BOM:532432)  which received a bid from Diageo plc (NYSE:DEO) (LON:DGE) in last year.

Pershing Square underperfomed in 2011 (-2 percent, that could be a reason for Greenlight’s ditching it) but then who didn’t. Third Point, on which Greenlight Masters’s managers showered praises in the most recent investor letter, was also down in 2011.

Dan Loeb’s flagship fund Offshore was down -0.1 percent and Ultra  lost -2.2 percent in 2011. Could it be that Einhorn is not too psyched by Ackman’s $1 billion bet on Herbalife’s downfall.  Although Einhorn has himself shorted and profited from the stock at some point in last year but he has since exited the position.

Does he see the huge position in Herbalife Ltd. (NYSE:HLF) as a big risk, one that his FoF is not willing to take? When asked in the latest Greenlight Capital shareholder meeting if he would comment on the nutritional supplements company, he said he did not want to tussle with either Bill Ackman or Dan Loeb (or Carl Icahn for that matter, like anybody would want that after the latest showdown of civility on CNBC).

It is entirely possible that allocations in Bill Ackman’s hedge fund were reduced for other reasons or before Bill Ackman even made his ‘big short’ public. Here is why it could have been for other reasons, there was too little time between Ackman’s presentation at Ira Sohn conference and the end of year for Einhorn to turnover the Masters’ portfolio, moreover the portfolio said goodbye to another fund, Hylas Capital in December and the letter mentions this event so if Pershing Square exited the portfolio in Q4, it was worth a mention at least.

Whatever the story is, the fact is that Einhorn is indirectly long Herbalife for now, thanks to Loeb’s 8.2 percent stake in Herbalife Ltd. (NYSE:HLF). We have to wait and see whether this bet plays out in his favor or not.

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