Greenlight Capital

Ackman tries a new tack

Jim Kim — Tue, 07 Oct 2008 13:38:46 -0400

The world knows William Ackman as one of several big-name fund managers who bet against top financial institutions. He's got some new long investments now, notably Wachovia and AIG, reports TheDeal.com. He discussed both in a recent conference. He's now the 12th largest shareholder of AIG. And he owns a 7 percent stake in Wachovia. We'll see how these bets end up for him. All in all, he's not having that bad a year. Other hedge fund managers who took big stakes against financial services firms are faring much worse, notably David Einhorn at Greenlight Capital. Ackman's Pershing Square is actually up 2 percent for the year. Here's a list of top hedge funds and their performance this year.

For more:
- here's an article from TheDeal.com on Ackman

David Einhorn taking some hard lumps

Jim Kim — Mon, 06 Oct 2008 11:33:57 -0400

David Einhorn's stature soared when he laid a spectacularly winning short bet on Lehman Brothers--in full view of the world. But that glow has faded. Fortune notes that Einhorn's firm, Greenlight Capital, lost 11.5 percent in an offshore fund. Another of its funds is faring equally as bad. He's certainly not the only hedge fund manager to take some lumps in this credit crunch. The fact is that, despite his reputation, Greenlight is not a short fund. It longs a whole lot of stuff that has apparently soured as of late. What really matters here is how fund investors react. You can bet Einhorn and others are working their clients hard right now. This is a time when all your investment in relationships can pay off. The worst thing that can happen is that they head for the doors at once.

For more:
- here's the Fortune article

How to grapple with short sellers?

Jim Kim — Thu, 17 Jul 2008 14:26:04 -0400

Short sellers, who seemed so out-of-favor just a few years ago, have had a great run recently. There certainly have been plenty of targets. The Financial Times raises a timely issue: How do you deal with short sellers if you have been targeted? Lehman Brothers took the let's-talk approach when Greenlight Capital decided to take its famous short position. But then-CFO Erin Callan, who has since decamped for Credit Suisse, couldn't answer some questions to the satisfaction of David Einhorn. The rest is history. But what's the alternative? Hiding behind Reg FD? You ignore the shorts at your peril. Most would likely agree that dialog is the preferred route. Of course, you cannot prepare too much. If your answers are rock solid, you might find an audience willing to close its position and move on. If they still do not get it, good luck. The FT notes one targeted company, Kinder Morgan, put its detailed budget online and mocked the shorts. It worked.

For more:
- here's the Financial Times article

David vs. Lehman

Jim Kim — Wed, 18 Jun 2008 07:31:05 -0400

One commentator is quite sure that David Einhorn of Greenlight Capital has covered his short Lehman Brothers positions. The question is whether he is now long? Article

David Einhorn: Wall Street rock star

Jim Kim — Tue, 17 Jun 2008 07:47:20 -0400

The head of Greenlight Capital has just been given the New York magazine treatment, which solidifies his rock-star status on Wall Street. David Einhorn should be careful, though, because fame is fleeting. This is a good time to pull out all the clichés, like the one about how the brightest stars, by the time they are visible to on earth, have already burned out in space. But at least he can boast solid performance numbers: a 25 percent average annual return over the 12 years Greenlight has been in business. He's also a decent bridge player who took up poker for fun--and won $660,000 at the 2006 World Series of Poker--the article notes. My take is that he's among a handful of managers who are pioneering a new, no-holds barred hedge fund style. It's a high stakes game. A wrong call could well get you indicted.

For more:
- here's the profile

Man in the spotlight: David Einhorn

Jim Kim — Fri, 06 Jun 2008 10:03:27 -0400

He's one of Lehman Brothers' highest profile critics, a man who has bet heavily against the firm. A real thorn in the firm's side, particularly for Erin Callan, Lehman's CFO. David Einhorn, 39, of hedge fund Greenlight Capital, has been making the media rounds with his analysis of Lehman Brothers. Of course, he has a lot to gain by creating uncertainty and doubt. Some think he's acting recklessly. In his mind, he's on the side of angels. He's certainly no stranger to this sort of media firestorm. He's got a book out by the way, "Fooling Some of the People All the Time." The SEC once took a look at his activity during his battle with Allied Capital. It's fair to say that his campaign, for better or worse, is working. There is a lot nervousness on the Street right now. One analysts says that counterparty worries have led some firms to reduce trading with the firm, notes MarketWatch. That my friends is ominous.

For more:
- here's Einhorn's latest appearance on CNBC
- here's the MarketWatch article

Shorting financials is in vogue

Jim Kim — Fri, 06 Jun 2008 07:50:25 -0400

In the aftermath of the Bear Stearns blowup, not everyone was sobbing in their beer. A handful of hedge funds--the likes of Paulson & Co., Harbinger Capital, and Greenlight Capital--made a pretty penny by shorting the company, notes Financial News Online. The irony is that some of these funds were said to be prime brokerage clients. Right now, there's a fair amount of betting against other financials. Put buying activity is said to be really heavy right now, according Financial News Online. Put option open interest in Lehman shares is up nearly 65 percent this year. Puts on other financial firms have also soared. Now is this betting or hedging? Likely a bit of both. This getting to be really dramatic.

For more:
- here's the Financial News Online article about hedge funds and Bear Stearns

Lehman to make early earnings announcement?

Jim Kim — Fri, 06 Jun 2008 07:50:00 -0400

Lehman Brothers is in a tough spot. Fairly or not, the shorts have gained the high ground in their war against the stock. Led by David Einhorn of Greenlight Capital, the bears have sown lots of doubt and confusion. The New York Post reports that the firm is considering moving up the date of its earnings announcement, from mid- to early June. The paper reports that the announcement--most expect a loss--will be coupled with an announcement of a rights offering to boost capital levels. This just just adds to the rich brew of uncertainty about the company, Clearly, it has been hunting for capital, scouring the globe. The firm is now in its "quiet period." It needs to come out swinging. But I am not sure what it could announce that would really quell things. You get the feeling that the shorts are getting to ready to close some positions.

For more:
- here's the Post article

Thoughts on the root of the crisis

Wed, 30 Apr 2008 06:59:59 -0400

There's been a good deal of hand-wringing about how the vaunted credit crunch we're now suffering through could have happened. It still boggles the mind that a firm like Bear Stearns could go belly up so quickly. A recent column in the New York Times discusses some comments by David Einhorn, of Greenlight Capital, at a recent Grant's Interest Rate Observer event.

Obviously, the top dogs running the top investment banks have incentive to jack up earnings. Like any other corporation, they feel a moral obligation to do this, as it will drive the stock price. That they were willing to use so much leverage to buy lots of securities that are a far cry from Treasury securities is the part that should be surprising. (Then again, the costs of such borrowing were really low.) In a sense, they seem to have taken the simple notion of diversity a bit too far.

On the one hand, it would seem absurd for one to consider high-risk debt, hybrid capital securities, and anything illiquid as part of your capital securing your entire portfolio. But if you diversify away the risk, it seems a lot more palatable. The ratings agencies used a similar line of thought when it rated all those lower CDOs tranches AAA. Obviously, the thinking didn't quite hold when the cards fell.

The Trillion Dollar Meltdown by Charles R. Morris lays the blame for the credit collapse at the feet of the Chicago School of economic thought and its near-cousin, the Modern Portfolio theory, both of which tout diversification as a bedrock principle. Wall Street is grounded in these ideas, which venerates the power of unfettered markets, for better or worse. This, in some ways, is an easy point to make, an easy criticism. Much harder would be to come up with an alternative paradigm.

All this is very big-think of course, and some will consider it of little practical import. Fair enough, but it's worthy of thought. - Jim