My dad came in contact with Einhorn in the late 90's. Both were pushing for change at a small European paper company, Mercer International. It didn't take long for my dad to know Einhorn is shewd, honest and willing to ask management the right questions. Needless to say, he has been since been invested with Einhorn's hedge fund Greenlight Capital. I stumbled across Greenlight Re and after further investigation decided to invest.
The article below published by The Manual of Ideas although a bit of a sales piece does a good job of explaining why Greenlight is likely a good investment at these levels.
INVESTMENT THESIS — STRONG DOWNSIDE PROTECTION
An investment in Greenlight Capital Re (GLRE) should outperform the market in times both good and bad, due to David Einhorn’s superior investment skill and Greenlight’s strategy of selling stocks short in addition to buying them. We estimate fair value at $18-24 per share, based on the analysis presented in this report.
39-year-old David Einhorn has had phenomenal success managing Greenlight Capital (not the same legal entity as Greenlight Capital Re), a value-oriented hedge fund that has grown into a billion dollar firm from humble beginnings, with only $1 million in assets in 1996. While returns have suffered this year, we estimate that Greenlight has delivered an annualized return since inception, net of all fees and expenses, of more than 20%. This is an impressive feat considering that the fund navigated through both the bursting of the Internet bubble in 2001-02 and the ongoing U.S. credit contraction and recession. Also impressive is the fact that Einhorn achieved such returns while maintaining relatively low net exposure to equity markets, due to a strategy of buying undervalued stocks and selling short overvalued, mismanaged or downright fraudulent companies.
Greenlight Re went public in May 2007 as a publicly traded version of Einhorn’s hedge fund, with several enhancements:
- Tax-advantaged structure by virtue of Cayman Islands domicile, making Greenlight Re a pass-through vehicle for U.S. investors.
- Reinsurance underwriting should add value, an aspect that is unique to Greenlight Re as compared to Einhorn’s hedge fund. Underwriting is conservative, with significant unutilized capacity and most premiums related to frequency rather than severity business.
- Investors may sell their shares in the open market at any time, a liquidity benefit not available to hedge fund investors.
- Repurchases should accelerate growth of per-share value, as Greenlight Re may buy back stock at a discount in times of market distress. The Board authorized a two million-share buyback in August.
- Investors should benefit from price-to-book multiple expansion over time, as the market comes to appreciate Einhorn’s investment skill. This may allow investors buying at current prices and selling in the future to get paid for the discounted value of Einhorn’s “alpha.”
Einhorn is incentivized to grow shareholder value, as he owns 17% of Greenlight Re. He also has a track record of fair treatment of investors.
We judge Greenlight Re shares to have superior downside protection due to (1) their discount to book value, (2) Einhorn’s proven ability to generate investment outperformance, (3) a conservative underwriting posture, (4) an ability to repurchase shares below fair value, thereby limiting the downside and increasing future upside, and (5) an ability to go long as well as short in the stock market, enabling Greenlight to seize opportunities regardless of overall market direction.
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