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Greenlight Re: Death Of Value Investing?

Jul. 03, 2018 7:14 AM ETGLRE6 Comments
Panther Investments profile picture
Panther Investments


  • Greenlight Re is a bet on a value investing strategy returning to historical performance.
  • The investment portfolio, combined with its 1.7x leverage, has produced a sharp YTD drop in book value.
  • If the rally in the FANG stocks continues, there is a risk GLRE could come under pressure from regulators and / or ratings agencies.

Much has been written about the death of value investing of late; The investment strategy pioneered by Warren Buffett is in crisis. Additionally, there has been much discussion of the recent under-performance seen by Greenlight Capital (one of the most well known value investors): What Exactly Happened to David Einhorn?.

On Friday, Greenlight Re reported its investment returns for June 2018 and after what some hoped was the start of a recovery in May has made a turn for the worse: the investment portfolio was down 5.8% percent in June vs. 0.1% for the S&P 500 and 0.6% for the IWM. For the year, the portfolio is now down 15.2% vs. 1.7% for the S&P 500 and 7.4% for the IWM (YTD returns through 6/30/18, exclusive of dividends).

Source: GLRE Investment Returns

It's also important to note that GLRE's investment portfolio is levered ~1.7x on its equity so the 15.2% decline in the investment portfolio actually translates to a book value decline of ~26% for the year. This is a pretty stunning figure given the market is effectively flat to up on the year - this type of negative result in a fairly benign market environment is pretty alarming, especially in a levered insurance company.

Judging by the latest performance figures, it may be time to start wondering at what point GLRE risks an extinction level event. Probably the first rule of running an insurance business is asset liability matching and ensuring it holds in different scenarios: said another way, you want to ensure you assets are positioned properly such that they turn into cash when you need it to pay claims. In my opinion, GLRE has some of the worst ALM positioning I've seen even in a scenario where Greenlight is ultimately vindicated and the infamous "bubble basket" it has been betting against corrects, it may be a

This article was written by

Panther Investments profile picture
Investment ProfessionalFocused on Event-Driven / Special Situations Investments as well as some Growth at a Reasonable Pricehttps://twitter.com/PantherInvestm1

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (6)

idkmybffjill profile picture
His longs haven't been very great either. If continuing to buy sucky long's is part of "reversion to the mean," count me out!
Thomas Niel profile picture
Interesting how by the time these hedge-fund affiliated reinsurance vehicles (Third Point, Greenlight, etc.) were set up, the superstar managers behind them had grown so large/market has gotten so tough to beat that they can't capitalize on what should be (in theory) a solid tax-deferred compounding strategy. It's like what they say-you can't avoid/defer taxes if you don't make any money!

The reforms included in the TCJA (liabilities must exceed 25% of assets to continue avoiding PFIC treatment) doesn't help GLRE either; they could underwrite more at a loss to keep things humming, but in that situation you are shorting "mother nature" while giving her the house edge.
Brian Harper, CFA profile picture
Since Einhorn tried to buy the Mets 7 years ago, he has compounded at under 1% per year. I think it's a reasonable rule of thumb that you fire an investment manager the minute they try to buy a sports team.
Ian Bezek profile picture
Great article. Shorting a bubble basket using insurance float does not seem like the soundest of investment strategies. It's been fascinating watching how the various investing stars made during the GFC have performed since then.
Probably front running and massive risk taking led to a once in a lifetime homerun....
Equanimity Investing profile picture
A divorce doesn't help in the decision making process either. Emotions = investment death.
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