tag:blogger.com,1999:blog-5389144729834496735.post8905066601088285727..comments2024-03-17T05:15:55.634-04:00Comments on The Brooklyn Investor: Greenlight 2012 ResultsUnknownnoreply@blogger.comBlogger25125tag:blogger.com,1999:blog-5389144729834496735.post-90841704198716389452013-03-01T21:48:41.887-05:002013-03-01T21:48:41.887-05:00Bjdubbs, care to elaborate on what you're sayi...Bjdubbs, care to elaborate on what you're saying about BRK buying its shares using subs? Have never come across that one before. Cogitatornoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-60326769209316452312013-02-25T12:03:40.368-05:002013-02-25T12:03:40.368-05:00Volatility is not risk for a true investor. Unless...Volatility is not risk for a true investor. Unless you are a day/week trader you should heavily discount the information the sharpe ratio provides. It's an vast academic oversimplification of risk.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-76558106030379135332013-02-22T17:48:21.041-05:002013-02-22T17:48:21.041-05:00Hi, thanks, that's a great summary of it.Hi, thanks, that's a great summary of it.kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-42634049412476069542013-02-22T17:16:14.770-05:002013-02-22T17:16:14.770-05:00I think this is related to what you are talking ab...I think this is related to what you are talking about with the discussion of 175% leverage. <br /><br />http://www.opalesque.tv/hedge-fund-videos/Joe_Taussig/1bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-36152869845570654112013-02-22T16:34:15.674-05:002013-02-22T16:34:15.674-05:00If you think about it, buying your own shares at 6...If you think about it, buying your own shares at 60% and selling at 120% is a guaranteed money machine. Schroeder's book talks about the "homeostatic" effect of the float and buying BRK's own shares via the subs. Thanks for tolerating my hijack of the thread. bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-23937591471023055472013-02-22T16:26:38.692-05:002013-02-22T16:26:38.692-05:00Hi,
I am not aware of BRK buying back their own ...Hi, <br /><br />I am not aware of BRK buying back their own shares and that being part of their success... <br /><br />But anyway, I tend to focus on looking at U.S. listed corporations, so that's the other point. There are plenty of hedge funds out there that people can invest in, but that's not really my focus of attention. I do look at closed end funds now and then (I posted about SPE last year), and I did look at Loeb's fund but I didn't really have much to say about it so I never made a post about it. <br /><br />Thanks for the discussion. kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-77652054014638380332013-02-22T16:08:55.624-05:002013-02-22T16:08:55.624-05:00It is in tax-free Guernsey, and if you hold it in ...It is in tax-free Guernsey, and if you hold it in an IRA, the tax shouldn't be a problem. But I see you're point. As I see it though, the real opportunity for a company like GLRE is to buy its own shares below book. I think a good portion of BRK's success came from buying back its own shares via the insurance subs (this wouldn't show up as share shrinkage because the shares weren't retired, but it is effectively increased leverage). But if GLRE always trades above book, that might not be an option. bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-85365192279750203312013-02-22T15:30:09.325-05:002013-02-22T15:30:09.325-05:00Hi,
Thanks. Yes, I am aware of that. That is a...Hi, <br /><br />Thanks. Yes, I am aware of that. That is also certainly an interesting investment, and Loeb is a great manager. I do like Einhorn too despite his recent subpar performance. <br /><br />The thing with GLRE, though, is that it's sort of not just a hedge fund investment. First of all, you do get leverage here through float. Of course, if they don't underwrite well, this may not work out too well. But if they do OK underwriting, there can be some good leverage here. <br /><br />In a presentation last year for investment return / combined ratio versus ROE, Einhorn had a slide with 175% investment leverage, so that may be a level they would be comfortable with. <br /><br />At 1.8x leverage, there can be an interesting explosive opportunity here. Of course, there can be an implosive nightmare too. <br /><br />Also, since this is a Cayman entity, the return can be retained and compounded tax free over time; a hedge fund investment may be pretty tax inefficient. Over time, this can be a major factor. Of course, there is no guarantee that this tax status will be maintained. <br /><br />Thanks for commenting. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-32703717444155732782013-02-22T15:24:51.827-05:002013-02-22T15:24:51.827-05:00It also paid a 60c dividend in 2012, so the real r...It also paid a 60c dividend in 2012, so the real return from inception in 2007 would be $15.23. 50% over 5 years is not great, but certainly better than the market. bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-29994499239791135852013-02-22T15:17:09.458-05:002013-02-22T15:17:09.458-05:00If you want to invest in a hedge fund (which I ass...If you want to invest in a hedge fund (which I assume is the interest in GLRE), I think Loeb's fund traded on the London exchange is a better option. TPOU trades at $13.15 or so, the fund's last NAV was $14.73. And Loeb has a better record over the last few years. bjdubbsnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-2418427648010295992013-02-21T17:33:47.639-05:002013-02-21T17:33:47.639-05:00OK, good point. If he is long/short, he should ha...OK, good point. If he is long/short, he should have lower vol, so I suppose it's a reasonable expectation for his fund to have lower volatility than the market overall. So I concede that point; he runs a long/short for a reason (although he fully expects both sides to make money; he doesn't short just to hedge and be OK with losses on the short side). <br /><br />I did take a quick look at the standard deviation for 5 and 8 year periods and GLRE investment's performance has a lower volatility. I only looked at the annual figures, though. <br /><br />Also, in the worst year for the stock market (and for Einhorn), GLRE investments went down -17% while the stock market went down -37%. <br /><br />So that's pretty good. <br /><br />So I guess we go back to the beginning; what are you looking at? Einhorn has better returns in the longer term with lower volatility. <br /><br />Thanks for the discussion. Disagreements are always welcome! <br /><br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-7361865156219387472013-02-21T17:18:25.783-05:002013-02-21T17:18:25.783-05:00Howdy,
And thanks for actually answering me. I h...Howdy,<br /><br />And thanks for actually answering me. I have to politely disagree however. I will not even get into Sharpe ratio specifically. I will simply point to the basic Std Dev of Greenlight vs S&P over 10yr, 8yr ,5yr period- we know the 3 yr is horrible.<br /><br />Buffett's 15% lumpy vs 10% steady is apropos to "Buffett" and most 'long only' managers, the math is straightforward why. But to long/short guys like Einhorn, no way. Why? You are "paying" him for "his alpha" and that alpha reside both in his long AND his shorts- the difference of those two is by definition his idiosyncratic 'alpha'. His and no one else's, therefore you are measuring his Einhorn 'unit' of return relative to his Einhorn 'unit' of risk.<br /><br />With a long only, you only get his performance over or under the S&P (its always long) not so with any long/short manager. He is being paid for his management of said unit of risk per unit of return and so Std Dev MUST be factored in. If not then why pay him, just be levered long S&P and make the same or better unit of return when you are lucky enough to catch 'up' years in the S&P!!! You will save yourself Greenlight's and anyone else's fees.<br /><br />Einhorn is making the case that his acumen in managing his portfolio's unit of risk per unit of return is SUPERIOR to what you would get in the S&P, period. That is his entire business model, so to NOT measure said riskiness of his return units is rather erroneous if not grossly negligent.<br /><br />Thanks much,<br /><br />MBAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-19413076109455679762013-02-21T16:23:16.759-05:002013-02-21T16:23:16.759-05:00Hi,
That's a valid point. Einhorn's per...Hi, <br /><br />That's a valid point. Einhorn's performance has been very subpar in the recent past. Not too long ago, if a hedge fund didn't earn 20% or 30%/year, then it wouldn't even be considered. A sub-10% return over time is totally unacceptable for this type of fund, usually. I guess it's OK for more diversified, event-driven funds that invest more in arbitrage-type strategies with low correlation to the stock market (convertible arbitrage, merger arbitrage etc...), but for an active long/short, I do think under 10% is not really good at all. <br /><br />As for Sharpe ratios and things like that, those are really good for fund advisors and consultants to talk about. And yes, it's nice for some funds to use to demonstrate their favorable risk/return profile. <br /><br />But I am not such a big fan of that concept at all for more general hedge funds, long/short funds etc... <br /><br />As Buffett says, I would prefer a lumpy 15% to a smooth 10%. And I don't know what the fund consultants would say about each. <br /><br />But still, I understand your viewpoint and for the most part you are right. Most hedge funds don't do too well (Barton Biggs showed in one of his great books how whether it be private equity funds, venture capital funds or hedge funds, it's usually only the top funds that consistently do well. All the others do horribly.)<br /><br />And I am just assuming at this point that Einhorn is one of the guys that will do well over time even if he hasn't blown us away recently. <br /><br />But then again, he may not do well over time. <br /><br />If we knew for sure, this stuff would be easy! <br /><br />We all have to make up our own minds. GLRE really hinges on what you think of Einhorn and you can stick 10 of the smartest people in the world in a room to discuss it and you will have varying opinions that goes from one extreme to the other, I'm sure. <br /><br />Thanks for commenting. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-14982802729591652742013-02-21T16:16:08.106-05:002013-02-21T16:16:08.106-05:00Hi,
GLRE pays 1.5% management fee to DME (which ...Hi, <br /><br />GLRE pays 1.5% management fee to DME (which is the Einhorn-owned manager) and a 20% incentive fee. The incentive fee has no hurdle rate but there is a high water mark (sort of; if the fund is underwater, DME can only earn 10% of the profits until losses are gained back and then 150% of the loss is earned). <br /><br />I don't know that they pay any other fees/expenses than that. <br /><br />Thanks for posting and the nice comment. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-34801232474151838392013-02-21T16:13:33.891-05:002013-02-21T16:13:33.891-05:00Hi,
Good point about the tax benefit. Yes, one ...Hi, <br /><br />Good point about the tax benefit. Yes, one would assume the investor would be OK with some underwriting losses as long as the overall return is good, but I think Einhorn wants both sides to be profitable. <br /><br />As for hedge funds getting into reinsurance, yes, some funds have started reinsurance companies recently. The first one I know of was Max Re way back started by Moore Capital. It was a fund of funds type thing (part of float in fund of funds) and that turned into Alterra and they just merged (or are merging) with MKL. Max Re, though, did well in insurance but the investment side was not so good so they wound down their investments in fund of funds (run by Moore) over the years. <br /><br />Recently, SAC, Loeb and Paulson have launched reinsurance companies but they are private so I don't know much about them. <br /><br />The main question, though, is just a question of excess capital in the sector. How much capital is there? At one point there was too much capital, not necessarily from hedge fund launched companies, but just from capital all over the place looking for a return, not to mention catastrophe bonds, sidecars and other 'vehicles' where investment funds can work their way into the insurance industry. I think even Buffett said super-cat bonds and other structures do keep prices down... <br /><br />I think the view is that the supply/demand is balancing out more these days and prices are firming up; the low interest rates is making it not so attractive etc... <br /><br />Thanks for the discussion. <br />kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-76123675796045322912013-02-21T16:11:47.514-05:002013-02-21T16:11:47.514-05:00Howdy,
I think you misrepresent Einhorn's ret...Howdy,<br /><br />I think you misrepresent Einhorn's returns and his ability to generate alpha relative to the S&P if you DON'T detail or list his standard dev to those returns relative to the S&P.<br /><br />I think if you look at his "outperfomance" relative to the S&P you will quickly see Einhorn like very many others creates VERY little 'real' alpha over time.<br /><br />Which btw might very well explain his recent enthrallment with gold 'as a tail risk hedge' and his latest bit of corporate 'activism' in trying to tell Apple how they can 'create shareholder value' via issuance of a preferred! Yes, beating the market is VERY VERY VERY VERY HARD, even Mr. Einhorn.<br /><br />Would only his LPs be the wiser, they may yet be as rich as Mr. Einhorn one day.<br /><br />MBAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-77857003692299660082013-02-21T14:21:58.663-05:002013-02-21T14:21:58.663-05:00What are the net fees paid to invest in Einhorn vi...What are the net fees paid to invest in Einhorn via GLRE vs.via his hedge fund? For the capital invested in the hedge fund via GLRE, does Einhorn receive his usual hedge fund fee? Or does GLRE get a lower fee? Conversely, is there an additional fee paid by GLRE (over and above the fee charged to Einhorn's other investors)? Thanks in advance. The posts are consistently thorough and educative.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-10235018952392011862013-02-21T14:15:00.198-05:002013-02-21T14:15:00.198-05:00Interesting analysis. Here's a question. Let...Interesting analysis. Here's a question. Let's say you're a high net worth individual who doesn't share your concerns about Einhorn's recent investment performance and really wants to invest your money with Einhorn. Given the tax advantages of investing through GLRE rather than directly in GC, aren't you willing to tolerate for a certain level of losses in the reinsurance business in order to access these tax benefits? In fact, if/when more hedge funds begin to take advantage of the Bermuda reinsurance company structure, won't these reinsurance companies start to "over-compete" with each other given the limited amount of reinsurance business that can be done and push their revenues down to a level that wouldn't be sustainable were it not for the tax benefits being enjoyed by their investors?<br /><br />I should note that this obviously isn't the case here, given GLRE's underperformance relative to other reinsurance companies. And of course this hypothetical is dependent on the assumption that these hedge funds are able to outperform the market on a consistent enough basis that it makes sense to go to all this trouble (or at least that there are investors who want to put their money in hedge funds badly enough). Lastly, I have no idea what portion these hedge fund reinsurance co's make up of the total reinsurance business, but in order for the above scenario to come true, it'd have to be substantial (otherwise they wouldn't have to "over-compete" with each other). Still, an interesting question I think.<br /><br />BTW, Bloomberg just had a really good article on the Bermuda reinsurance business: http://www.bloomberg.com/news/2013-02-19/paulson-leads-funds-to-bermuda-tax-dodge-aiding-billionaires.html that I found very edifying.shubiknoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-85468488171395809092013-02-21T12:28:02.328-05:002013-02-21T12:28:02.328-05:00Thanks for the response. I enjoy the blog, and en...Thanks for the response. I enjoy the blog, and enjoyed the article. Best of luck in 2013.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-79071346938149255532013-02-21T12:23:38.237-05:002013-02-21T12:23:38.237-05:00Hi,
Thanks for commenting. As for the fees char...Hi, <br /><br />Thanks for commenting. As for the fees charged, note that the performance figures of GLRE investments are net of fees. I think if you outperform the S&P 500 index net of fees, then you have earned your fees. <br /><br />As for GLRE's loose pen, that's a risk for sure. You can't ever be sure with these things, but I am assuming that with Einhorn's stake (more than just his stock ownership, but his plan on using this as a way to raise permanent capital) he won't let GLRE be run to maximize market share, premium growth and things like that but would approach this more from a risk management standpoint. <br /><br />Whether or not he can do this is, of course, a big question. <br /><br />Why not just lever up on your own? Sure, why not. There are many things investors can do, and GLRE is one of them. Some ideas will be better than this, and others not. <br /><br />But I do tend to focus on U.S. listed stocks and this is one of them and it is an interesting situation. <br /><br />I'm sure many investors can set up something more interesting with access to hedge funds, prime broker, financing etc... and I don't mean to say this is the best way to get that sort of exposure. <br /><br />Thanks for reading! kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-36890081901780755092013-02-21T12:12:57.767-05:002013-02-21T12:12:57.767-05:00I think David Einhorn is a great investor.
but...
...I think David Einhorn is a great investor.<br />but...<br /><br /> the problem for me here is a) the fees charged for him to manage the money, and b) they appear to have no discipline underwriting at Greenlight. What signs do you see that the float will ever be a "paid float"? It is nice to play what if on a superior combined ratio, but I see no competitive advantage for GLRE.<br /><br />At current interest rates, why not just buy into the hedge fund on margin if you want to lever Einhorn's investments. You can prob lever up cheaper than Greenlight's loose pen. Better yet, you could just go out and match his 13f if you want and avoid his fees. Lever up to your liking.<br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-48732341457517952292013-02-20T16:38:58.135-05:002013-02-20T16:38:58.135-05:00Hi,
Thanks for that. Yes, I am not worried abou...Hi, <br /><br />Thanks for that. Yes, I am not worried about anything at the moment. But don't forget that GLRE is still in ramp-up mode. We don't know where the float leverage is going to get to over time, so a snapshot of the balance sheet today is not necessarily reflective of the risks that will be taken going forward. <br /><br />Right now, their float leverage is still very low (net premiums 60% of equity, investments 1.5x equity etc...). <br /><br />I don't worry too much as I think Einhorn is very smart about risk management. But I would not completely ignore James Tisch's comments either. <br /><br />I like GLRE even though it hasn't done well recently. But it's certainly not as 'safe' as say, BRK or MKL. <br /><br />But then again, they are totally different beasts so you really can't compare... kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-55586616333584679792013-02-20T16:34:29.280-05:002013-02-20T16:34:29.280-05:00Hi,
Yes, he's had a gold position on for a w...Hi, <br /><br />Yes, he's had a gold position on for a while as a sort of tail hedge. I think he wants to keep a 10% or so position in that. <br /><br />And I haven't really been a big fan of gold recently (I've posted about gold in late 2011 etc...); I'd rather equity guys focus on equities and leave that macro stuff to Soros. <br /><br />But then again, I do understand that managers sometimes have to evolve and learn other tricks and expand their repertoire... It's just that I am a bit of a skeptic when it comes to that stuff. <br /><br />Of course, there are plenty of examples where managers have evolved and added many new tricks over the years. David Tepper is a great example; he went from junk bond trading to making a killing long bank stocks etc... <br /><br />It's a tough question. <br /><br />Anyway, thanks for reading and posting a comment. <br /> kkhttps://www.blogger.com/profile/06299974418283948333noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-24856944434293016332013-02-20T16:33:01.759-05:002013-02-20T16:33:01.759-05:00http://seekingalpha.com/article/1206981-greenlight...http://seekingalpha.com/article/1206981-greenlight-capital-re-s-ceo-discusses-q4-2012-results-earnings-call-transcript?part=single<br /><br />With respect to our property catastrophe aggregates, maximum exposure to a single event is $102 million and our maximum exposure to all events is $118.7 million.<br /><br />While the ratio could spike to 200% short term, I would not be concerned long term about a ratio spike. Joshhttps://www.blogger.com/profile/12028228587020987588noreply@blogger.comtag:blogger.com,1999:blog-5389144729834496735.post-53089040679460993922013-02-20T16:28:40.053-05:002013-02-20T16:28:40.053-05:00Gold is a macro investment (that has done very wel...Gold is a macro investment (that has done very well until recently) and Einhorn has had gold positions in the top 5 positions for quite some time. Joshhttps://www.blogger.com/profile/12028228587020987588noreply@blogger.com