Einhorn’s Greenlight May Get Boost From China Devaluation

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Einhorn's China Bet: Greenlight May Gain From Yuan Move

With U.S. equities declining in the wake of China’s currency devaluation, hedge fund manager David Einhorn may be one of the few stock pickers to get a direct boost from the yuan’s sudden decline.

Greenlight Capital Re Ltd., an insurer Einhorn controls, was positioned at the end of June to reap a $30.4 million gain, equaling 2.2 percent of its investment assets, if the dollar rose 10 percent against the yuan, according to company filings. Einhorn’s hedge funds have a similar short position against the yuan, said a person familiar with the matter who requested anonymity because the firm is private.

Hedge funds have generally refrained from wagering on China’s currency, in part because the trade is difficult and expensive, said Robert Savage, the chief executive officer of CCTrack Solutions, a New York-based provider of foreign exchange trading strategies. Even funds that hold Chinese stocks typically don’t hedge their currency risk, reasoning that any fluctuations in the yuan will be small and short-lived.

“In the hedge fund world, currency speculation is done by macro players, not by stock pickers,” said Savage, whose firm is backed by a unit of Citic Group Corp., China’s biggest conglomerate. “This is the oddity of Einhorn putting on a position like this. It makes him an anomaly.”

Einhorn, the president of New York-based Greenlight Capital, declined to comment on the Chinese short position, said Jonathan Gasthalter, a spokesman for the hedge fund firm at Sard Verbinnen & Co.

Yuan’s Drop

China’s move to devalue the yuan, in the face of declining overseas shipments and weaker-than estimated manufacturing, left the currency down 1.8 percent in Shanghai and about 2.8 percent in offshore trading Tuesday.

The Standard & Poor’s 500 Index fell 1 percent in New York. U.S. public companies could see their profits from China drop, Savage said, as most don’t enter into hedges that would protect their mainland revenues from currency fluctuations.

“This is much more a corporate America bottom line issue than it is a currency speculation issue,” Savage said. “The risk of not hedging versus the cost was small.”

Greenlight could reap a gain of as much as 0.6 percent from today’s decline in the yuan, based on the estimates the money manager’s insurance unit made in an Aug. 3 filing with the U.S. Securities and Exchange Commission. The gains would have to be balanced against any losses the Greenlight hedge funds suffered from the simultaneous U.S. stock market decline.

Hedge Funds

Einhorn’s hedge funds primarily invest in stocks the fund manager deems undervalued while wagering against those he deems overpriced. In addition to running hedge funds, an affiliate of his money management firm invests the assets of Greenlight Re, even marketing the Cayman Islands-based insurer as a way for individuals to access Einhorn’s hedge fund strategy.

Several of Greenlight’s largest stock holdings sold off today, including Apple Inc., which fell 5.2 percent. SunEdison Inc., where Greenlight ranks as the largest outside shareholder with a 7.9 percent stake as of March 31, dropped 14 percent.

The reinsurer reported earlier this month that its investment portfolio declined 5.9 percent in July, marking the fund manager’s worst monthly performance since 2008. The decline stemmed in part from Einhorn’s macro bet on gold bullion, which fell 6.5 percent last month to $1,095.80 an ounce.

Einhorn has said little about the Chinese currency position in letters sent to his hedge fund investors or on conference calls for the publicly traded Greenlight Re. He mentioned the Chinese currency during a Feb. 18 conference call for the insurer, noting that its bet against the yuan, as well as the wager on gold bullion, were an expression of the firm’s macroeconomic outlook.

“We continue to maintain a macro overlay with positions in gold, short Japanese yen, and Chinese renminbi, and short French sovereign debt,” Einhorn said, according to a transcript of the call.

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