Einhorn Says `Beaten Down' Portfolio Poised for Rebound

  • `We should get some recovery,' he says on Greenlight Re call
  • Einhorn says short portfolio gained about 7.5% in quarter

Hedge fund manager David Einhorn affirmed his confidence in some of the stocks that dragged his portfolio to its worst performance since the financial crisis.

“It’s been a challenging environment,” Einhorn said Thursday in a conference call discussing results at Greenlight Capital Re Ltd., the Cayman Islands-based
reinsurer where he is chairman. “We’re optimistic that we should get some recovery from our beaten-down long portfolio.”

Consol Energy Inc. and SunEdison Inc. each fell by more than 50 percent in the three months ended Sept. 30, contributing to the third-straight quarterly loss at the reinsurer. Einhorn said Thursday that the situation has “stabilized” at SunEdison after doubts about the company’s ability to access capital markets.

The company has raised additional funds, “identified third-parties to buy its projects, and slowed its development pipeline,” Einhorn said. “We see the potential for a significant recovery in the stock price from current levels.”

‘Myopically Focused’

A market that is “myopically focused” on the short-term prospects for the prices of Appalachian coal and natural gas is overlooking Consol’s potential, he said. Consol has declined about 80 percent this year in New York trading.

He said that one bright spot in the third quarter was the short book, in which Einhorn bet on declines of stocks including pharmaceutical business Mallinckrodt Plc and coffee company Keurig Green Mountain Inc. That portfolio climbed about 7.5 percent in the quarter, he said.

Greenlight Re slipped 14 cents to $22.47 at 4 p.m. in New York, and is down 31 percent since Dec. 31. The company has also been hurt this year by insurance losses. Einhorn took the reinsurer public in 2007, giving him additional funds to invest while offering ordinary investors a way to access his hedge fund strategies.

“For the business model to succeed, we need to improve our results on both sides of the balance sheet,” Einhorn said.

Insurance underwriting generated a loss of $27.6 million, compared with income of $4 million in last year’s third quarter. Chief Executive Officer Bart Hedges said a review of contracts written several years ago showed that eventual claims costs would probably be higher than previously expected on liability coverage for contractors.

“The range of uncertainty for the ultimate value on the construction-defect claims is fairly large,” Hedges said. “And given the complicated nature of these claims, and our poor track record reserving for this business, we have booked reserves toward the higher end of the actuarial range. We feel comfortable with the outcome of this exercise.”

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