Michael P. Regan is a Bloomberg Gadfly columnist covering equities and financial services. He has covered stocks for Bloomberg News as a columnist and editor since 2007. He previously worked for the Associated Press.

Even when a hedge fund has an awful year, which was the case for David Einhorn's Greenlight Capital, there are lessons to be learned.

Many funds would have had a tough time surviving a year like Einhorn experienced in 2015, when all the stars seemed to align against him and Greenlight Capital lost more than 20 percent. Investors tend to flee funds that underperform like that, sometimes causing a fire sale of positions as they're forced to raise cash for redemptions. 

The key to Einhorn's survival had nothing to do with his investments, which turned sour at an alarming rate -- from owning some of 2015's worst stinkers like Consol Energy, Micron Technology and SunEdison to short bets against Netflix and Amazon, two of the year's brightest stars. Instead, it had everything to do with how Greenlight manages investor cash on the way in and out the door.

Bad Bets
Greenlight Capital was long poor performers and short some of the best last year.
Source: Bloomberg

detailed account of his lousy year from Bloomberg's Simone Foxman shows how about 30 percent of the firm’s outside money is locked up in contracts or vehicles that made sudden withdrawals impossible or unlikely. For example, money raised in late 2014 is subject to a 25-month lockup and a penalty of 5 percent if it's withdrawn in less than three years. The fund rarely raises new cash, so investors who were eligible to pull money from Greenlight needed to think long and hard before they did. And while Einhorn's positions tend to be concentrated in a small number of bets, his clients are diversified, with about 800 investors, which means there's a smaller chance that one or two fickle investors with large balances are able to rock the boat. A stable source of funding from his re-insurance company also helps. 

Of course, these are the type of luxurious defense mechanisms available only to a hedge-fund manager who has earned them. With a two-decade track record of 16.5 percent annual returns, Einhorn certainly earned his.  

Einhorn's sharp wit is almost as legendary as his strong returns. His comic-strip-laden presentations at investment conferences make it clear that when discussing natural gas, he's never thought of a flatulence joke that was too juvenile to share with an audience. He can't resist a good pun, titling a chart on declines in thermal coal production "Coal-onoscopy." At a conference run by Grant's Interest Rate Observer, he noted that negative rates made the title of the publication a paradox. "How do you observe interest rates when they have ceased to exist? You may have to re-think your brand."

The question for Einhorn's investors after last year was whether he needs to rethink his brand or if 2015 was just a year of bad luck when every roll of the dice came up snake eyes. Early indications are that it's the latter: Greenlight gained 1.4 percent in January, compared with a 5 percent decline for the S&P 500. Based on his track record, Einhorn stands a good chance of making investors money -- and making conference attendees laugh -- once again in 2016.  

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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