Greenlight's Einhorn Says Issues That Caused the Crisis Are Not SolvedBy and
Greenlight founder cites too-big-to-fail, few rating agencies
At Oxford Union, Einhorn stands behind struggling short bets
Hedge-fund manager David Einhorn said the problems that caused the global financial crisis a decade ago still haven’t been resolved.
“Have we learned our lesson? It depends what the lesson was,” Einhorn, the co-founder of New York-based Greenlight Capital, said at the Oxford Union in England on Wednesday.
Einhorn said he identified several issues at the time of the crisis, including the fact that institutions that could have gone under were deemed too big to fail. The scarcity of major credit-rating agencies was and remains a factor, Einhorn said, while problems in the derivatives market “could have been dealt with differently.” And in the “so-called structured-credit market, risk was transferred, but not really being transferred, and not properly valued.”
“If you took all of the obvious problems from the financial crisis, we kind of solved none of them,” Einhorn said to a packed room at Oxford University’s 194-year-old debating society. Instead, the world “went the bailout route.”
“We sweep as much under the rug as we can and move on as quickly as we can,” he said.
Famed for his value investing style and bet against Lehman Brothers Holdings Inc. that paid off in the crisis, Einhorn has struggled in 2017 amid a broad market surge on a wave of cheap central-bank cash. His main hedge fund lost 0.8 percent in October, trimming its gains for the year to 2.6 percent, according to a letter to clients seen by Bloomberg News.
The average hedge fund returned 7.2 percent this year through October, while the S&P 500 Index has handed investors about 17 percent in 2017, with dividends reinvested.
Einhorn didn’t avoid discussing his underperformance, citing several failed bets that companies’ stocks would decline. He didn’t name the stocks he was shorting, but insisted that none of the companies are “viable businesses.”
Value investing has worked over time, but “it’s not working at all right now,” and in fact “the opposite seems to be working,” he said. Greenlight remains focused on developed markets, and has no plans to change that, he said.
Briefly touching the rise of computer-driven strategies in the financial industry, the billionaire said machines were usually good at spotting short-term trading patterns, something Greenlight isn’t focused on. “Our goal here is to find things that are widely misunderstood by a large margin. So we are not really competing with that kind of technology, because I don’t think we would beat them."
In a wide-ranging discussion that moved from philanthropy and poker to vulture funds, Einhorn was asked if “Billions”-- the hit U.S. drama about life on Wall Street, starring Englishman Damian Lewis -- is an accurate representation of the $3 trillion hedge-fund industry. Einhorn answered only that he does watch the show, and “it’s really entertaining,” to laughter from the assembled students.