While, inexplicably, Bill Ackman's Pershing Square remains immune (according to Ackman at least) to redemptions despite posting a terrible return in the past two years, another hedge fund from the "glory days" is having less success in keeping LPs: the WSJ reports that Einhorn was "forced to pay back more than $400 million in clients withdrawals at midyear, as more than 15% of eligible investors chose to redeem their money" which again is surprising because unlike some other hedge funds, mostly on the macro side, which continue to post double digits losses, Greenlight was down only 2% in the first half of the year. Although, as we have been repeating since 2011, in a time when every hedge fund's benchmark is the S&P actively managed by every central banker in the world, any and all active managers who underperform the broader market are targets. Greenlight has also underperformed his broader peer group with the average stock-picking hedge fund up 6% in H1 according to HFR.
As the WSJ notes, Einhorn, who manages $7 billion, "has been humbled. His repeated predictions of a swoon for some highflying technology companies are so far unrealized, while a recent push to split General Motors Co. stock was rejected by his fellow shareholders. Greenlight is just two years removed from its worst year ever, double-digit losses in 2015 that led Mr. Einhorn to confess at the next annual investor dinner that he had “failed miserably.”
Another concern for Einhorn is that unlike many of his peers, he has refused to cut his fees:
He’s declined requests from backers to alter his relatively high fees. Greenlight collects a performance fee even when it hasn’t made back its historical losses, a rare practice in the industry.
The fund made back some of its losses last year but has slipped again in 2017. Some of the firm’s short positions, or wagers against, in-vogue stocks such as Tesla Inc. have backfired as the stocks continued to climb, investors said. Meanwhile Greenlight’s portfolio has included a relatively low proportion of bets on rising stocks overall, making it a laggard as U.S. stocks recorded their strongest first half since 2013.
The outflows could have been even worse, as thanks to its typically strict redemption rules, "only half its investors are allowed to take out money at midyear, while the remainder are permitted at year-end." This may mean that the fund is facing another 15% in outflows in 6 months.
The offset is that like Ackman and Paulson, the fund has substantial long-term backing from Mr. Einhorn’s personal fortune, "an arm that invests money with other hedge-fund managers, and a reinsurance vehicle that feeds permanent capital to the main fund."
Ultimately, if the outflows persist, Greenlight may have no choice but to do what so many other former HF legends have done in recent years, and convert to a family office that manages only Einhorn's personal cash.