By Alistair Barr
David Einhorn, head of hedge-fund firm Greenlight Capital,
closed more than a dozen short positions recently because rising
stock markets have made it more difficult to hedge and bet against
companies.
Greenlight covered short positions in which he had "lower
confidence" during the first quarter, including four negative bets
against companies in the for-profit education industry, Einhorn
wrote in an April 29 letter to investors. MarketWatch obtained a
copy of the letter Monday.
"We are in a particularly difficult environment for shorting
stocks," Einhorn said in the letter, which didn't identify the
positions that were closed.
"Much like Charlie Sheen, who seems to believe that all
publicity is good publicity, recent market behavior suggests that
we are in the part of the cycle where 'all news is good news,'"
Einhorn wrote earlier in the letter.
The head of Greenlight Capital became one of the most-watched
hedge-fund managers after he warned Lehman Brothers (LEHMQ) was
under-capitalized in 2008, several months before the investment
bank collapsed, triggering the global financial crisis.
Stocks slumped in late 2008 and early 2009. But the market has
surged since then, helped by trillions of dollars in monetary and
fiscal stimulus.
Those gains have made it difficult for hedge funds to short
stocks--an important tool for protecting against potential
losses.
Greenlight Capital's hedge funds lost at least 2.5% in the first
quarter, one of the firm's toughest opening quarters.
"This quarter we were repeatedly confuzzled when we read company
news announcements that we expected to cause falling stock prices,
only to see them rise instead--and sometimes sharply at that,"
Einhorn wrote in his April 29 letter.
In addition to profitably exiting four short positions in the
for-profit education sector, Einhorn said Greenlight closed two
foreign bank shorts, a domestic bank short and a technology short.
Two of the bank positions were closed at losses, as was the tech
position, he noted.
"We also covered several others where performance exceeded our
expectations," Einhorn wrote.
Still, the hedge-fund manager stuck to two of his most-prominent
negative bets--against credit-rating company Moody's Corp. (MCO)
and Florida land giant St. Joe Co. (JOE).
Greenlight also kept short positions on two energy-technology
companies, which the firm expects to "dramatically" miss earnings
forecasts this year. These stocks weren't identified in the
letter.
"We believe that this environment is cyclical, and that it will
continue this way ... until it doesn't," Einhorn wrote.
In April, Einhorn was up 0.8%, leaving him down 2.6% in the
first four months of 2011, according to a disclosure on the website
of reinsurer Greenlight Capital Re Ltd. (GLRE).
Also, Greenlight disclosed a position in shares of Yahoo Inc.
(YHOO) as Einhorn highlighted bullish prospects for the Internet
company's exposure to China.
-By Alistair Barr; 415-439-6400; AskNewswires@dowjones.com