Greenlight's Einhorn rules out going public
NEW YORK |
NEW YORK (Reuters) - Greenlight Capital Inc, a $5.5 billion New York-based hedge fund, said it has no plans to tap outside investors as some of its peers have done recently with initial public offerings.
"It would not be a good strategy for Greenlight," President David Einhorn said on Monday at the Reuters Investment Outlook 2008 Summit in New York.
Einhorn added that selling a stake in the hedge fund -- either to the public or an outside investor -- would reduce flexibility at Greenlight, a small shop compared to others in its sector with a total head count of 20 people.
"First of all if you take in an equity partner that is not part of the work force you have a responsibility to grow equity," Einhorn said.
He added that as a private company Greenlight can choose how it wants to grow, and at what pace. He also has more flexibility to decide how compensation is meted out, he said, without the hassle of worrying about pleasing outside investors first. And so far Greenlight Capital employees have not griped about compensation, he added.
Einhorn's plan to stay private runs counter to that of a growing number of U.S.-based alternative asset managers such as Fortress Investment Group (FIG.N) and Och-Ziff Capital Management (OZM.N) which have recently floated shares, citing the benefits of access to capital markets, and the added employee perk of publicly traded stock and options.
Based on the performance of hedge funds that have recently sold stakes to the public, Einhorn -- who famously stumbled with his involvement in now-bankrupt subprime mortgage lender New Century Financial Corp. and who professed to having little free time this year to indulge his passion for bridge tournaments and occasional poker matches -- may have made a better bet by keeping Greenlight in private hands.
Larger rival Fortress, which manages some $43 billion in private equity, real estate and hedge fund assets, has slipped 38 percent below the $31 a share price it fetched in its February market debut.
And Och-Ziff, which listed its shares on the New York Stock Exchange last month, has seen the value of its shares fall 12 percent below its IPO price, to $28.10 a share on Monday.
While a public listing for Einhorn's hedge fund is not on the cards, earlier this year he did take another company he controls public, and under terms of that deal, gave investors a roundabout way to invest in his hedge fund's deal flow.
In May, Einhorn-controlled Greenlight Capital Re (GLRE.O), a Cayman-based property and casualty reinsurer, raised almost $200 million in a listing on Nasdaq.
Greenlight Re, which insures other insurers as its primary business, said at the time of its offering that it employs a higher-risk -- and potentially more lucrative -- investment strategy than most other reinsurers.
Under its business plan, Greenlight Re's investment portfolio is managed by DME Advisors, a company controlled by Einhorn. The arrangement proved a boon to Greenlight Re's bottom line in 2005 and 2006, which largely reflected its profit from investment income rather than insurance activities.
Greenlight Re's net income from investing was $58.5 million in 2006, and $29.3 million in 2005, according to a filing with the SEC. In comparison, Greenlight Re's reinsurance business earned $26.6 million on net premiums in 2006, and recorded no income in this area in 2005.
But in the most recent quarter, the tables turned. The company posted a net investment loss of $4.8 million while net earned premiums rose 67 percent to $30.7 million.
But the lack of investment income and much higher expenses -- $28 million compared with $9.4 million in the year-earlier period -- left Greenlight Re with a third-quarter loss of $2 million.
Shares of the reinsurer, which had gained about 25 percent in their first day of trading, have more recently pared some of those gains, trading at $20.97 on Monday, or about 10 percent above the company's $19 IPO price.
(Editing by Gary Hill)
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