Einhorn's shorts dragged down fund's returns in Q1

Mon Apr 11, 2011 4:23pm EDT

* Einhorn's shorts help pull performance down in Q1

* Einhorn's prominent shorts including St. Joe, Moody's

* Long side of the portfolio fared well

By Svea Herbst-Bayliss and Matthew Goldstein

BOSTON/NEW YORK, April 11 (Reuters) - Hedge fund manager David Einhorn is coming up short this year largely because some of the bets he made on stocks falling haven't panned out.

In the first quarter, Einhorn's Greenlight Capital Qualified LP dipped 2.9 percent, compared to an average 2 percent gain for the hedge fund industry.

A Greenlight investor said the New York-based hedge fund firm underperformed because its so-called short positions, where investors bet that the stock price will drop, lost 9.2 percent in value during the period.

By contrast, the fund's bet on stocks and other assets rising in value performed well, increasing 6.7 percent. Part of Einhorn's long portfolio has included gold, the kind you can touch, and bets on BP (BP.L) and Vodafone Group (VOD.L). Fund managers will not be releasing their first-quarter holdings until mid-May.

A spokesman for the fund firm declined to comment.

While Einhorn, who has been managing money since 1996 and has returned an average 20 percent to investors a year, does not say which companies he is shorting, it is highly likely that much of this year's pain came from Florida real estate company The St. Joe Co (JOE.N).

Only six months ago Einhorn, who was among the first to bet against now-bankrupt investment house Lehman Brothers, made a very public call against St. Joe at the annual Value Investing Congress in New York.

As Einhorn illustrated his case with slides showing empty condominiums sitting in fields of weeds, other investors gasped at his statistics-filled presentation. St. Joe's share price tumbled quickly and closed off nearly 10 percent that day.

But this year, St. Joe has gained 14.7 percent during the first quarter, thanks largely to the efforts of investor Bruce Berkowitz, a mutual fund manager whose Fairholme Capital Management is the biggest investor in St. Joe.

When Einhorn first spoke publicly about St. Joe, Berkowitz declared himself so pleased that the hedge fund manager had pushed down the share price briefly that he wanted to thank Einhorn by sending a box of chocolates.

This year, Berkowitz has already shaken up St. Joe's board and said a range of other options to move the company forward, ranging from acquisitions, to restructuring to capital raising, could be considered.

Einhorn's investors might have also suffered from the manager's bet on a decline in the stock of rating agency Moody's Corp (MCO.N), which he said uses an inappropriate short-term approach to its assessments. The company gained 28.3 percent during the first quarter.

While Einhorn's long positions, including a bet on BP and gold, fared well during the first quarter, they have been unable to make up for the other side of the portfolio so far.

(Reporting by Svea Herbst-Bayliss and Matthew Goldstein; Editing by Richard Chang)

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