July 30, 2013 / 2:56 AM / 4 years ago

Einhorn's reinsurer cut gold exposure in Q2 as prices plunged

NEW YORK, July 29 (Reuters) - Hedge fund manager David Einhorn’s reinsurer Greenlight Capital Re, Ltd. cut its gold holdings in the second quarter as prices of the precious metal plummeted, a regulatory filing showed on Monday.

The reinsurer, for which Einhorn serves as chairman, cut its commodities holdings to $50.5 million in the quarter ended June 30, down from $90.3 million in the first quarter ended March 31.

“The decrease in commodities was due to a decline in the price of gold combined with the disposal of a portion of our physical gold holdings,” the filing said.

Gold plunged 23 percent in the three months to June, its biggest quarterly drop on a record of at least 45 years due to selling amid fears the U.S. Federal Reserve may wind down its bond-buying stimulus, according to Reuters data.

Fed Chairman Ben Bernanke told Congress on May 22 that the central bank may begin to scale back its $85 billion in monthly purchases of Treasuries and agency mortgages later this year if the U.S. economy looked strong enough.

Gold, typically seen as a hedge against inflation, sank below $1,200 an ounce on June 27 for the first time in nearly three years.

Einhorn, who runs the $8 billion hedge fund Greenlight Capital, suffered an investment loss of 11.8 percent in June in the firm’s offshore gold fund, two sources close to the matter have said.

But Greenlight said in the filing that it plans to continue holding a “significant position in gold, macro positions in the form of options on higher interest rates and foreign exchange rates, short positions in sovereign debt and sovereign credit default swaps” for the foreseeable future.

Einhorn said in May in a conference call for his Cayman Islands-based reinsurer that the regime change at the Bank of Japan supported his outlook for stronger gold.

He was referring to the appointment of governor Haruhiko Kuroda, who committed the central bank to a $1.4 trillion burst of monetary stimulus to fight deflation, mainly through purchases of long-term Japanese government bonds.

In the latest filing, the reinsurer also said the equity market’s “rapid advance is creating a potentially unstable condition which could resolve a number of ways and is difficult to predict,” citing a challenging earnings backdrop, a slowdown in China and the continuation of “emergency policies.”

Hedge funds are turning to reinsurers to become a permanent source of capital that is not subject to investor withdrawals. The reinsurers use their premiums to take positions in the hedge funds that set them up.

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