The change to Greenlight’s target comes as Einhorn has called for caution amid rising stock prices driven by monetary stimulus. In an August conference call for his Cayman Islands- based reinsurer, Greenlight Capital Re Ltd., Einhorn said he’d had difficulty picking stocks amid conflicting economic data, global unrest, and the Federal Reserve’s exit from its monetary stimulus program called quantitative easing.
Though the firm said in October that it would reopen its hedge funds to take advantage of opportunities as markets fell in the first part of the month, in early November Einhorn said on another conference call for the reinsurer that the correction was “unfortunately” too short.
Key Word
“Everyone wants a hedge fund to outperform regardless of the market, but there’s a key word there, which is hedge,” Peter Borish, chief strategist at Quad Advisors, which provides capital to small hedge funds, said in a phone interview. “If there’s been low volatility and the market has gone up, a true hedge fund should underperform.”
Hedge funds across strategies have had their gains narrow in the past two decades. From 1996 to 2005, the first decade in which Einhorn’s fund traded, hedge funds’ yearly return averaged 11.8 percent, according to data compiled by HFR.
During that time, Einhorn’s fund rose 29 percent annually. In the past five years, hedge funds gained 4.7 percent a year on average, while Einhorn’s fund returned 12 percent on average annually.
Einhorn isn’t alone in reassessing his return target. Pimco popularized the term “new normal” after the financial crisis to describe an era of subdued investment returns.
“This is not unique or peculiar, other than the fact that he is a bit late to the party in doing so,” Sam Won, founder of Global Risk Management Advisors, which advises clients including pensions, endowments, and hedge funds on risk management, said of Einhorn’s new investment target.
Marks, chairman of Oaktree, said in December 2012 that his distressed private equity strategies were targeting 15 percent.
“The irony is, of course, that 15 percent sounds like some herculean task,” he said at the time. “It’s the lowest yield we’ve ever targeted.”