Spitballing: Greenlight RE

This is just a quick sort of diary/placeholder post that I will plan to go back and update a bit at some point in the future.

I am considering purchasing some Greenlight Reinsurance (GLRE).  GLRE is David Einhorn’s Cayman/Irish domiciled reinsurance operation, which has an investment management agreement with his hedge fund.  So basically it is a reinsurance operation with investments handled by Greenlight.

First, some quick reasons for my interest.  GLRE is trading at ~15% discount to book. Einhorn has underperformed “the market” badly.  He’s a value investor, so this is somewhat  to be expected (the value premium has sucked wind for almost a decade).  I personally think he is a legitimately skilled investor. Here is a recent video of his appearance for a Q&A session at the Oxford Union.

GLRE has just hired a new CEO (to run the reinsurance bidness); Simon Burton.  Burton was with Steven Cohen’s reinsurance outfit until it was sold.  More intriguingly to me, he was formerly an executive, eventually co-CEO, with Lancashire Holdings (with Richard Brindle).  Lancashire has a history of fantastic underwriting results, especially before Brindle retired/left.  Burton is sounding a little like Brindle/Lancashire; talking about making GLRE nimble and getting into some different, more transactional markets. He also seems to be offering a very sober appraisal of profitability on offer in the insurance markets currently.

Also, GLRE has a provision in the agreement with Greenlight, whereby GLRE pays “only” a 10% performance fee until GLRE earns back 150% of investment losses (Greenlight lost 20% in 2015).  See, GLRE’s website  or the most recent Q for more detail.  Greenlight also gets a 1.5% annual management fee.

So those are some reasons to like it.  Some negatives I note are: 1) Einhorn is getting divorced…could lead to lack of focus or depression or something (one reason I really prefer systematic/quant strategies to ad hoc managers); 2) high hedge fund fees (but a break is on offer until they get back above the high water mark); 3) Einhorn shorts…I don’t like shorting.  It is a poor, asymmetrical bet in my mind and it is really hard (and can result in you losing 20% in 2015); 4) reinsurance is sloshing with capital and these hedge fund captives were a big part of the problem with a ton of capital deployed in the last five-ish years (I think Buffett has said they haven’t written any of certain lines in years because of crappy pricing and Brindle took his ball and went home too (now he has a new little “start up” but I think its more focused on asset management…waiting for the next decent market)); 5) GLRE underwriting record/insurance operation has kind of sucked so far leading to recent departure of CEO.

If any of you more knowledgeable/seasoned insurance investors have additional background information about Mr. Burton and his track record/impact at Lancashire, I would appreciate you sharing, perhaps by leaving some comments.

Well, my infant son is crying, so I’m off.  Happy New Year!