David Einhorn (hedge fund manager)

David Einhorn
Born (1968-11-20) November 20, 1968
Residence Westchester County, New York, United States
Nationality United States
Alma mater Cornell University[1]
Occupation Founder & President,
Greenlight Capital
Hedge fund manager
Salary $80 million (2011)[2]
Net worth Decrease$1.45 billion (August 2016)[3]
Spouse(s) Cheryl Strauss
Children Mitch Einhorn, & 2 others
Parent(s) Stephen and Nancy Einhorn

David Einhorn (born November 20, 1968), an American hedge fund manager, is the founder and president of Greenlight Capital,[4] a "long-short value-oriented hedge fund." He started Greenlight Capital in 1996 with $900,000. Greenlight has generated about a 16.5% annualized return for investors.[5] Einhorn is also the Chairman of Greenlight Capital Re, Ltd, a Cayman Islands-based reinsurance company and is a major shareholder.

Einhorn has received extensive coverage in the financial press for short selling Allied Capital, Lehman Brothers and Green Mountain Coffee Roasters stock. He is also a critic of current investment-banking practices, saying they are biased to maximize employee compensation. He cites a statistic that investment banks pay out 50 percent of revenues as compensation, and "more leverage means more revenues which means more compensation."[6]

Einhorn was a director at New Century Financial Corp., a major subprime mortgage lender, between March 2006 and March 2007. Greenlight Capital held 6.3% of the company's stock at the time he resigned from the board.[7] A class action lawsuit was brought against 13 former directors and senior management of New Century. The lawsuit did not allege any specific wrongdoing by Einhorn and was settled in 2010 without any admission of liability on Einhorn's part. The settlement was funded by more than $90 million in payments from New Century's D&O carriers and personal payments by members of senior management, not including David Einhorn.[8]

He is also a founding Master Player of the Portfolios with Purpose virtual stock trading contest.[9]

In 2013, Einhorn was ranked 44th in the Time 100 most influential list of people in the world.[10]

Personal life and family

Einhorn was born to a Jewish family[11] in New Jersey,[12] the son of Stephen and Nancy Einhorn,[13] The family moved to Wisconsin when he was seven.[12] in 1987, he graduated from Nicolet High School in Glendale, Wisconsin.[14] Einhorn graduated summa cum laude from Cornell University with a B.A. in Government from the College of Arts and Sciences in 1991. He was a member of the Sigma Alpha Epsilon fraternity at Cornell.[15] Einhorn lives in Westchester County, New York with his wife, Cheryl Strauss Einhorn, and three children.[15]

Einhorn is a major contributor and board member of The Michael J. Fox Foundation. In 2006, Einhorn finished 18th in the World Series of Poker main event and donated his winnings (over $650,000) to the foundation.[16] He is also on the board of the Robin Hood Foundation and a contributor to numerous charities in the New York area. In the Spring of 2009, as promised in his book Fooling Some of the People All of the Time, Greenlight Capital donated all of the general partner's profits from the shorting of Allied Capital stock (an additional $6 million - Greenlight already donated $1 million in 2005 to Tomorrows Children's Fund - to make a total of $7 million) to three organizations (Tomorrows Children's Fund, The Project On Government Oversight (POGO) and the Center for Public Integrity (CPI). In 2012, Einhorn donated his winnings from the 2012 World Series of Poker Big One for One Drop Tournament (which had a one million dollar buy in, and in which he won $4,352,000 for his 3rd-place finish) to City Year.[17][18]

Einhorn's father Stephen and his brother Daniel together run Einhorn & Associates, a Wauwatosa mergers-and-acquisitions consulting firm, and Capital Midwest Fund, a venture capital fund. Stephen and his wife Nancy are major supporters of the Republican Party and, in the United States presidential election, 2012, funded the placement of anonymous anti-voter-fraud billboards in Wisconsin and Ohio.[19] David Einhorn is a known Democratic donor.[20]

Einhorn is reported to drive a Honda Odyssey.[21]

Greenlight Capital

Since inception (May 1996 – Dec. 2015), David Einhorn's hedge fund, Greenlight Capital has annualized returns of 16.5%.[5]

Greenlight Capital posted a 6.5% gain on the fourth quarter of 2013. [22] In Q1 of 2012, Greenlight Capital returned 6.8% net of fees and expenses to its investors. [23]

Notable market plays

Allied Capital

In May 2002, at the Ira W. Sohn Investment Research Conference, Einhorn delivered a speech about a mid-cap financial company called Allied Capital. He recommended shorting the company's stock and shorted it himself.[24] The day after his speech, Allied's stock opened down 20 percent. Einhorn claimed that Allied was involved in lending practices that defrauded the Small Business Administration. Allied said that Einhorn was engaged in market manipulation, and illegally accessed his phone records using pretexting.

The U.S. Securities and Exchange Commission (SEC) investigated Einhorn for market manipulation, and Eliot Spitzer also announced that he intended to start an investigation.[25] In June 2007, the SEC found that Allied broke securities laws relating to the accounting and valuation of illiquid securities it held.[26] Einhorn has published a book, Fooling Some of the People All of the Time regarding this six-year fight.[27] In late 2008, the SEC began investigating charges that Einhorn has made about the SEC's mishandling of this matter, including the possibility that "a former SEC attorney may have taken confidential investigative materials with him when he left the Commission and provided those materials to a company he went to work for as a lobbyist." The SEC OIG confirmed in 2010 that the SEC had failed to properly pursue the allegations against Allied Capital made by Einhorn, and that Mark Braswell, the enforcement bureau chief in charge of the investigation, left the agency and landed Allied Capital as a lobbying client.[28]

Einhorn would come to view Allied as a microcosm of market trends: "What we've seen a year later is that Allied was the tip of an iceberg; that this kind of questionable ethic, philosophy and business practice was far more widespread than I recognized at the time...Our country, our economy, is paying a huge price for that."[29]

Lehman Brothers

In July 2007, Einhorn shorted Lehman Brothers stock, believing that Lehman had massive exposures to illiquid real estate investments that were improperly accounted for.[30] He also claimed that they used dubious accounting practices in their financial filings.[6] Einhorn shared his thesis on Lehman in November 2007 at the Value Investing Congress.[31]

When Bear Stearns had to be bailed out by the Federal Reserve in March 2008, Lehman was widely considered to be in a weak financial situation. In a speech at a conference in April, Einhorn announced his Lehman short position.[6][32] In May, Lehman's CFO Erin Callan held a private teleconference with Einhorn and his staff, who[33] hoped Callan could explain discrepancies they had uncovered since the firm's latest financial filing. Einhorn publicly characterized Callan's responses on the call in a negative light and Lehman stock fell sharply. Callan was fired a few weeks later when Lehman reported a $2.8 billion quarterly loss. Lehman would declare bankruptcy in September 2008.

Green Mountain Coffee Roasters

Speaking at the Value Investing Congress in New York City on October 17, 2011, Einhorn publicly announced his short position in Green Mountain Coffee Roasters stock.[34] Prior to that date, the company's share price had increased more than tenfold since March 2009, the third-biggest gain in the Standard & Poor's Midcap 400 Index. In his presentation Einhorn opined that the market for Green Mountain's new Keurig single-cup coffee brewer was "limited," and that the K-Cup coffee pods for the machine presented a "looming patent issue" for the company. He also said that Green Mountain had a "litany of accounting questions." Following Einhorn's speech Green Mountain's share price fell by 10 percent, closing that day at $82.50.[35]

A few weeks later on November 9, 2011, Green Mountain's quarterly report missed analyst expectations and its stock price plunged to $43.71. The company's CEO Lawrence J. Blanford cited a "number of factors including changes in wholesale customer ordering patterns in our grocery and club channels" for the underperformance of the company. The stock had a run up to 157 in Nov 2014, before its final pricing in the 90's, prior to the company being sold.

Fracking Industry

Speaking at the Sohn Investment Conference on May 4, 2015, Einhorn sharply criticized the practice of hydraulic fracturing or "fracking." He said, "A business that burns cash and doesn't grow isn't worth anything."[36]

Specifically, Einhorn announced short positions on Pioneer Natural Resources and Concho Resources.

David Einhorn also shows his humorous side joking that Pioneer natural resources is a "Motherfracker". [37]

New York Mets

On May 26, 2011, the New York Mets announced that Einhorn had agreed to buy a minority share of the baseball team for $200 million.[38] Einhorn had the option to purchase a majority stake in the Mets after three years if current majority owner Fred Wilpon and his family could not meet their financial obligations by then.[39] On September 1, 2011, the Mets announced that they had ended negotiations to sell minority ownership to Einhorn.[40]

Microsoft

On May 26, 2011, Einhorn called for Steve Ballmer, CEO of Microsoft, to step down after Microsoft had been passed by both Google and Apple[41] in market value.[42]

Apple Inc.

In early February 2013 Einhorn filed a lawsuit against Apple Inc. in a Manhattan court in order to pressure the company to issue dividend-paying perpetual preferred stock as a means of distributing some of its $137 billion in cash to shareholders.[43] Later that month Einhorn set what one Wall Street Journal headline called a "Legal Precedent in Corporate Governance" when the court ruled in favor of Einhorn and determined that Apple's attempt to bundle a measure requiring a shareholder vote prior to issuing preferred shares with a larger shareholder proposal "impermissibly bundles 'separate matters' for shareholder consideration."[44][45]

U.K. insider dealing

In January 2012, the U.K. Financial Services Authority (FSA) fined Einhorn and Greenlight Capital $11.2 million for trading on inside information. The FSA claimed Einhorn obtained information on the Punch Taverns Plc (PUB) equity fundraising by a broker representing the company prior to public knowledge of the event. Over the following four days, Einhorn sold more than 11 million shares, avoiding a 29.9% stock price collapse and subsequent loss of about £5.8 million.[46]

The FSA stated: "The FSA accepted that Einhorn's trading was not deliberate because he did not believe that it was inside information. However, this was not a reasonable belief.[46] " "This was a serious case of market abuse by Einhorn and fell below the standards the FSA expects, particularly due to Einhorn's prominent position as President of Greenlight and given his experience in the market.[46]" "Einhorn is an experienced professional with a high profile in the industry. We expect someone in his position to be able to identify inside information when he receives it and to act appropriately. His failure to do so is a serious breach of the expected standards of market conduct. It is highly damaging to market confidence when privileged shareholders commit market abuse, and the high penalty reflects the seriousness of his breach."[46]

Einhorn called the £7.2m fine "unjust" and "inconsistent with the law" but said he would pay it "rather than continue an arduous fight" [47] The fine was the second largest levied on an individual in the history of Britain's Financial Services Authority.[48]

References

  1. ↑ "Alma Mater". Greenlightre.com. 2009. Retrieved 2011-05-26.
  2. ↑ "The 40 Highest-Earning Hedge Fund Managers", Forbes, n.d.. Einhorn rank: 30. Retrieved 2012-11-01.
  3. ↑ http://www.forbes.com/profile/david-einhorn/
  4. ↑ Alden, William (25 October 2012). "David Einhorn Continues His Take Down of Fed Policy". DealBook. Retrieved 14 March 2013.
  5. 1 2 "Returns since Inception" (PDF). Retrieved 13 May 2016.
  6. 1 2 3 Hugo Lindgren, "The Confidence Man", New York Magazine, 2008/06/15.
  7. ↑ "Greenlight's David Einhorn Quits New Century Board (Update3)". Bloomberg. March 8, 2007.
  8. ↑ Reckard, E. Scott (July 31, 2010). "New Century ex-leaders to pay $90 million in settlements". Los Angeles Times.
  9. ↑ Ziegler, Maseena (1 December 2012). "When Quitting Is Not An Option - How You Can Find Purpose And Fulfillment Through Your Career". Forbes. Retrieved 27 December 2012.
  10. ↑ "44th in Time's most influential list" (PDF). Retrieved 13 May 2016.
  11. ↑ Forbes Israel: Jewish Billionaires - Profile of David Einhorn April 14, 2013 (in Hebrew)
  12. 1 2 New York post: "Mets agree to sell minority stake in team" By CLEMENTE LISI May 26, 2011
  13. ↑ Milwaukee Journal Semtinel: "Venture capitalist Einhorn paid for voter fraud billboards" By Daniel Bice October 29, 2012
  14. ↑ Sandomir, Richard; Belson, Ken (6 Jun 2011). "Before Mets, Einhorn Longed for Brewers". The New York Times. Retrieved 18 Sep 2012.
  15. 1 2 Julia La Roche (February 8, 2013). "The Fabulous Life Of David Einhorn—The Billionaire Hedge Funder Going To Battle Against Apple". Business Insider.
  16. ↑ Bob Pajich, "David Einhorn Donates All $$659,730 WSOP Winnings", CardPlayer (website), 2006/08/08.
  17. ↑ "Statement from Michael Brown, City Year CEO & Co-Founder, On David Einhorn's Participation in One Drop Poker Tournament". Sacramento Bee. 3 July 2012. Retrieved 3 July 2012.
  18. ↑ "Event #55: The Big One for One Drop - No-Limit Hold'em". WSOP. 3 July 2012. Retrieved 3 July 2012.
  19. ↑ Bice, Daniel,"Venture capitalist Einhorn paid for voter fraud billboards", Milwaukee Journal Sentinel, October 29, 2012. Retrieved 2012-10-30.
  20. ↑ "David Einhorn Political Contribution List".
  21. ↑ "Einhorn Moves Markets — Except When It Comes to Apple".
  22. ↑ "Greenlight Capital Returns" (PDF). Retrieved 16 May 2016.
  23. ↑ "Greenlight Capital Returns" (PDF). Retrieved 16 May 2016.
  24. ↑ Brown, Abram (21 February 2013). "Apple: Einhorn Refuses To Stop, Estimates Preferred Stock Plan Could Add $150 A Share". Forbes. Retrieved 23 February 2013.
  25. ↑ "The Hedge Fund Witch Hunt: Eliot Spitzer's latest investigation is pursuing the wrong guys", Slate Magazine, February 13, 2003.
  26. ↑ Following Clues the S.E.C. Didn't
  27. ↑ FoolingSomePeople.com
  28. ↑ Goldfarb, Zachary A. (March 23, 2010). "SEC inspector general raises red flags in new report". Washington Post.
  29. ↑ Opalesque (13 March 2009). "Einhorn: Allied's rise and fall shows poor oversight".
  30. ↑ Lina Saigol, "Denial disguises Lehman reality", Financial Times / FT.com, 2008/09/15.
  31. ↑ Einhorn (29 November 2007). "A Few thoughts About Risk" (PDF).
  32. ↑ Cyrus Sanati, Erin Callan: the Greta Garbo of Wall Street, New York Times, 2010/03/09.
  33. ↑ "How to play the short game". Financial Times. 2008-07-16. Retrieved 2008-09-18.
  34. ↑ Wolinsky, Jacob (2011-10-17). "David Einhorn is Short GMCR". ValueWalk.com. ValueWalk LLC. Retrieved 2012-07-07.
  35. ↑ Patton, Leslie; Gammeltoft, Nikolaj (October 17, 2011). "Bloomberg News: Green Mountain Drops as David Einhorn Says Market 'Limited'". Businessweek.com. New York. Bloomberg News. Archived from the original on 2012-07-06. Retrieved July 7, 2012.
  36. ↑ Chung, Juliet; Benoit, David (May 4, 2015). "Wall Street Journal: Einhorn Hits Fracking Stocks". WSJ.com. New York.
  37. ↑ "Greenlight Fracking". Retrieved 16 May 2016.
  38. ↑ "New York Mets select David Einhorn as preferred partner" (Press release). New York Mets. May 26, 2011. Retrieved May 26, 2011.
  39. ↑ Rubin, Adam (May 29, 2010). "Source outlines Mets-David Einhorn deal". ESPN.com. Retrieved May 29, 2011.
  40. ↑ Sandomir, Richard (September 1, 2011). "Mets' Deal With Einhorn Is Off". The New York Times. Retrieved September 1, 2011.
  41. ↑ Helft, Miguel; Vance, Ashlee (May 26, 2010). "Apple Passes Microsoft as No. 1 in Tech". The New York Times. Retrieved May 26, 2011.
  42. ↑ Rigby, Bill; Herbst, Svea; Chan, Edwin (May 25, 2011). "Hedge fund star calls for Microsoft's Ballmer to go". Thomson Reuters. Retrieved May 26, 2011.
  43. ↑ "David Einhorn cash case against Apple Inc rests on unusual legal tactic". The Indian Express. Reuters. 10 February 2013. Retrieved 23 February 2013.
  44. ↑ Benoit, David (22 February 2013). "Einhorn's Apple Victory Seen as Legal Precedent in Corporate Governance". Wall Street Journal. Retrieved 23 February 2013.
  45. ↑ Strumpf, Dan; Bray, Chad; Lessin, Jessica E. (22 February 2013). "Judge Grants David Einhorn's Bid to Block Apple Proxy Vote". The Wall Street Journal. Retrieved 23 February 2013.
  46. 1 2 3 4 "FSA fines hedge fund manager David Einhorn ￡7.2m for insider trading", fsa.gov.uk.
  47. ↑ "FSA fines hedge fund manager David Einhorn ￡7.2m for insider trading", telegraph.co.uk.
  48. ↑ Schreiber, Sholom, "David Einhorn Given Second Largest Fine in British Financial History", jewishvoiceny.com, 01 February 2012.

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