David Einhorn Replaces Credit Swaps With Shorts In Sovereign Debt

David Einhorn, founder and president of Greenlight Capital, one of the most successful long/short equity hedge fund managers of the past decade, replaces his credit default swaps in European sovereign debt with short sales. By doing that, Einhorn can prevent counterparty risks and avoid devastating those European banks that provides the insurance, according to Bloomberg.


Greenlight Capital exited about half of its $667 million of sovereign debt during the third quarter, and entered into short sales on non-U.S. sovereign bond.

“There are at least three or four fairly large funds that have done exactly the same thing as David Einhorn,” said Gary Swiman, head of ICS Risk Advisors. “You go from a private market that is unregulated at this time to publicly issued government sovereign debt that is transparent.”

As of December 2nd, Greece had $3.4 billion of net credit swaps on its sovereign debt, down 46 percent from $6.3 billion at January 7th.

David Einhorn grew up in Milwaukee and graduated from Cornell. He learned the hedge fund business from Gary Siegler and Peter Collery, who managed the SC Fundamental Value Fund. David Einhorn is one of the most successful long/short equity hedge fund managers of the past decade. David Einhorn’s Greenlight Capital returned 15.9% in 2010, and 21.5% since its inception in 1996. Greenlight Capital’s market beta is around 0.5, meaning if they didn’t have any stock picking skill, they would have returned about half of the market’s return.

“We try to find things that are misunderstood,” says Einhorn. “And then if we think something is misunderstood then we figure out if it’s misvalued. And if we figure out that it’s misunderstood and misvalued, then we tend to invest”.

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