Greenlight Capital Investor Letter: Q2 Performance and Highlights

Hedge fund Greenlight Capital, co-founded by well-known money manager David Einhorn in 1996 with $900,000 from friends and family, suffered its worst year since the financial crisis in 2015. The multi-billion-dollar hedge fund fell by 20% last year on the back of a mix of bad investments, including its bullish bet on Sunedison. Mr. Einhorn’s pool of funds are performing much better this year. The Greenlight Capital funds inched down by 2.6% net of fees and expenses in the second quarter of 2016, bringing the funds’ return for the first half of 2016 to 0.4%. 2015 was Greenlight Capital’s second losing year in the firm’s almost 20-year history, which is one of the primary reasons investors should monitor the firm’s moves and commentaries.

In a July 26 letter to investors, the asset manager played down the impact of the United Kingdom’s decision to leave the European Union, saying that the so-called Brexit “will not be a significant economic event” as the U.K. economy is too small to “have a large direct impact on global trade”. “However, the mere pretense of an event is likely sufficient to entice the global monetary authorities into serving up a fresh course of Jelly Donuts”, said the letter to investors. Leaving the discussion about the possibility of more monetary easing, let’s lay out several major moves completed by Mr. Einhorn and his team during the second quarter as revealed in the aforementioned letter to investors.

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Greenlight Capital Jettisons Stake in Baxter International Inc. (NYSE:BAX)

– Shares owned by Greenlight Capital as of March 31: 1.20 Million

– Value of Greenlight Capital’s holding as of March 31: $49.24 Million

Greenlight Capital upped its position in Baxter International Inc. (NYSE:BAX) by 695,163 shares during the first quarter of 2016 to 1.20 million shares. According to the July 26 letter to investors, the multi-billion-dollar asset manager sold out its entire position in Baxter during the second quarter “at a gain when the shares reached our view of fair value”. Baxter spun-off its biopharmaceutical business last summer into a separate company called Baxalta, which was acquired by Shire PLC (ADR) (NASDAQ:SHPG) for $32 billion in June. Baxter remains one of the biggest medical equipment companies, generating roughly $10 billion in annual sales from kidney care and hospital products. Baxter shares have gained an impressive 25% since the start of 2016, reflecting strong financial performance in the first half of the year. Just recently, the company increased its sales and earnings per share outlook for full-year 2016, after second-quarter worldwide sales grew 4% year-over-year to $2.6 billion. Dan Loeb’s Third Point LLC acquired a new stake of 53.85 million shares of Baxter International Inc. (NYSE:BAX) during the first quarter.