Hedge fund reinsurer investment returns back to negative in November

by Artemis on December 2, 2015

The investment returns generated by the two highest profile hedge fund manager backed reinsurance firms have returned to negative again in November, with Greenlight Re suffering another steep decline in the last month.

After a number of months where global financial market volatility hit hedge fund reinsurance firms Greenlight Re and Third Point Re, October saw the pair bounce back to a positive investment return but it hasn’t lasted for long.

Both Third Point Re, backed by hedge fund manager Daniel Loeb and his Third Point LLC firm, and Greenlight Re, backed by hedge fund manager David Einhorn’s Greenlight Capital, Inc., have reported a negative investment return for November 2015.

This year has been particularly turbulent for the hedge fund reinsurance strategy, with global financial market volatility, ongoing sovereign debt issues in the Eurozone, Chinese market volatility, Brazilian volatility, commodity price declines and continued uncertainty around interest rates, all hurting the investment-oriented reinsurance strategy.

Third Point Re reported -5.1% for August and -4.4% for September, while Greenlight Re reported -5.5% for August and -3.5% in September. Then the pair bounced back, with Third Point Re achieving a positive return of 4.6% in October, while Greenlight Re achieved 0.7%.

But November has come back to haunt hedge fund managers, although now the investment strategy differences are beginning to show.

Third Point Re reported an investment portfolio return of -0.3% for November, taking its year-to-date return to -0.2%. Meanwhile Greenlight Re’s investment manager David Einhorn has had another bad month, with the reinsurer reporting November as a -4.6% negative return, which takes the reinsurers investment return for 2015 so far to -20.2%.

The Greenlight Re year-to-date investment return is heading for the reinsurers worst ever, which really highlights the financial market uncertainty and turmoil that has been seen in 2015.

In particular, Greenlight Capital’s hedge fund has been hit by a bet on wind and solar power company SunEdison, which saw its share price fall by more than 83% so far this year.

With one month left to go Greenlight Re is looking at a very negative year, particularly as its underwriting results also suffered in Q3. Third Point Re could see a positive investment return if December performance is good, which at least could see the reinsurer getting closer to breakeven, if its underwriting results are positive for Q4.

The hedge fund reinsurance strategy, of lower-volatility, longer duration underwriting together with an active investment strategy managing the premium float, looks a particularly challenging one at this time.

With global financial markets still experiencing volatility there is no guarantee that a return to performance will be fast, although the hedge fund managers have been making significant portfolio changes which could help these companies in 2016.

Also read:

Hedge fund reinsurers hit by recent financial market volatility.

Hedge fund reinsurers hit on investment side again in September.

Greenlight Re falls to Q3 loss on Einhorn hedge fund volatility.

Watford Re combined ratio drops sub-100, but investment losses hurt.

Hedge fund reinsurer investment returns go positive in October.

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