The differences in hedge fund reinsurance investment portfolios was again evident in the first month of 2016, with Greenlight Re reporting a positive investment return, while Third Point Re fell to an investment loss in January.
2015 gave a stark example of the challenges that hedge fund reinsurers face when financial market volatility is rife. Both Greenlight Re and Third Point Re, which are really the two main examples of this strategy that are backed by high-profile hedge fund managers and publicly report their results, suffered investment declines, but by the end of the year the difference in investment strategies showed.
For the full-year 2015 Greenlight Re, backed by hedge fund manager David Einhorn’s Greenlight Capital, Inc., reported a full year negative investment return of -20.2%. Third Point Re on the other hand, backed by hedge fund manager Daniel Loeb and his Third Point LLC firm, only finished the year with a negative investment return of -1.4%.
For January 2016 the difference in strategies has reversed, somewhat, with Greenlight Re reporting a positive investment return of 1.2%, which is a solid start to the year after the terrible 2015 suffered at Einhorn’s Greenlight hedge fund.
Meanwhile Third Point Re went the other way, falling to a -3.3% investment loss in January 2016, its worst single month since September of last year.
That makes the performance gap between the two hedge fund reinsurers portfolios a fairly large 4.5% for just one month.
Of course, what this really demonstrates, is just how uncertain the financial investment climate is at the moment, with different strategies and positions able to drag a portfolio down at any time. That makes the hedge fund reinsurer strategy very difficult in the current environment, hence the increasing negativity and pressure from analysts and the like.
Many have questioned whether the strategy even has a future, but as a hybrid it clearly does and interest in launching reinsurance vehicles which have a more active investment strategy remains strong. However the ability of the large hedge fund managers to continue to operate listed reinsurers does remain in doubt, as long as the investment returns remain so tricky to find.
The global financial climate continues to look difficult for investors, which should make 2016 another interesting year to follow the hedge fund reinsurer strategy and see how the different hedge fund managers cope with ongoing volatility.
A volatile financial market environment allows the differences between investment strategies to really shine through, as was seen between these two hedge fund reinsurers in 2015. It’s going to be interesting to see the Watford Re results, from re/insurer Arch Capital and asset manager Highbridge Principal Strategies joint-venture reinsurance vehicle.
Chances are Watford Re will have suffered similar challenges in 2015, and it will be interesting to see whether there is any difference in strategy evident in the portfolio returns for the year.