At the end of the first-quarter of 2016 the two leading proponents of the hedge fund reinsurance firms continued to show that, when it comes to navigating the financial market investment environment, not every strategy is equal.
The investment results of reinsurance firms Greenlight Re, backed by hedge fund manager David Einhorn’s Greenlight Capital, Inc., and Third Point Re, backed by hedge fund manager Daniel Loeb and his Third Point LLC firm, saw the divergence in performance continue through March.
After a torrid and highly volatile 2015, when Greenlight Re suffered full year negative investment performance of -20.2% and Third Point Re fared better at -1.4%, returns in 2016 remain divergent with Greenlight Re’s portfolio performing better so far this year on the investment side.
At the end of the first-quarter Greenlight Re reports its investment return for 2016 so far as 2.5%, despite suffering a -0.6% decline in March.
Third Point Re, on the other hand, fell to a first-quarter investment loss of -2.1%, although its March return saved it from a much worse decline, and again demonstrated the divergence in strategies, as its portfolio returned 2% in just the one month.
Of course the investment results are just one side of the total return reinsurance story, with the underwriting results just as important to the reinsurers overall profitability (or otherwise).
With both of these firms having reported fluctuating underwriting performance in recent quarters it will be interesting to see where Greenlight Re can report a profitable Q1 and whether Third Point Re’s underwriting will be enough to reverse the investment loss.
With a 4.6% divergence between the investment results of these two investment oriented reinsurers after just one-quarter in 2016, Third Point Re has a way to go to reverse this trend. March’s results show that it is always possible to reverse a decline and another month of similar performance in April would bring the firm back to near breakeven (on the investment side).
With both of these reinsurers having made some significant changes to their investment portfolios after the volatility seen in the second half of 2015, both will still be waiting for the dust to settle and tweaking positions as they look to optimise performance.
With financial market volatility still evident and an expectation among many that 2016 will see volatile markets in equities and commodities, these hedge fund reinsurance firms may find they experience both ups and downs as the year progresses.