Swiss Re Insurance-Linked Fund Management

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Hedge fund reinsurer investment returns continue to diverge in 2016


The hedge fund reinsurance strategy continues to demonstrate its volatility in 2016, as the two main proponents of the strategy, backed by leading hedge fund managers, see their performance diverge as Greenlight Re outperforms Third Point Re again in February.

After a highly volatile 2015, which saw a divergence in the performance of hedge fund manager backed reinsurers investment returns, a similar trend is being seen so far in 2016, although the two firms have switched places.

In 2015 Greenlight Re, backed by hedge fund manager David Einhorn’s Greenlight Capital, Inc., saw full year negative investment performance of -20.2%, while Third Point Re on the other hand, backed by hedge fund manager Daniel Loeb and his Third Point LLC firm, only fared better at -1.4%.

In 2016 Einhorn’s Greenlight Re started the year with a positive investment return of 1.2%, while Third Point Re went the other way, falling to a -3.3% investment loss in January 2016.

Now the February results are in and the reversal of fortunes has continued, with Greenlight Re reporting positive investment performance of 2% for the month, taking its 2016 investment return to 3.2% already.

Third Point Re, however, suffered another negative month in February, with -0.6% for the month taking its 2016 year-to-date investment performance lower to -3.9%.

So that’s a 7.1% difference in performance in just two months between these two hedge fund managers in 2016, which could have a significant bearing on first-quarter reinsurance results.

The problem for these hedge fund managers is not just that financial market volatility continues, but that the changes to their portfolios made in the wake of the highly volatile months in the second half of 2015 may not yet have taken effect, or may not have been the right choices.

When volatility hits hedge fund results on the scale seen in 2015 managers often make significant changes to portfolios, in an attempt to move out of the positions driving negative performance. That, of course, brings its own risks.

For Greenlight Re, any changes made appear to have been positive, so far. If the reinsurance firms investment returns could carry on this way in 2016 it would go a long way towards recouping the losses suffered last year.

But financial markets are fickle and there are no guarantees that the change in fortunes will continue. Year-to-date investment performance could make for interesting first-quarter results for these hedge fund strategy reinsurance firms.

Also read:

Einhorn investment loss can’t be avoided at Greenlight Re.

Hedge fund reinsurer challenges continue, hybrid model to evolve : Fitch.

2016 starts positively for Greenlight Re, negatively for Third Point Re.

Leading hedge fund reinsurers suffer full year investment loss in 2015.

Hedge fund reinsurers hit by recent financial market volatility.

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