Third Point Re, the Bermudian reinsurance firm backed by Daniel Loeb’s Third Point LLC hedge fund, has come out on top after the second-quarter when the firms investment portfolio return far outperformed the other main hedge fund reinsurer Greenlight Re.
In the second quarter of 2016 Third Point Re has achieved an impressive investment return of 3.9%, which leaves the reinsurer with a 2% investment return after the first-half of the year.
Meanwhile, Greenlight Re which is backed by hedge fund manager David Einhorn, has suffered a radically different investment return in the second-quarter, reporting a -3.4% return on investments for Q2 as its fortunes reversed, leaving it at -1% for the first six months of the year.
So the second quarter has reversed the fortunes of the firms entirely, Loeb’s Third Point Re had fallen to a -2.1% investment loss for the quarter and Einhorn’s Greenlight had achieved a positive 2.5% return.
It’s all change after the half-way point of the year though, once again reflecting the volatility that can be inherent in this reinsurance strategy, when investment decisions matter so much more than in a typically safe, low-return reinsurer asset strategy.
The reversal in fortunes likely reflects the changes in portfolio that both hedge fund managers made after 2015’s volatility, which impacted both of the reinsurers. It will be interesting to see whether the positions the portfolios hold have suffered any negative impact due to Brexit as well, which does now threaten to prolong the financial market volatility through the rest of this year.
These hedge fund reinsurance strategies respond to market conditions in different ways, due to the portfolio selections made, which provides investors with choice and can also make them very profitable when they outperform. However when financial markets are volatile the opposite can be the case, as we’ve seen in the last twelve months.
With second quarter reinsurance results due in a matter of weeks it will be interesting to see how both hedge fund reinsurers fared on an underwriting basis. For Greenlight Re a positive underwriting return is more important than ever for Q2, while for Third Point Re a positive underwriting performance could help it to a healthy result this time around.