Einhorn's Greenlight adds Toshiba stake

The Greenlight hedge funds dropped 4% in the aggregate during the period

Greenlight Capital, the hedge fund firm led by David Einhorn, took a new stake in Japanese conglomerate Toshiba Corp. during the second quarter.

 

The firm said in a note to clients dated Friday that it’s wagering Toshiba shares will rise once it exits money-losing contracts tied to its Westinghouse business, which filed for bankruptcy protection in March. Greenlight also said it believes Toshiba can resolve a legal dispute over a sale of its memory business that was meant to shore up its balance sheet.

 

“We believe investors will refocus on the significant margin and valuation upside at Toshiba once it has resolved uncertainties,” Greenlight wrote in the letter, a copy of which was seen by Bloomberg News. The stock, which the firm said “is worth closer to 400 yen per share,” closed in Japanese trading at 231.6 yen.

 

The Greenlight hedge funds dropped 4 per cent in the aggregate during the period, pushing their first-half return to a loss of 2.8 per cent. In the letter, the firm called the second-quarter “a bit of a head-scratcher” as it lost money even though its main long holdings beat or met earnings expectations while its short targets underwhelmed analyst expectations. The S&P 500 Index returned 9.3 per cent in the first six months of 2017.

 

Greenlight also said it exited an “unusually large number of positions” last quarter, including a stake in Liberty Global Plc, saying “recent operating trends weakened.”

 

The New York-based hedge fund firm cut several shorts. It said it ended a wager against Mallinckrodt Plc, a drugmaker that drew scrutiny in May from short-seller Jim Chanos.

 

Greenlight also closed decade-long shorts on credit rating companies.

 

“We incorrectly believed that the agencies would ultimately be held to greater accountability for their malfeasance leading up to the housing bubble in 2008,” the firm wrote.

 

Greenlight said its wagers against a “bubble basket” of momentum-driven technology stocks was “particularly frustrating.” It criticised Amazon.com decision to purchase Whole Foods Market for $14 billion, and argued that analysts shouldn’t compare the trajectory of carmaker Tesla to that of Apple.