Investors in David Einhorn's Greenlight Capital Management's offshore gold fund were down 11.8 percent in June, bringing their year-to-date losses in the fund to 20 percent, two sources close to the matter said on Sunday.
Einhorn, one of the most widely followed hedge fund managers and known for warning about Lehman Brothers' precarious finances before it collapsed, has also seen his flagship $8 billion Greenlight Capital fund under recent pressure though it is still up for the year.
In June, Greenlight's flagship portfolio was down 1.1 percent but still up net 7.4 percent year to date, according to one of the sources.
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Einhorn, largely known for going both long and short on stocks, formed the Greenlight gold fund to include the same investment strategy as the main fund but offers a share class backed by physical gold.
The gold fund, with a minimum investment of $1 million, had $929 million under management and 266 investors as of March, according to a recent regulatory filing.
The sources said the fund's dollar-denominated class represents a "majority" of the gold fund and is up 7.1 percent for the year. The remainder is in the gold-denominated class, which is down 11.8 percent in June alone and 20 percent so far this year. That's consistent with the sector's plunge this year.
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The gold-denominated fund gives Greenlight investors exposure to gold through the fund's investments, then reprices them in gold as opposed to U.S. dollars.
Gold, which fell below $1,200 an ounce on Thursday for the first time in three years, posted its largest quarterly loss in at least 45 years amid fears the U.S. Federal Reserve may wind down its stimulus program.
After Friday's rally of 2.3 percent, gold is still 23 percent lower for the second quarter, its biggest decline since at least 1968, according to Reuters data.
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Einhorn has said he prefers investing in gold bars, as opposed to the popular gold exchange-traded fund, SPDR Gold Shares, partly to have better control over his investment and keep a lid on trading expenses.
In 2009, Einhorn said at the annual Value Investing Congress that he was holding gold as a hedge for what he described as unsound U.S. policies.
"If monetary and fiscal policies go awry," investors should buy physical gold and gold stocks, he said at time. "Gold does well when monetary and fiscal policies are poor and does poorly when they are sensible."
This March, a month before the big April swoon in gold prices, the Greenlight Gold fund completed a financing deal with HSBC for an unspecified sum, according to a financing statement. The fund also has a financing agreement with Goldman Sachs.
Einhorn's dedicated gold fund will not be the only portfolio in the $2.2 trillion hedge fund industry that got burned in June from an investment in precious metals.
In April, a dedicated gold fund managed by John Paulson was down about 27 percent, bringing the year-to-date decline at 47 percent. Soon after, Paulson, who is the largest investor in the fund, limited the release of performance figures for his gold fund, worried it was getting too much attention in the media.
Earlier this year, the Paulson gold fund had about $700 million in assets. Paulson also invests in gold miners and in the gold ETF for his Advantage funds, which have about $5 billion in assets.
Einhorn's flagship fund also invests in gold. Earlier this year, the manager listed gold as one of the five largest positions in the fund. Reuters previously reported that Einhorn stores some of his gold in a secure facility in Queens, New York.
Dan Loeb's $12 billion Third Point firm also had a sizable position in physical gold in his portfolios but people familiar with the matter said he exited the positions in the spring. An investor with Loeb who did not want to be identified said the Third Point Partners fund fell 1.7 percent in June, but was still up 13.2 percent for the year.