Hedge Funds

David Einhorn reportedly sees $400 million flee as another hedge-fund star faces massive outflows

Key Points
  • Investors withdrew $400 million from David Einhorn's Greenlight Capital, the Wall Street Journal reported Thursday.
  • The fund is down 2 percent in the first half of this year, according to the report.
  • John Paulson and other star managers have faced massive redemptions in recent years.
David Einhorn reportedly sees $400 million flee as another hedge-fund star faces massive outflows

David Einhorn's hedge fund just saw almost half a billion dollars flood out, according to a report, the latest star hedge-fund manager facing massive client redemptions.

After a dismal first half of the year for Greenlight Capital, investors forced the hedge fund to give back more than $400 million, the Wall Street Journal reported. The departure represents 15 percent of those who can withdraw under Einhorn's rules and adds pressure on a fund that is down 2 percent year-to-date, according to the report.

Greenlight has around $7 billion in assets under management now, according to the WSJ. Its stringent withdrawal rules mean only half of the fund's investors can remove their investment in the middle of the year. If the maximum withdrawal was reached at the midpoint, the other half of Greenlight's investors would have to wait until the end of the year to withdraw.

Einhorn, who famously called the collapse of Lehman Brothers during the housing crisis, is not alone in his struggles. The New York Times reported earlier this year that John Paulson, who made more than anyone betting against the mortgage market a decade ago, was down to just $10 billion in assets from a high of $36 billion in 2011. Eton Park, managed by Eric Mindich, surprisingly said it was closing down earlier this year after assets shrank by $2 billion in 2016.

The redemptions come as hedge funds continue to struggle during the eight-year-old bull market. The industry as a whole has returned just 3.7 percent this year through the end of June, according to the HFRI Fund Weighted Composite Index.

2015 was Greenlight's worst year of all time, when the firm experienced double-digit losses. Einhorn told investors that he "failed miserably," yet declined requests that he adjust his relatively high fees. Greenlight receives a performance fee regardless of whether the firm makes back its losses.

While 2016 saw the firm recoup some of the losses from the year prior, strong bets are backfiring in 2017. Greenlight's short of Tesla, which has risen nearly 55 percent this year, continues to drag down the fund's portfolio.

Greenlight Capital did not respond to requests for comment.

Read the full Wall Street Journal report here.