David Einhorn: Hedge fund's performance 'far worse than we could have imagined'

  • Greenlight Capital lost 5.4 percent in the second quarter, bringing the performance of its funds to a year-to-date loss of 18.3 percent, according to a letter obtained by CNBC.
  • David Einhorn says over the last three years, Greenlight's fund performance has been "far worse than we could have imagined, and it's been a bull market to boot."
  • Value investing has been out of style as investors flock to growth stocks, but Einhorn says he believes the trend will eventually reverse.
David Einhorn
Andrew Harrer | Bloomberg | Getty Images
David Einhorn

Amid a bull market in equities, billionaire hedge fund manager David Einhorn has performed poorly and admits it's been "far worse" than he could have imagined.

His hedge fund firm, Greenlight Capital, lost 5.4 percent in the second quarter, bringing the performance of its funds to a year-to-date loss of 18.3 percent, according to a letter obtained by CNBC. The S&P 500 gained 2.6 percent this year as of the end of June.

"Over the past three years, our results have been far worse than we could have imagined, and it's been a bull market to boot," Einhorn wrote in the letter to investors. "Yes, we have made some obvious mistakes – the worst of which was not assessing that SunEdison was a fraud in 2015 – but there have been others. A number of years ago one of our investors said Amazon would surpass Apple and become the most valuable company in the world. We didn't get it then and, truthfully, we don't really get it now."

The letter acknowledges that an unspecified number of investors have lost patience and sold out of the funds.

The manager points to a number of stumbles, including investments in Brighthouse Financial, a MetLife spinoff, as well as General Motors, two of its larger positions. The letter said Greenlight had taken action "to mitigate our problems." It covered its Netflix equity short position at $281.46 as the stock climbed to $391.43 during the second quarter. And it traded its Athenahealth short position so that it has not been a material loser this year, he said.

Einhorn said that others have theorized that age, changed lifestyle or an unwillingness to adapt to shifting markets was the cause of his funds' underperformance. Part of the reason, though, is that his focus on value investing — buying stock of out-of-favor companies — has struggled as growth company stocks have surged.

He notes in the letter that the Russell 1000 Pure Growth index has outperformed the Russell 1000 Pure Value index by 54 percent.

That should eventually reverse, he wrote.

"Right now the market is telling us we are wrong, wrong, wrong about nearly everything," Einhorn wrote. "And yet, looking forward from today we think this portfolio makes a lot of sense."

— CNBC's Liz Moyer contributed reporting.