Greenlight Capital Re, Ltd. (NASDAQ:GLRE)

Greenlight Capital Reinsurance is the offshore public vehicle of Greenlight Capital. These vehicles are intended to produce a source of more permanent and consistent cash that funds can use to then invest as part of their fund. While unconventional, and admittedly seemingly a little sketchy, this strategy to create float using insurance premiums has been used for years by the likes of Warren Buffet and is not so much unlike a company like Markel, a Fool favorite (to be clear... you are paying 1.5/20 mgmt fees on the Float GLRE produces). I think there is more difference in structure then there is in strategy. Unlike Berkshire and Markel, which have traditionally earned a premium to book value, Greenlight Reinsurance trades at a 25% discount to book value which I find intriguing.

Investment Thesis:
• Trading .72X book value Greenlight reinsurance appears to be fundamentally undervalued unless one believes the investment portfolio of Greenlight Capital will continue to underperform the market
• Greenlight Capital runs a value-oriented strategy, which has broadly underperformed the market. One would expect mean reversion of value strategies to eventually market perform.
• David Einhorn owns 16% of the company, which is the most among hedge fund managers I found to also have public vehicles.

My bet is that Greenlight reverts to the mean, or even a little below, in that case the stock has pretty decent upside. Because of the discount, you get $1.3 dollars invested in Greenlight for ever $1, so you are essentially getting your fees back plus getting paid a little bit to own part of the Greenlight portfolio. I have no stance on if Einhorn will outperform, but if he does there is huge upside.

This is a risk however, the reinsurance business is facing pressure because of the poor performance of the fund, if they fail to underwrite well ,the stock has even more downside than they have currently experienced.

Einhorn sans 2/20