David Einhorn, founder of Greenlight Capital, told investors that protecting capital sits at the top of the hedge fund's agenda as markets rally on the back of geopolitical optimism. In his most recent investor letter dated Monday, Einhorn cautioned that investors may be underestimating potential downside and that Greenlight is prepared to sacrifice some upside in order to limit losses should unfavorable scenarios unfold.
"It probably won't surprise anyone that we are again putting capital preservation at the top of our priorities," Einhorn wrote. He added: "With so little downside priced in, we are willing to risk missing out on a possible recovery to position ourselves to play more offense, should one of the downside scenarios materialize."
Greenlight reported a 6.5% return for its funds in the first quarter, outperforming the S&P 500, which posted a 4.4% decline over the same period. Einhorn said the firm has maintained relatively low gross and net exposure during the quarter, stressing a cautious stance even as other investors increase risk.
In his letter, Einhorn used a colorful analogy to describe market positioning: "Even the most cautious are investing with a Sammy Hagar inspired mentality: one foot on the brake and one on the gas," he wrote, noting that many investors are reluctant to miss a rapid V-shaped or checkmark-shaped rebound.
When the U.S.-Iran conflict began, Greenlight already had relatively low exposure, citing what it saw as stretched valuations. The firm made few portfolio changes through the quarter, with trading activity concentrated around index hedges and a single tactical addition - a long position in October oil futures.
Performance drivers during the quarter included gains in gold and positive moves in specific equity holdings, including Acadia Healthcare, DHT Holdings and Core Natural Resources. Greenlight also opened a medium-sized position in Versant Media Group and added smaller stakes in Crocs and SLM Corp, the letter said. Einhorn noted that the S&P 500 has since erased the losses it suffered when the Iran war began.
Note: The letter reflects Greenlight's stated positioning and reported quarterly return; it does not present forward-looking guarantees or additional detail beyond what was provided by the firm.