Greenlight Capital Q1 2025 Letter (NASDAQ:GLRE)

Expensive Accomplice:

The Greenlight Capital funds (the “Partnerships”) returned 8.2% 1 within the first quarter of 2025, web of charges and bills, in comparison with -4.3% for the S&P 500 index (SPX)(SP500).

Our observe is to report our efficiency and examine it to that of the S&P 500 index. We do that to adjust to present SEC pointers as a registered funding advisor. Previous to 2016, we merely reported our return. Clearly, this quarter was very robust on each an absolute and relative foundation. So, this can be a handy time to remind you that we don’t view our mission as outperforming the S&P 500 index every quarter. Have been that the case, we might have a totally totally different method to portfolio building. We’d preserve round 100% web lengthy publicity, and be levered lengthy when bullish, and fewer than absolutely invested when bearish. We’d chubby shares we consider would outperform the S&P 500 index, and personal shares in proportion to their index weighting after we lacked a differentiated view. We would additionally personal some shares that we had a unfavourable view on, however in a smaller proportion than their index weighting. There are numerous funds that make use of this method. However not us.

We are attempting to make wise investments and to assemble a portfolio of each longs and shorts the place we consider the reward outweighs the danger. If we make good selections, our method ought to result in returns that exceed the S&P 500 index over time, whereas exhibiting demonstrably much less threat. And, over the lifetime of the Partnerships, we now have completed simply that. For the final three years, we now have achieved our outcomes with zero every day correlation to the S&P 500 index.

We aren’t going to outperform the index in each interval, and we aren’t even going to strive. A few quarters in the past we wrote:

We’ll keep away from calling this market a bubble, and easily observe that the dividend yield is low and the P/E ratio is elevated regardless of company earnings being cyclically excessive, if not top-of-cycle… Nonetheless, whereas we’re conservatively positioned with respect to web publicity, we aren’t outright bearish. We’re more likely to proceed to underperform a rising market, as we now have all yr, however we don’t want to place ourselves to lose cash ought to the market proceed to rise.

We obtained a good quantity of flak for acknowledging our potential underperformance in a rising market. Nonetheless, you may’t have it each methods and in our expertise it’s extra sensible to regulate publicity earlier than the market turns. We consider that being conservatively positioned throughout a interval of elevated market valuations is smart, regardless that it resulted in 2024 shaking out to be a subpar yr for the Partnerships. As of the date of this letter, we now have made again all of final yr’s relative underperformance. Whereas we didn’t know precisely why issues would change, we considered the general risk-reward of the market as being unattractive and we didn’t assume it was a superb time to simply accept lots of fairness threat.

Sensing that the market was turning, in late February we pivoted from conservative, however not bearish, to bearish. We suspect we at the moment are in a bear market that’s simply beginning. The truth that the market has declined from its report highs doesn’t make it cheap or engaging.

Just a few weeks in the past, we thought this letter would possibly embrace our observations on the huge quantity of funding being poured into information facilities and chips to help AI. 5 of the Magnificent 7 have pledged basically all their present money move to the pursuit of the AI alternative, the place returns on that funding are unsure, and competitors is certain to be fierce. We puzzled whether or not, in some unspecified time in the future, Wall Road would possibly cease rewarding and, actually, punish these firms for frequently elevating their guarantees of how a lot they’d spend on merchandise from NVIDIA and ancillary firms. Now, that appears trite.

Our final letter highlighted the uncertainty created by the Trump Administration. We at the moment are solely about 5% into President Trump’s second time period. It’s like being on the health club, trying a set of 20 push-ups, and already feeling exhausted after finishing only one.

We hate to make these quarterly letters about politics, however coverage is having such a big affect on world markets that we expect it’s apt to share just a few observations in as nonpartisan a fashion as potential. We’ll skip any dialogue of social coverage, which is much less related as an funding consideration. Greenlight employs individuals who help each events, and we all know that you just, our companions, are equally break up.

With that stated, listed here are a pair observations:

The information cycle adjustments very quickly. If you happen to like the most recent information, get pleasure from it for 2 hours. It should change. If you happen to don’t just like the information, wait two hours, it would change. Don’t get misplaced within the particulars. The Administration says lots of issues. The main points change so much. However the huge image is comparatively clear… we expect.

So, what’s the huge image?

The Administration is a disruptive entity. It isn’t upsetting the proverbial apple cart. Relatively, it’s upsetting ALL of the apple carts on the identical time. These are ‘go-fast and break-things’ folks. It’s a very high-risk technique that they hope will result in giant transformations in lots of areas. It could or could not work out as they anticipate, however within the meantime, it creates lots of chaos. It could prove that going quick and breaking issues isn’t the best thought in the case of geopolitics and the worldwide economic system. The current overseas relations technique known as America First. There are numerous remoted grievances (some fairly reliable) that America has with different nations. Rectifying unfairness is being prioritized over earlier themes resembling selling democracy and supporting capitalism, financial growth and freedom around the globe. Some actions would possibly transcend the grievances and appear extra like conquests. This will imply alienating allies and bullying anybody perceived as weak. Maybe, this can result in Europe paying for its personal protection and Japan importing American vehicles. Maybe, America First may flip into America Solo. Regarding operating the federal government, the philosophy is Libertarianism. The Administration is joyfully dismantling giant chunks of the paperwork. A few of that is about waste, fraud, abuse and inefficiency. A few of it’s that the Administration simply doesn’t like civil servants (who’re principally Democrats) and needs a smaller authorities. Whereas DOGE initially set cost-saving objectives of $2 trillion after which diminished it to $1 trillion, the most recent estimate of financial savings has been lowered once more to $150 billion. Whereas even that may be exaggerated, the general route of fewer civil servants is obvious. The Administration is main financial coverage with commerce, and its coverage is Protectionism, a historically left-wing place. The purpose seems to be to make use of tariffs to lift income and set up boundaries that create financial incentives to supply in america, slightly than overseas. Whereas this re-industrialization could also be well-meaning, there are severe issues with this considering: First, a commerce deficit doesn’t essentially imply that we’re being ripped off. We purchase items and the opposite nation will get cash. They’ll do no matter they need with the cash together with lending it to the U.S. authorities, which must borrow. We get the advantage of having fun with the products. It’s not that totally different than going right into a deli and shopping for a sandwich. You get the sandwich, and the deli will get your cash and may do with it no matter it desires. No one is getting ripped off – even when the pastrami isn’t that nice. Second, whereas we now have nostalgia for manufacturing, it isn’t clear that having employees in poorer nations knit our socks is such a nasty factor. We’ve got migrated to a service economic system and have almost full employment. As manufacturing jobs have been misplaced, different jobs have been created. Sure, the transition has been uncomfortable for these displaced and there are issues we may do to ease their ache (beginning with dramatic enhancements in educating their kids), however there are higher options than making an attempt to deliver again low value-added manufacturing jobs. Third, there’s a giant lag between introducing tariffs now and when factories may even be constructed domestically. Within the meantime, we’ll undergo the instant hurt of the tariffs with out the advantage of the brand new manufacturing. Fourth, the Administration could also be underestimating China. The Treasury Secretary has repeatedly stated that China “is enjoying with a pair of 2s.” Presumably, he thinks this can be a weak hand. As a primary matter of poker, if 5 playing cards are dealt, a pair of 2s is nearly precisely a mean hand. As a second matter of poker, it’s a strategically unwise tactic to inform your opponent what playing cards you consider he holds. As this performs out, each nations have strengths and weaknesses and solely time will inform who has the successful hand. Current developments counsel it’s the U.S. that’s folding. Fifth, there are severe dangers to the extremely protectionist commerce coverage – to not point out the Administration’s choice to wield tariffs (and the specter of tariffs) to realize overseas coverage ambitions past commerce. The frequently shifting calls for and potential alienation of our allies threat inflicting a lack of belief. A reserve foreign money requires a way of belief, and we acquire super profit from having the U.S. Greenback because the world’s reserve foreign money. If we lose the world’s belief, reserve foreign money standing is jeopardized. The Biden administration took a big step on this route by freezing $300 billion of Russian reserves. Reserves are imagined to be simply that – there once you want them. The Trump administration has floated the concept of a revised system primarily based on the so-called Mar-a-Lago Accord. One concept that has been publicly hinted at is for overseas nations to trade their current holdings of U.S. debt into different U.S. debt on much less favorable phrases. International locations that may turn out to be alienated or may be requested (and ask could also be a euphemism) to compromise their U.S. bond holdings have a big incentive to promote U.S. debt earlier than that occurs. They actually aren’t being compensated for taking substantial threat. Finally, this places the danger of world de-dollarization on the desk. The Treasury Secretary stated, “I consider Wall Road has completed nice the previous few years and Primary Road has suffered. I feel it’s Primary Road’s time.” He has indicated that he desires to implement good insurance policies with out concern for the inventory market’s instant response. President Trump went even additional, by retweeting a commentator who acknowledged that the President crashed the market on objective. Since 1987, when the inventory market sneezes, coverage reacts. It might be a welcome growth, ought to that change, as Secretary Bessent plans. It’s an open query as as to if it would.

So, what are the funding implications of all this?

First, we consider that the economic system was already in a slowdown even earlier than the Liberation Day tariff bulletins. The DOGE cuts have had a a lot larger affect on sentiment relative to the financial savings achieved. In case you are a civil servant, in the event you work within the non-profit sector, in the event you work in scientific analysis funded or partly funded by the federal government, in the event you work at a federally funded college, if you’re a authorities contractor or consultancy, or in the event you work in DEI or local weather change, you have got a severe threat of dropping your job and your revenue. These jobs are disproportionately held by Democrats. Financial sentiment surveys present monumental divide throughout celebration strains. We observe that post-election, the Republicans are principally ebullient, whereas the Democrats are depressed. Whereas many assume the Democrats’ response is political, we expect their unfavourable sentiment is economically comprehensible and is translating into restrained spending.

We consider that this was resulting in an financial slowdown even earlier than the commerce bulletins, pushed by diminished consumption exercise by these negatively affected. We’ve got added a number of brief positions in shopper firms that cater to liberal tastes.

Second, no matter the place commerce coverage ultimately settles, it’s contributing to the expansion slowdown. There was a surge of financial exercise that front-ran the tariffs. That must be digested and will result in decrease near-term manufacturing. Additional, tariffs are a tax – and a regressive one at that. Not less than a number of the tariff price will get handed on to the patron. Moreover, firms that face much less competitors as a result of tariffs can elevate costs.

Much less consumption and job cuts create a slowdown, and fairly possible a recession. We could already be in a single now. It isn’t unusual for economists to backdate recessions. What follows from that, after all, is decrease company earnings and certain decrease inventory costs.

Bear markets don’t go straight down. They’re punctuated with ‘rip-your-face-off’ rallies primarily based on huge headlines, excessive investor sentiment, and expertise that purchasing the dip normally pays off. Consequently, our technique is to not attempt to make some huge cash by being web brief. As an alternative, we now have lowered our gross and web publicity. This could allow us to trip out the downswings and counter-trend upswings with out an excessive amount of harm. The purpose is to protect capital in our fairness portfolio and emerge with substantial shopping for energy when the chance set improves.

Throughout the macro e book, we proceed to personal gold and choices on gold. The occasions described above, together with the potential for waning reserve foreign money standing, are very bullish for gold. We’ve got stated we might be completely happy if gold went up 25%, however we’d not be so completely happy if it went up 1,000%. We’re apprehensive we’d not be so completely happy when this performs out.

We additionally consider that the slowdown will trigger the Federal Reserve to decrease rates of interest greater than the market expects, and we now have established a big lengthy place in SOFR futures in keeping with that opinion. We’ve got additionally added tail safety for the chance that the greenback may depreciate considerably towards the Euro and the Yen, ought to overseas buyers lose confidence in our markets or our credit score. Lastly, we now have added to our place in long-duration inflation swaps, as we consider that just about all present Administration coverage roads result in greater long-term inflation.

Cling in there. Simply 19 extra push-ups to go.

To briefly summarize our first quarter outcomes, on a gross foundation we misplaced 1.3% in our lengthy portfolio, made 5.8% in our brief portfolio and made 5.3% in macro. That’s a complete gross return of 9.8%, and a web return of 8.2%

The largest lengthy winner was Brighthouse Monetary (BHF), which rose 20.7% in the course of the quarter. In line with media reviews, the corporate has employed Goldman Sachs and Wells Fargo to promote itself. There seems to be lots of curiosity from giant asset managers that would love the chance to handle BHF’s roughly $120 billion common account. Whereas there’s a threat the present market turbulence may derail a deal, absent that we anticipate the corporate shall be profitable in promoting itself at a wholesome premium.

The largest lengthy detractor was Core Pure Sources (CNR), which declined 27.6% in the course of the quarter. CNR was previously CONSOL Power (CEIX). It accomplished its merger with Arch Sources in January. The mixed and renamed firm has suffered from falling coal costs in 2025 and diminished manufacturing as a result of a fireplace in considered one of its mines. There may be additionally a threat that the escalating commerce warfare may hurt CNR’s exports. Nonetheless, the mixed firm has a conservative stability sheet and has the capability to repurchase lots of inventory this yr. Additionally it is more likely to profit from President Trump’s govt orders supporting the coal business.

Within the macro portfolio, gold was by far the most important winner. It superior 19.0% in the course of the quarter. We maintain a part of the place in gold bars and half in name choices. We additionally made earnings on our beforehand mentioned inflation swaps and SOFR futures positions.

As we are attempting to take care of a low degree of gross and web publicity, we didn’t enter into some other new positions that benefit disclosure and dialogue.

We exited a few notable lengthy positions. Simply Eat Takeaway (Netherlands: TKWY)(OTCPK:JTKWY)(OTCPK:TKAYF) agreed to be acquired by Prosus (OTCPK:PROSY)(OTCPK:PROSF). We bought after the inventory worth appreciated 52% (a 227% web IRR over a five-month holding interval). We additionally bought our place in Syensqo (Belgium: SYENS)(OTCPK:SHBBF)(OTCPK:SYNSY) after simply over a yr with a -13% web IRR. We have been hoping the corporate can be re-rated as a result of its greater high quality companies. We determined to make room for an additional thought in the identical business.

We accomplished our workplace rework proper on schedule. A number of weeks of earn a living from home have ended and we’re delighted to be in our new, recent area. Come go to us and see for your self!

Elizabeth Gawlik departed in the course of the quarter. She was with us for over 11 years, most just lately as our administration firm controller. We want Elizabeth good luck together with her subsequent journey!

At quarter-end, the biggest disclosed lengthy positions within the Partnerships have been Brighthouse Monetary, Core Pure Sources, Inexperienced Brick Companions (GRBK), Lanxess (OTCPK:LNXSF)(OTCPK:LNXSY) and Solvay (OTCPK:SVYSF)(OTCPK:SLVYY). The Partnerships had a mean publicity of 86% lengthy and 67% brief.

“Expertise is a wonderful factor. It lets you acknowledge a mistake everytime you make it once more.”

– Franklin P. Jones

Greatest Regards,

Greenlight Capital

The knowledge contained herein displays the opinions, estimates and projections of DME Capital Administration, LP d/b/a Greenlight Capital (collectively with its associates and predecessor entity, “Greenlight”) as of the date of publication, that are topic to alter with out discover at any time subsequent to the date of situation. Greenlight doesn’t signify that any opinion, estimate or projection shall be realized. All data offered is for informational functions solely and shouldn’t be deemed as funding recommendation or a advice to buy or promote any particular safety. Greenlight has an financial curiosity within the worth motion of the securities mentioned on this letter, however Greenlight’s financial curiosity is topic to alter with out discover. Whereas the knowledge introduced herein is believed to be dependable, no illustration or guarantee is made in regards to the accuracy of any information introduced.

GREENLIGHT® and GREENLIGHT CAPITAL, INC. with the star emblem are registered logos of Greenlight in america, European Union and different nations worldwide. All different commerce names, logos and repair marks herein are the property of their respective homeowners who retain all proprietary rights over their use. These supplies are (a) confidential and is probably not disclosed, distributed or reproduced with out the prior written permission of Greenlight, and (b) supposed solely for using the particular person to whom the supplies have been delivered by Greenlight.

Except in any other case famous, efficiency returns mirror the weighted common whole returns, web of charges and bills, for “New Subject Eligible” buyers invested since inception within the greenback pursuits of Greenlight Capital LP and Greenlight Capital Offshore Ltd. (collectively, the “Partnerships”). Efficiency returns usually embrace all positions held on the grasp and feeder funds, however exclude the gold pursuits. The efficiency of the greenback pursuits and the gold pursuits have been totally different. Upon request, Greenlight will present the precise efficiency of every kind of curiosity to assist buyers perceive these variations over time. Mixed efficiency of elements of the Partnerships is introduced for illustrative functions solely and doesn’t mirror the efficiency or threat profile of any particular person fund. Please contact Greenlight for added data concerning the efficiency of the portfolios from which this data was derived or extracted. Returns are web of the modified excessive water mark efficiency allocation of 10%. That is the efficiency allocation relevant to an investor whose capital account is under its modified excessive water mark. Traders whose capital accounts usually are not under their modified excessive water marks would expertise totally different efficiency. Returns are additionally web of a 1.5% administration payment. An investor’s precise returns could differ from the returns introduced as a result of a number of elements, together with the timing of every investor’s capital exercise, the relevant administration payment price, which can be 1.5% or 2.0% relying on the date and quantity of such investor’s capital contribution, and the relevant efficiency allocation price, which can be 10% or 20% relying on whether or not such investor is under such investor’s modified excessive water mark.

All figures are unaudited. Greenlight doesn’t undertake to replace any data contained herein because of audit changes or different corrections. Previous efficiency isn’t indicative of future outcomes. Every investor will obtain particular person statements from the funds’ administrator exhibiting precise returns. Reference to an index doesn’t suggest that the Partnerships will obtain returns, volatility or different outcomes just like the index. The S&P 500 is a long-only index of primarily large-cap shares used to signify the efficiency of the U.S. inventory market. Greenlight funds take lengthy and brief positions and will put money into non-U.S. and non-equity securities, and due to this fact differ (usually materially) from the composition of the index. The entire returns for the index don’t mirror the deduction of any charges or bills which would cut back returns.

All publicity data is calculated on a delta-adjusted foundation and excludes “macro” positions, which can embrace, however usually are not restricted to, authorities debt, currencies, commodities, credit score default swaps, rate of interest swaps, volatility indexes, credit score indexes and derivatives on any of those devices. Nonetheless, fairness indexes and derivatives on such devices are included in lengthy/brief publicity. The biggest disclosed lengthy positions signify particular person issuers to which the Partnerships have the best publicity. Greenlight, in its discretion and within the curiosity of investor safety, could exclude from this checklist any place that has not been disclosed however would in any other case be included, and as a substitute embrace the Partnerships’ subsequent largest place. All weighting, publicity, attribution and efficiency contribution data is inclusive of positions held each instantly and not directly via the grasp fund, displays estimates of the weighted common of such figures for investments by Greenlight Capital LP and Greenlight Capital Offshore Ltd. (excluding gold pursuits), and is the results of classifications and assumptions made within the sole judgment of Greenlight. All publicity calculations embrace the affect of month-end redemptions and subscriptions as of the primary day of the next month.

Internet efficiency contributions by attribution class apply an allocation of working bills, administration payment and efficiency allocation to the relevant gross contribution. These professional forma web contributions are proven for illustrative functions solely to fulfill regulatory necessities. Completely different assumptions than these made by Greenlight can lead to totally different web efficiency contributions on the class degree. An outline of the calculation methodology is offered upon request.

Adjustments in quoted costs and market returns of publicly traded investments don’t mirror the deduction of charges or bills from the Partnerships. These charges and bills are mirrored within the web efficiency of the Partnerships.

The fund phrases, efficiency returns, and portfolio traits mirrored on this doc usually are not indicative of future returns or portfolio traits and don’t modify the phrases of the funds as detailed in every fund’s Confidential Providing Memorandum. No assure or illustration is made that Greenlight’s funding program, together with, with out limitation, its funding goal, diversification methods or threat monitoring objectives, shall be profitable. Funding outcomes could range considerably over time. No assurance might be made that earnings shall be achieved or that substantial or full losses won’t be incurred.

With respect to the funding technique utilized by Greenlight, there’s all the time a major diploma of market threat, together with the danger of a whole lack of capital. Greenlight could make use of speculative funding methods, resembling using leverage, brief promoting, derivatives buying and selling and commodity pursuits buying and selling, which contain the potential for vital threat of loss. Potential buyers must be conscious that they are going to be required to bear the monetary dangers of this funding for an indefinite time frame. Potential buyers ought to learn the extra detailed Threat Elements contained within the Confidential Providing Memorandum.

The particular investments recognized and described usually are not consultant of all of the positions held, bought or bought, and within the mixture, the knowledge could signify a small share of exercise. It shouldn’t be assumed that any place recognized has been or shall be worthwhile. There might be no assure that related funding alternatives shall be out there sooner or later or that Greenlight will be capable to exploit related funding alternatives ought to they come up. The knowledge introduced is meant to supply perception into the noteworthy occasions, within the sole opinion of Greenlight, affecting the Partnerships. The opinions expressed signify the present, good religion views of Greenlight on the time of publication and are offered for restricted functions, usually are not definitive funding recommendation, and shouldn’t be relied on as such.

THESE MATERIALS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY INTERESTS IN ANY FUND MANAGED BY GREENLIGHT OR ANY OF ITS AFFILIATES. SUCH AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY INTERESTS MAY ONLY BE MADE PURSUANT TO DEFINITIVE SUBSCRIPTION DOCUMENTS BETWEEN A FUND AND AN INVESTOR.

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