On Wednesday, prominent hedge fund manager David Einhorn of Greenlight Capital, spoke at the Ira Sohn Investment Research Conference, an annual charity event where attendees receive investment tips from top-tier financial industry professionals. Einhorn revealed to attendees that for some time, Greenlight Capital has been short-selling Moody’s Investor Service- the credit rating agency firm.
Stating that Moody’s has a negative net worth of approximately $900mln, Einhorn told the attendees that investors no longer rely on Moody’s ratings. According to Einhorn, the integrity of the firm dissipated after Moody’s gave perfect AAA ratings to firms such as AIG, Fannie Mae, and bond insurer MBIA. “Nobody I know buys or uses Moody’s credit ratings because they believe in the brand. They use it because it is part of a government-created oligopoly and, often, because they are required to by law,” he said.
Einhorn added, regulators could improve the stability the financial markets by eliminating ratings systems that have an inherent conflict of interest. Traditional rating agencies including Moody’s and S&P charge fees to firms they rate.
At last year’s event, Einhorn announced he was betting against investment bank Lehman Brothers after finding discrepancies in the firms financial filings and what had been discussed in conference calls. Four months later the bank filed for bankruptcy. While he did not reveal any investment secrets Wednesday evening,, Einhorn certainly seems to have a knack for firms to short. Greenlight Capital has a 25 percent average annual return.
In April, Integrity Research published a detailed study of the Forensic Accounting, Quality of Earnings, and Short Ideas research business. As part of this research, Integrity conducted an extensive survey of mutual fund and hedge fund analysts and portfolio managers, to assess their current and planned use of forensic research and to obtain their feedback about their existing suppliers of this type of research.
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