Billionaire hedge fund manager David Einhorn explained in a CNBC interview why he sees the current market as "fundamentally broken" and the potential ramifications
In the interview a few months ago with CNBC's Scott Wapner, Einhorn asserted that investors are not rewarding opportunistic smaller companies with capital, instead overinflating large companies that comprise the biggest ETFs.
"When I say that the market is broken, what I'm saying is there is not enough money that is being dedicated to investing, trying to identify undervalued companies and reward companies with new capital that have good opportunities for growth," Einhorn said.
The effect of this, Einhorn explained, is that wealth managers end up buying overvalued assets causing valuations to move further away from their fair value rather than moving closer to it.
Einhorn, who founded and runs Greenlight Capital, also argued that the largest ETF issuers, like Vanguard and BlackRock, deny shareholders the ability to improve the conditions of companies or request changes. This is because the ETF issuers have become the largest stakeholders of many mega-cap companies, but remain passive on shareholder votes and meetings.
"Once you have the largest shareholder in every major important company be a passive fund, shareholder activism becomes merely impossible to improve corporate governance," Einhorn said.
Another issue Einhorn pointed out was the lack of IPOs, despite favorable market conditions.
Einhorn's biggest positions, according to Greenlight's latest 13F filing, are Green Brick Partners Inc (NYSE:GRBK), Consol Energy (NYSE:CEIX), Brighthouse Financial (NYSE:BHF) and Tenet Healthcare Corp (NYSE:THC), according to HedgeFollow.
The image was created using artificial intelligence MidJourney.
