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Red Flag Over Greenlight Re

Better yet, DME Advisors, the investment advisory firm Einhorn controls, stands to rake in some hefty fees for managing Greenlight Re's money. Over the first nine months of 2006, DME Advisors took in $13.1 million in management and performance fees. In the coming years, those fees are likely to go up, especially if Greenlight Re uses some of the proceeds from the IPO to fund its investment activities.

It seems Einhorn has found a way to monetize Greenlight Capital without actually opening his hedge funds' books to public inspection. It's a clever twist on the more direct approach taken by Fortress Investment Group, a $26 billion hedge fund and private equity firm that is selling shares directly to the public. Fortress hopes to raise $750 million in its IPO.

The irony, of course, is that Einhorn has made a career out of betting against companies whose management practices he questions, such as Allied Capital (ALD). Einhorn has been a vocal critic of the accounting practices employed by the Washington, D.C.-based business development company.

Now in theory, there's nothing wrong with Greenlight Re employing Einhorn's advisory firm. But the relationship could pose a potential conflict of interest down the road, and the reinsurer could come out on the short end of a trade involving the hedge fund.

"If we compete for any investment opportunity with another entity that DME Advisors or its affiliates manage, DME Advisors is not required to afford us any exclusivity or priority," the filing says. "For instance, Mr. Einhorn is the president of Greenlight Capital Inc. Greenlight Capital Inc.'s interest and those of DME Advisors may at times conflict, possibly to DME Advisors' detriment, which may potentially adversely affect our investment opportunities and returns."

Einhorn, through a spokeswoman, declined to comment.

Don't be surprised if other hedge fund managers find unusual ways to tap into the public's fascination with their industry.

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