Greenlight Capital sold its stake in Yahoo Inc after an ownership dispute undermined the value of the Internet company's Chinese assets, according to a Greenlight letter to investors.

David Einhorn, head of the hedge fund firm, told investors on April 29 that Greenlight had taken a significant long position in Yahoo stock at $16.93.

Yahoo shares fell 2 percent to $15.50 in morning trading Friday.

The partnership bought Yahoo earlier this year based on a sum of the parts analysis which included putting substantial value on its Chinese assets, Einhorn wrote in the July 7 letter to investors.

Shortly after the purchase, the value of the Chinese assets came into doubt as the CEO of the Chinese unit 'hived off' a valuable subsidiary into a corporation that he personally controls, Einhorn explained.

From there the finger pointing started going in every direction, the hedge fund manager wrote. This wasn't what we signed up for. We exited with a modest loss.

On May 11, Yahoo said that Alibaba Group had transferred ownership of its online payments business Alipay to a firm controlled by Jack Ma, Alibaba's chief executive. Yahoo shares tumbled more than 7 percent that day.

(Reporting by Alistair Barr; Editing by Phil Berlowitz)