| Dan Loeb, Third Point (photo credit: David Paul Morris/Bloomberg) |
Investors are bullish on Dan Loeb’s Third Point — and why not? The firm’s multistrategy hedge fund is among the better performers this year, apart from the long-short funds turbo-charged by internet stocks.
Third Point Offshore climbed 0.70 percent in June, boosting its gain for the year to 10.7 percent. This compares with a 9.3 percent gain for the Standard & Poor’s 500 stock index. Meanwhile, Third Point’s total assets under management are up 20 percent in the first half of the year, to $18 billion from $15 billion at year-end.
Some of this sharp six-month increase in assets is due to performance. The firm has also raised roughly $2 billion from investors this year, part of it from a new special purpose vehicle (SPV) to invest in its latest activist target, Nestle.
At the SkyBridge Alternatives Conference (SALT) in May, Loeb told attendees he was looking to raise money this year. The hedge funds are said to still be open to new money, and Loeb doesn’t figure to close them to new investments until later in the year. There is no asset cap before he makes this decision. The firm declined to comment for this article.
Third Point has benefited this year from its long equity book, which is up in the mid-teens or so. Its short equity book, on the other hand, has lost money every month so far this year, including 0.6 percent in June, its worst month for shorting since February. Of course, this is not unusual in a surging stock market environment.
Even so, Loeb has sharply increased his short exposure in recent months, to 25.8 percent at the end of June from around 19 percent the previous month and just 11 percent at the end of February, its 2017 low point.
Third Point’s short exposure is the highest it has been since the end of October 2016, leading into the elections. At that time, the fund had a low net exposure of less than 47 percent.
For the past four months, however, the long exposure has remained has ranged in the mid- to upper-80 percent range. As a result, the fund’s net exposure has dropped to 63.1 percent, its lowest level since January.
The much smaller credit portfolio, which posted a small loss in the second quarter, is now about 10 percent net long, about half of where it stood in the first quarter.
It is not clear what Loeb’s macro view is behind this positioning, as Loeb’s second-quarter letter is not due out for another couple of weeks or so.
In his first-quarter letter, dated April 27, Loeb was upbeat about the prospects for a tax plan coming from the Trump administration, the overall environment for activist investing strategies, and the generally pro-business environment, even as he acknowledged we are in the late stages of an economic cycle. He also said he was focusing more on global growth than the so-called Trump trade.
Indeed, one reason Third Point has done well this year is a reflection of Loeb’s positioning of his portfolio, which he told investors in the first quarter letter was designed “to absorb modest S&P sell-offs in order to remain aggressive buyers at appealing prices.”
It will be interesting to read how Loeb views the macro environment heading into the second half of the year and how it dovetails with his much larger short exposure in the equity book.
