Dow Propels Dan Loeb To 4.2% Return In February

Dan Loeb’s Third Point Reinsurance Ltd (NYSE:TPRE) had a great February with a return of 4.2%, according to documents from the company reviewed by ValueWalk. After a disappointing January, Dan Loeb’s 4.2% February return has put the hedge fund back in positive territory and now up +2.3% through the end of the month.

2014-02 February Monthly Report TPRE_v001_s3437h (2)

Third Point has not released information about its holdings; according to the fund’s Q4 letter to investors, The Dow Chemical Company (NYSE:DOW) is now the largest holding. The chemical company is up approximately 10% year to date, with a big rally of 14% in February. However, another large holding, SoftBank Corp (OTCMKTS:SFTBF) (TYO:9984) is down close to 20% for the year, with a big loss of 16% in February. Dan Loeb’s other large Japanese holding, Sony Corporation (ADR) (NYSE:SNE) (TYO:6758), is up about 2% for the year after a return in February of about 3%.

Seperately, Third Point Reinsurance Ltd (NYSE:TPRE) recently released its 10k for the year ending 2013, we found some interesting excerpts from the filing.

Below is some info about the Greek focused hedge fund:

Third Point Hellenic Recovery US Feeder Fund, L.P.

Third Point Re is a limited partner in Third Point Hellenic Recovery US Feeder Fund, L.P. (“Hellenic Fund”), which is an affiliate of the Investment Manager. The Hellenic Fund was formed as a limited partnership under the laws of the Cayman Islands and invests and holds debt and equity interests.

Third Point Re committed $11.4 million in the Hellenic Fund, of which $4.3 million was called during the year ended December 31, 2013. As of December 31, 2013, the estimated fair value of Third Point Re’s investment in the Hellenic Fund was $5.3 million. The valuation policy with respect to this investment in a limited partnership is further described in Note 5.

As of December 31, 2013, Third Point Re held less than a 2% interest in the Hellenic Fund. As a result, Third Point Re accounts for its investment in the Hellenic Fund under the variable interest model, in which Third Point Re is not the primary beneficiary, at fair value in the consolidated balance sheets and records the change in the fair value in the consolidated statements of income (loss).

On Warren Buffett’s Netjets

On December 20, 2011, Third Point Re acquired from Netjets Sales Inc. (“Netjets”) an undivided 12.5% interest in two aircraft for a five year period. The agreement with NetJets provides for monthly management fees, occupied hourly fees and other fees. Future minimum management fee commitments as of December 31, 2013 under the existing lease are expected to be as follows:

Investments

As of December 31, 2013, total cash and net investments managed by Third Point LLC at fair value was $1,581.0 million compared to $972.3 million as of December 31, 2012. The increase was primarily due to the net proceeds of $286.0 million generated in our IPO, float generated by our reinsurance operations and net investment income for the year ended December 31, 2013.

Currency fluctuations could result in exchange rate losses and negatively impact our business.

Our functional currency is the U.S. dollar. However, starting in 2014 we will write a portion of our business and receive premiums in currencies other than the U.S. dollar. In addition, our investment manager, Third Point LLC, invests a portion of our portfolio in assets denominated in currencies other than the U.S. dollar. Consequently, we may experience exchange rate losses to the extent our foreign currency exposure is not hedged or is not sufficiently hedged, which could significantly and negatively affect our business. If we do seek to hedge our foreign currency exposure through the use of forward foreign currency exchange contracts or currency swaps, we may be subject to the risk that our counterparties to the arrangements fail to perform.

In managing our investment portfolio, Third Point LLC engages in short sales that may subject us to unlimited loss potential.

As our investment manager, Third Point LLC routinely enters into transactions for our account in which it sells a security that we do not own, which we refer to as a short sale, in anticipation of a decline in the market value of the security. Short sales for our account theoretically will involve unlimited loss potential since the market price of securities sold short may continuously increase. If the market price of the subject security increases considerably, Third Point LLC might have to cover short sales at suboptimal prices. As of December 31, 2013, short exposure in our investment portfolio was $401.0 million over 126 debt, equity and index positions, including $20.5 million over nine positions in the equity portfolio.

Dan Loeb FX positioning

We are exposed to foreign currency risk through cash, forwards, options and investments in securities denominated in foreign currencies. Foreign currency exchange rate risk is the potential for adverse changes in the U.S. dollar value of investments (long and short) and foreign currency derivative instruments, which we employ from both a speculative and risk management perspective, due to a change in the exchange rate of the foreign currency in which cash and financial instruments are denominated. As of December 31, 2013, our total net (short) exposure to foreign denominated securities represented (6.2)% of our investment portfolio including cash and cash equivalents, was $(97.7) million.

The following table summarizes the net impact that 10% increase and decrease in the value of the U.S. dollar against select foreign currencies would have had on the value of our investment portfolio as of December 31, 2013:

More data here