Daniel Loeb on Third Point Reinsurance fourth quarter earnings and  a Q&A session with Kai Pan of Morgan Stanley, discussing market volatility and the exposure to the Greek situation. Loeb also had some interesting remarks on oil and energy. As ValueWalk exclusively reported, Loeb is not rushing to buy energy stocks (or credit) and is in fact finding some shorts in the sector. Dan Loeb comments below.

Daniel Loeb – Third Point LLC – CEO

Thanks, Rob, and good morning, everyone. The Third Point Reinsurance investment portfolio managed by Third Point LLC lost 40 basis points in the fourth quarter of 2014 net of fees and expenses versus returns for the S&P and CS event-driven indices of plus 4.9% and minus 2.2% respectively for the quarter.

The Third Point Reinsurance account represents approximately 11% of assets managed by Third Point LLC. Profits in November were offset by losses in October and December in a volatile market environment. Gains in the fourth quarter were driven by strength in several core equity positions and were offset by weakness in our government, and corporate credit portfolios.

Our hedge book performed well, amidst the volatility, but was not large enough to entirely offset losses. Third Point’s equity portfolio returned 1.8% on average exposure during the fourth quarter, bringing total returns for the strategy to 6.6% for 2014. Strength in several large core positions in the healthcare, consumer and TMT sectors outweighed modest losses in energy and industrials and commodities.

[drizzle]For the year, healthcare was our strongest performing sector, contributing more than half of overall equity returns. Third Point’s corporate credit portfolio lost 8.2% on average exposure during the fourth quarter, driven primarily by losses in our performing credit book. Corporate credit had a strong year overall, however, returning 6.1% on average exposure in 2014 compared to the Barclays high-yield index return of 90 basis points. Our macro portfolio lost money during the quarter due to weakness in one of our government credit positions. We were able to capitalize on volatility throughout the year to build another large sovereign credit position at attractive levels, which we continue to own. Our mortgage portfolio was essentially flat for the fourth quarter, concluding a very strong year.

Overall return on average exposure for 2014 was 21.3% nearly four times the HSN hedge fund mortgage index return of 5.4%. The AVS book contributed nearly half of the investment portfolio’s 2014 returns with an average exposure of roughly 20%.

Looking back at 2014, we believe our performance was diminished by poor trading and excessive exposure in an environment of increased market volatility. However, our solid stock selection, mixture of credit and equity strategies, and avoidance of major mistakes in certain industries and geographies helped generate modest gains. We believe we are well-positioned for the current market and are increasingly seeing compelling opportunities across strategies around the world.

Kai Pan Q&A session with Daniel Loeb

Kai Pan, Morgan Stanley

First question for Dan, you mentioned about increasing volatility in the markets. Are you changing any of your Risk Management Plasse process in terms of like net exposure or any limitation on the size of the positions?

Daniel Loeb – Third Point LLC – CEO

We haven’t changed any of our size guidelines. We have over the course of this year brought down both our gross and our net exposure. To adjust for the increased market volatility.

Kai Pan, Morgan Stanley

Okay. And then could you give a little more about your exposure? Because it looks like you have a big swing in terms of your corporate credit performance through the year. And do you have any size constraint in that book? As well as could you talk a little bit more about your exposure to the Greek situation?

Daniel Loeb – Third Point LLC – CEO

Yes. We’ve exited the Greek credit. We have a large exposure to Argentina. This is really in the category of sovereign debt, not corporate credit. But that’s where you’ll see some impact on our overall credit performance right now. And we tend to be very event driven. So volatility is going to be higher, but so are over time so will the returns. So we’re not really playing a credit game. We are not really a spread game as much as we are playing special situations where there will be more significant moves. Overall, opportunities on the strip corporate side, not sovereign site have you been pretty limited so using those exposures go down over the course of the last year.

Kai Pan, Morgan Stanley

Okay. Lastly for Dan, you mentioned you’re looking for some new opportunity in the energy sector. Could you give more comments on what’s your view on the oil price and in terms of on both credit as well as equity side in the energy sector?

Daniel Loeb – Third Point LLC – CEO

I think the most intelligent thing I can say about oil price right now to quote Bernard Farouk is I know exactly what it’s going to do. It will fluctuate. In the near term, we’ve never seen moves like this. 5%, inter-day moves on the front end of the curve. And the volatility is pretty extreme to say the least. Our sense right now though is if you look at some of the big oil stocks, we really have not moved down commensurate with the price of oil. The discount quite a bit of recovery. I think that all of those funds that have been set up to quote-unquote capitalize on distress in the oil patch might be disappointed, kind of like the European funds that were set up to capitalize on European distressed debt situations. So we have had very little exposure coming into this. We’ve where we’ve tried to focus is on companies like Philips 66 where we think that the impact on oil prices is exaggerated on the stock price but we don’t really have any major E&P positions yet. When equities themselves sold off hardest, we were expecting, we were trying to be patient and wait for the inevitable next shoe to drop, but equities have already moved up in anticipation of a recovery, so we’re pretty much on the sidelines in energy.

Kai Pan, Morgan Stanley

Thank you so much for all the answers.

Patient Capital Management Peak Oil Dan Loeb

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