Third Point Sees Opportunities In Energy Debt Amid Oil Rout

Third Point Sees Opportunities In Energy Debt Amid Oil Rout

Some interesting comments from Third Point RE call this morning on the conference call. See some select comments regarding Third Point LLC. Also see Third Point’s Q2 letter to investors here.

Also see Loeb on oil from a recent investor meeting.

Daniel Loeb – Third Point LLC – CEO

Thanks, John and good morning everyone. The Third Point Reinsurance investments portfolio managed by Third Point LLC returned 1.7% in the Second quarter of 2015. Net of fees and expenses versus returns for the S&P and CS event driven indices of 0.3% and 0.4% respectively for the quarter. The Third Point Reinsurance account represents approximately 12% of assets managed by Third Point LLC. Strong performance in April and May outweighed a challenging June, allowing us to post positive results for the quarter.

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The Third Point equity portfolio returned 2.7% on average exposure during the second quarter handily outpacing the S&P, performance was led by strength in several core US based positions, especially in the consumer sector. Increased short exposure in 2015 has helped the portfolio in periods of market volatility including in June. And we continue to increase this exposure through both hedges and single name equity positions.
Our top equity contributors to the second quarter were Nomad Holdings, Yum Brands, Dow Chemical, SunEdison and Social Finance.

Our portfolio includes many positions primed for events before year-end. Our corporate credit book lost 2.7% on an average exposure in the second quarter. During the second quarter strengthened performing credit positions was offset by losses in distressed credit investments. Over the past few weeks,


we’ve uncovered several attractive risk-adjusted opportunities in credit after a first half.

Our sovereign credit portfolio, which is largely comprised of the Argentinean Government debt, was down 6.9% on an average exposure for the quarter, bringing year-to-date returns to 2.3% for those investments. Third Point structured credit portfolio continued its winning streak and has contributed nearly half of the fund’s total returns for the year.

The year-to-date return on average exposure for the strategy is roughly 15% compared to the HFN, Hedge Fund Mortgage index return of 3.3%. During the quarter, volumes were noticeably reduced due to macroeconomic volatility, but structured credit markets weakness was muted as fundamentals remained stable.

Kai Pan – Morgan Stanley – Analyst
Good morning. Thank you.First question for Dan. First, congratulations on 20 years of great investments and to create track records.I just wonder what at this point, do you feel like the investment philosophy, as well as the investment process has been institutionalized at Third point that for years to come.

Daniel Loeb – Third Point LLC – CEO

Yes, that’s a great question. It’s certainly been an objective of ours to implement processes and a culture and an approach to investing in the framework that is, is invited in the organization, just not just in my head, I think we’ve been, we’ve been successful at doing that. A lot of the best ideas come from my team not for me, I’m still very involved obviously in a lot of aspects of the investment process, but the transfer of that knowledge is an ongoing process, I am very happy with where the organization is.

Kai Pan – Morgan Stanley – Analyst

That’s great. Then just follow on, just curious about your view on some like hotspots including like China, Puerto Rico as well as in the energy sectors?

Chris Coleman – Third Point Reinsurance Ltd. – CFO

So let’s go in reverse order. I — we don’t have much exposure to energy almost no equity exposure. We managed to sidestep the oil as you know, double dip this year, people thought it was about to recovery, was recovering that went down again, I think a lot of people got suckered in by that second move. So we’ve been largely on the sidelines. The exception is some small credit positions.


Energy is presenting some very interesting opportunities in credit right now. So we are looking at that and we’re looking forward to form a bottom nd energy won’t be permanently at this level. So we’re looking for opportunities there again, but we don’t have meaningful exposure right now.

Puerto Rico, we had invested there are a few years ago, couple of years ago. We got out and we haven’t been back, we think they’ve got some issues to work through; it doesn’t really have a macro implications.

As far as China goes, we again — we don’t have any direct exposure to China in those markets. We have indirect exposure through our investment in Yum Brands and we are also spend a lot of time studying the Chinese economy and the Chinese market more for the implications for the global economy and for other investments, but we’re not — you referred to as a hotspot, I think they’ve got some period of difficulty to go through for the next few months, but we’re certainly not counting China out and we’re not expecting any kind of major crisis there.


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