Dan Loeb Adding To Exposure Amid Global Economic Health

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Third Point’s Dan Loeb discuses Third Point Reinsurance Ltd (NYSE:TPRE)’s second quarter performance on the company conference call, and says the environment for event-driven investing continues to be attractive as Fed’s action is likely to be led by the economic data .

Also see Dan Loeb’s Q2 2014 letter to investors here – Third Point Takes Stakes In DSM, YPF, Fibra Uno

Dan Loeb – Third Point Reinsurance Ltd – CEO of Third Point LLC

Thanks John, and good morning everyone. The Third Point Reinsurance Ltd (NYSE:TPRE) investment portfolio managed by Third Point LLC returned 2.3% in the second quarter of 2014, net of fees and expense, versus the S&P 500 (INDEXSP:.INX)’s 5.2% returns for the quarter. The Third Point Reinsurance account represents approximately 12% of assets managed by Third Point LLC. Performance for the second quarter was driven by continued success in both corporate and structured credit and strength in US equities. Credit investments accounted for more than 50% of Q2 total returns, with roughly half the exposure of our equity portfolio. However, each of our strategies performed well, contributing positive results for the quarter.

Dan Loeb on Third Point’s equity portfolio return

In the second quarter, our equity portfolio returned 2.3% on average exposure, despite weak results from several of our largest positions. Performance in equities varied across sector selection. We saw a skew in returns across geographies. Our US equity portfolio has out-paced the S&P with significantly less exposure year to date, while our investments in Latin America have been standout performers, generating an ROA of nearly 30% in 2014. Japanese equity positions have caused our greatest losses for the year to date.

Dan Loeb on corporate credit

During the quarter, corporate credit returned 7% on average exposure, bringing the year-to-date ROA to 15.5% compared to 5% performance from the iBoxx high-yield index. We took profits in several key investments, and our net exposure decreased accordingly. In Q2 we saw strength across the strategy, as our performing in distress credit portfolios returned 8.1% and 8.9% respectively. Sovereign credit has continued to contribute meaningfully and returned 17.1% in 2014. Strength in our government debt positions offset losses in our tail risk and currency portfolios, and our macro book was flat for the quarter. Overall, our net high-yield exposure is close to 0. Our duration is hedged, and we are looking for opportunities to reload the portfolio in the second half of the year. Our mortgage portfolio continued to perform well in Q2, returning nearly 20% on average exposure in 2014 and contribute roughly one-third of overall profits during the second quarter.

Dan Loeb on Third Point’s long-term investment approach

Our long-term investment approach coupled with a generally variant market perception has delivered strong returns for the last few years. We remain asset class agnostic as we search to uncover the most compelling opportunities, and have seen a significant shift in portfolio composition since the inception of the strategy in 2009. Currently portfolio construction has been influenced by our view that the global economy is relatively healthy. We added exposure heading into the second quarter, and several of our new positions generated alpha during the period. Looking forward, we believe Q3 economic data will be decisive and likely drive action by the US Fed during the second half of the year.

Dan Loeb: Event-driven investing continues to be attractive

The environment for event-driven investing continues to be attractive, and we have initiated several new investments recently. We expect market volatility will create compelling entry points across the capital structure during the second half of the year. If this materializes, we expect exposure levels to modestly increase, and are focused on increasing concentration within the portfolio.

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