Dan Loeb’s Third Point’s Q4 2018 Investor Letter

Third Point is a New York City-based hedge fund, founded 24 years ago by its current CEO, and one of the pioneers in activist investing, Daniel S. Loeb. His main investing focuses are distressed debt, special situation equities, and risk arbitrage, and he has managed to earn amazing amounts throughout the years. In 2005 he made $150 million, followed by $200 million in 2006 and $270 million in 2007. As of June 30, 2018, the fund managed $17 billion in assets. Since its inception, the fund brought back a net annualized return of 19%. Before launching his own fund, Daniel Loeb was a Vice-President of high-yield bond sales at Citigroup. He earned his A.B. in Economics in 1983 from Columbia University. At the end of February, Third Point released its Q4 Investor Letter, a copy of which you can download below.

In the letter, for its Third Point’s Offshore Fund it reported a loss of 11.9% in the last quarter of 2018, which made the Third Point’s Offshore Fund’s annual 2018 return of -11.3%. It turns out that this was the fourth time since inception that the fund lost more than 1% in one calendar year period, and the second time to report a double-digit loss. Dan Loeb said that even though these figures are unsatisfactory, the fund is not getting discouraged, on the contrary, it looks for the ways to improve its mistakes.

 “We reduced our net equity exposure during Q4 and believe that our moderate positioning is appropriate for this environment despite a sharp rally in these first weeks of 2019. Our exposure is consistent with our view that last year was a milestone, as a decade of Central Bank quantitative easing that drove risk assets up after the Great Financial Crisis(“GFC”) ended. While our positioning means we have not kept up with indices in the first few weeks of the year, we expect volatility to re-emerge and are well positioned to take advantage of sell-offs,especially when good stocks are driven down in correlation trades or caught up in an ETF or quantitative rout.This is essential. To generate returns in a volatile market environment it is necessary to be a liquidity provider at times of market stress and euphoria. Being a liquidity provider is the essence of our investment philosophy. We have applied it since our earliest days as investors,picking off securities from forced sellers in post-reorg equities and demututalizations; short selling through the tech bubble; or buying during periods of panic over the past decade when we believed a “Fed put” mitigated downside market risk.”

You can download a copy of Third Point’s Q4 2018 investor letter below: