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2011 Third Point Q4 Investor Letter TPOI

2011 Third Point Q4 Investor Letter TPOI

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Published by SheerazRaza
Dan Loeb, Third Point Avenue
Dan Loeb, Third Point Avenue

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Published by: SheerazRaza on Mar 15, 2012
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08/28/2014

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1
 
March13,2012
Fourth
Quarter
2011
Investor
Letter
Review
and
Outlook 
Afterasuccessionof“tailevents”–theArabSpring,Japaneseearthquakeandtsunami,USdebtdowngrade,floodsinThailand,andEurope’sdebtcrisis–andtheresultantextremevolatilityintradingconditionslastyear,2012hasbeendownrighttranquilthusfar.Economicgrowthgloballyhaspickedupandisrunningaheadofexpectations.IntheUnitedStates,wehaveshiftedfromamiddlingminorrecessionarytoamoderategrowthenvironment.InEurope,theLTROmechanismhastakentherisksofchaos,creditcontraction,anddominodefaultoffthetableforthenear‐termandexpectationshavemovedupwardswiftlyfromadeeprecessiontoawelcomedflatline.InChina,fearsofahardlandinghavebeenreplacedwithconfidencethatthegovernmenttransitionwillbewell‐orchestratedandgrowthwillremainrobust.TheyearoftheDragonisofftoabullishstarteverywhere,andweseefavorablesentimentandpositiveconditionscontinuingforthetimebeing.ForThirdPoint,thestartofthisyearhascreatedoneespeciallywelcomedynamic:afallincorrelations.Forthefirsttimeinnearlyayear,singlenamestockpickingisbeingrewarded.Wehavesteadilyincreasedcapitalinvestedinevent‐drivensituationsinequities,corporatecreditandmortgages.Today,ourlongexposureis~120%andourgrossexposureis~170%.Ourequitybetais40%,thehighestithasbeensinceJuly2011.Whilewearegenerallymoreconstructiveandfindingmanyinterestingsituations,wearefocusedequallyonshortsandlongsandbuildinganall‐weatherportfolioamidstthefeedingfrenzy.Althoughgeneralmarketconditionsarefavorable,wehavenotsimplystrappedourselvesontoaragingbull;ourmainfocusremainsdisciplinedbuyingandselling,prudentriskmanagement,andthoughtfulportfolioconstruction.NotwithstandingeconomicdataintheUS,Europe,Chinaandemergingmarketswhichsuggesta“risk‐on”portfolio,wearecarefullymonitoringpoliticalandpolicydevelopmentsaroundtheworldwhichcouldhaveasignificantimpactonourmoreconstructiveoutlook.
 
 
2
 
Startingathome,recenteconomicdatahastrendedupwards.U.S.datainservices/manufacturing,PMIs,autosalesandemploymentmostlysurprisedtotheupsideinJanuaryandagaininFebruary.ThereisagrowingperceptionthattwoofthemostsignificantdragsonUSgrowth–housingandjobs–arestartingtoturnthecorner.Perhapsthisshouldbeunsurprising,sinceinaPresidentialelectionyeareconomicindicatorsoftenseemtotrendintherightdirectionfortheincumbent.Forthisreason,whileweareconstructiveinthenear‐termbasedonthesetailwinds,weseethepotentialforadangerous2013andbeyond.Regardlessofone’spoliticalbeliefs,itishardtodenythattheunabatedpoliciesofasecondObamaAdministrationwouldleadthecountrydownanunsustainablepathofexplodingdeficitsandmarginalprivatesectorgrowth.WhileourconcernsaboutasecondObamatermaremutedbythefactthatmuchofhisagendawillbestymiedbyaRepublicanHouseandmostlikelyaRepublicanSenate,gridlockisnotaneffectivewaytorunthecountry.Itis,however,preferabletoout‐of‐controlentitlementspendinganddeficitswhichwouldresultfromanotherObamaadministrationinwhichbothhousesofCongressareunderhiscontrol.Sadly,concernsabouttaxincreases,haphazardregulation,andfurtherredistributivepolicieswillholdprivatecapitalandmarketparticipantsincheckforaslongasMr.ObamaremainsPresident.Europe,ontheotherhand,ishealing,withelectionsinFranceposingthenextpotentiallandminetoanotherwisemore“rosy”outlook.TheGreekPSIexchangelastweek–essentiallyanorderlydefaultofgovernmentdebttoprivateinvestors–wasabsorbedbythemarkets.Bondholdersforgavemorethan€100billionontheirGreekgovernmentinvestments,completingthelargestsovereigndebtrestructuringinhistoryandmovingworriesaboutGreecetothebackburnerforthemoment.ItisinterestingtonotejusthowmuchEuropeisstartingtolooklikethe“UnitedStatesofEurope”.TheEUisdemandingchangeinfiscalpoliciesinvariouscountriesandChancellorMerkelisofferingtocampaignwithPresidentSarkozyasifsheisaGovernorlendingahelpinghandinaneighboringstate’selection.WhileEuropeisslowlymovingtowardsa“fiscalcompact,”theFrenchelectionsareaparticularlyimportanteventbecauseSarkozy’schallengerHollandehasarguedthathewillnothonorthedealsignedinBrusselsshouldhebecomePresident.Meanwhile,Italy,PortugalandSpainareimplementinghelpfulausteritymeasures,butitisimperativethatsomegrowthinitiativesbeadoptedorthegovernments’reformplanswilllikelystall.Thisisnotanenvironmentforrose‐coloredglasses.Ourportfolioisstructuredtoreflecttheunfortunate,ongoingrealityofdecayingWesterndemocraciesstavingoffcatastrophewithAdvilandbandageswhenmultiple,complexsurgeriesaretheonlywaytosavethepatientinthelong‐term.
 
 
3
 
Quarterly
Results
SetforthbelowareourresultsthroughDecember31,2011andperformancetodatefor2012.
ThirdPointOffshoreS&P500HFRI
 
2011FourthQuarter0.1%11.8%1.6%2011Performance0.0%2.1%3.3%2012YTDPerformance
(throughFebruary29,2012)
4.9%9.0%4.6%AnnualizedReturnSinceInception17.5%*5.8%*9.1%
*
*Returnsfrominception,December1996,throughFebruary29,2012.
ThetopfivewinnersfortheFourthQuarter2011wereYahoo!Inc,DelphiCorp,SaraLeeCorp,WilliamsCosInc,andShortA.ThetopfivelosersfortheperiodwereGenelEnergyPlc,Technicolor,ShortB,Gold,andHollyFrontierCorp.FirmassetsundermanagementatDecember31,2011were$7.5billion.AUMgrewto$8.9billionatFebruary29,2012.TheincreaseinassetswasprimarilyduetotheclosingoftheThirdPointReinsuranceLimitedtransactioninlateDecember,whichisdiscussedfurtherbelow.Thefundsremainclosedtonewinvestorswithlimitedexceptionsasdiscussedpreviously.
Select 
Portfolio
Positions
SincemostofourinvestorsheardanextensivereviewofourQ4and2011resultsatourAnnualInvestorPresentationinmid‐January,wehaveincludedsummariesofmorerecentpositionsinthisletter.ForthoseofyouwhowereunabletoattendthePresentation,videooftheeventisavailableonourprivateInvestorWebsite,andtheslidedeckisalsoavailableforyourreview.PleasecontactInvestorRelationsforfurtherdetails.DuringourInvestorPresentation,wediscussedareaswethoughtwereripeforcertaintypesofevent‐drivenopportunities.Asforecast,wehavefoundanumberofinterestingsituationsintwooftheseareasspecificallyinrecentmonths:forcedsellingandhiddengrowthstories.
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