Third Point Releases Q3 2023 Investor Letter

16 November 2023

Third Point Publishes Q3 2023 Investor Letter

Highlights:

• The Master Fund generated a small loss in the Third Quarter, with the equity book modestly outperforming broader indices, and both corporate and structured credit continuing to generate attractive risk-adjusted returns with less volatility than equity markets
• Short equity positions outperformed long equity positions alongside the weakness in overall markets
• The long equity book performed relatively well, however, as Third Point had limited exposure to bond proxies, which were hit hardest during the quarter
• Third Point sees the opportunity in credit as the most attractive overall since 2020, with yields now at high levels and with elevated dispersion

Third Point LLC, the Investment Manager of Third Point Investors Limited (“TPIL” or the “Company”) announces it has published its quarterly investor letter for Q232023. The full letter can be accessed at the Company’s website: https://www.thirdpointlimited.com/resources/portfolio-updates

Performance Key Points:

• Third Point LLC (“Third Point” or the “Investment Manager”) returned -0.9% in the flagship Offshore Fund (the “Master Fund”) during the third quarter of 2023, outperforming the S&P 500 Index return of -3.3% and the MSCI World Index return of -3.4% in the same period.  
• The top five positive contributors for the quarter were UBS Group AG, Jacobs Solutions Inc., Vistra Corp., Shell PLC and Danaher Corp.
• The top five negative contributors for the quarter were Pacific Gas & Electric Co., Microsoft Corp., Hertz Global Holdings Inc., Bath & Body Works Inc. and LVMH Moet Hennessy Louis Vuitton.  

Outlook and Market Commentary:

• Markets in the Third Quarter were fixated on dramatic moves in long-term interest rates: real rates are now firmly positive after several years of dovish monetary policy that proved to be a boon to equity multiples and financial engineering.
• It is difficult to overstate the market’s current obsession with balance sheet strength, at a time when interest rates are elevated. Distinguishing which companies have real leverage issues versus perceived leverage issues is an exercise that Third Point feels it will be able to capitalize on in the coming months, based on its ability to work across asset classes to glean fundamental insights.
• Meanwhile, Third Point expects to deploy more capital into corporate credit, given high current yields in high yield debt as well as the wide dispersion between “high quality” and more complex situations.

Portfolio Updates

• Corporate Credit update
  • Third Point’s corporate credit portfolio has contributed 1.3% to fund returns on a net basis year to date, and outperformed the JPM Domestic High Yield Index by more than 450 basis points during that time period.
  • The firm is finding opportunities in improving credits with a margin of safety that are now yielding 10-13%, with the goal of earning mid- to upper-teens returns as spreads normalize.
  • Third Point is concentrated on credits that face challenges in their capital structure or businesses that it believes are temporary and relatively easy to overcome.

• Structured Credit Update
  • Third Point’s structured credit portfolio has also delivered 1.3% of contribution to fund returns on a net basis year to date.
  • The firm continues to believe the asset class offers a high risk-adjusted yield and low correlation to overall markets, enabling Third Point to invest higher in the capital structure with superior overall yields.
  • Third Point was proactive in selling subprime auto ABS earlier in the year and has seen default rates and loss severities increase in the past few months.
  • The current focus continues to be on residential mortgages, which is a more defensive asset class with lower loan-to-value ratios and strong underlying credit profiles. Third Point has seen the rate pressure on these securities counteracted to some degree by increasing demand from money managers and insurance companies for this type of risk.
  • Third Point is focused on more senior cash flows where the de-leveraging profile enables it to reinvest at higher yields and more liquidity, giving the firm the option to rotate into distressed asset classes, if the opportunity arises.

• Business Update - Senior Appointment
  • Third Point welcomed Chris Taylor to the firm. Chris was previously the CEO of Madison Capital Fund LLC, the private lending boutique of New York Life Investments (NYLIM). He will work closely with the existing Third Point credit teams on distressed and other opportunities arising from the $1.5 trillion private credit universe. He will also help the firm build a stand-alone private credit business that will be launched in 2024.

Press Enquiries

Third Point Elissa Doyle, Chief Communications Officer and Head of ESG Engagement [e-mail] Tel: [phone]

Buchanan   Charles Ryland [e-mail] Tel: [phone] Henry Wilson [e-mail] Tel: [phone]

Notes to Editors

About Third Point Investors Limited

www.thirdpointlimited.com

Third Point Investors Limited (LSE: TPOU) was listed on the London Stock Exchange in 2007 and is a feeder fund that invests in the Third Point Offshore Fund (the Master Fund), offering investors a unique opportunity to gain direct exposure to founder Daniel S. Loeb’s investment strategy. The Master Fund employs an event-driven, opportunistic strategy to invest globally across the capital structure and in diversified asset classes to optimize risk-reward through a market cycle. TPIL’s portfolio is 100% aligned with the Master Fund, which is Third Point’s largest investment strategy. TPIL’s assets under management are currently $600 million.

About Third Point LLC

Third Point LLC is an institutional investment manager that actively engages with companies across their lifecycle, using dynamic asset allocation and an ethos of continuous learning to drive long-term shareholder return. Led by Daniel S. Loeb since its inception in 1995, the Firm has a 44-person investment team, a robust quantitative data and analytics team, and a deep, tenured business team. Third Point manages approximately $10.5 billion in assets for sovereign wealth funds, endowments, foundations, corporate & public pensions, high-net-worth individuals, and employees.

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