Third Point Investors Ltd - Third Point Releases Q2 2022 Investor Letter

Third Point Investors Ltd - Third Point Releases Q2 2022 Investor Letter

PR Newswire

London, August 18

18 August 2022

Third Point Releases Q2 2022 Investor Letter

Third Point LLC, the Investment Manager of Third Point Investors Limited ("TPIL" or the "Company") has published its quarterly investor letter for Q2 2022. The full letter can be accessed at the Company's website: https://thirdpointlimited.com/portfolio-updates

Performance Highlights:

• Third Point (or the "Investment Manager") returned -9.3% in the flagship Offshore Fund (the "Master Fund") during the first quarter of 2022, compared with -16.1% for the S&P 500 and MSCI World indices.
• The top five positive contributors for the quarter were three short positions and two macro positions.
• The top five negative contributors for the quarter were SentinelOne Inc., Pacific Gas & Electric Co., Amazon.com Inc., Crown Holdings Inc., and Danaher Corp.

Outlook and Market Commentary:

• During the second quarter, Third Point significantly reduced risk and took steps to protect capital in a tumultuous market with an uncertain economic backdrop driven by inflation pressures, the prospect of significantly higher interest rates, geopolitical instability, supply chain disruptions, a likely recession in Europe, and a possible recession in the U.S.
• While this positioning served the strategy well in April and May relative to a sharply lower market, investments in energy and commodities detracted in June. The strategy also experienced mark-to-market losses in structured credit and write downs in the private securities portfolio. Not unexpectedly, the same positioning that protected the fund from losses in April and May hurt the strategy's ability to recover with the market's move in July.
• After taking its equity net exposure almost to zero, in recent weeks, Third Point has identified several new positions and covered most of its single name shorts, bringing its equity net exposure back over 40%.
• The largest recent addition has been an investment in the The Walt Disney Company, which the Investment Manager bought at near its 2022 lows after having exited at the end of Q4 2021 and in the beginning of this year. A letter to management sharing our views about additional value creation measures they should consider is available here.

Asset Class Updates:

• Private Investments
  • The Investment Manager experienced markdowns in several of its late-stage investments during the quarter. Although these companies have plenty of liquidity runway, valuations have come in as multiples for comparable public companies have compressed and exit timelines have elongated due to market conditions.
  • The majority of the private portfolio is invested in earlier stage opportunities in the sectors where Third Point has the most expertise: cybersecurity, enterprise software, and IT infrastructure - all of which the Investment Manager believes are more likely to remain resilient in a market slowdown.
• Corporate Credit
  • While as equity investors, Third Point generally hopes for the best, as a credit investor, it knows that should the economy turn for the worse, the strategy is well positioned to invest in the sorts of credit cycles seen in 2001-2004 and 2008-2011, when credit accounted for the majority of the portfolio.
  • The next credit cycle is likely to be longer than recent cycles - the Investment Manager does not see a "V" shaped recovery; a "U" shape is more likely. Although the reset has been painful, Third Point welcomes a long period of higher returns in credit, especially since you get paid while you wait.
  • Overall corporate leverage is very high, especially in sectors that burnt billions in cash keeping the lights on during the Covid shut down. The Investment Manager believes these areas are likely to be the most interesting credit opportunities if spreads continue to widen.
• Structured Credit
  • During Q2, Third Point saw a continued divergence between fundamental credit quality and volatility-induced pricing in structured credit. In particular, the residential mortgage-backed securities (RMBS) space has experienced mark-to-market declines due to rising rates, widening credit spreads, and a scenario shift pointing to a higher probability of recession. However, monthly remittance data shows delinquencies trending as expected and low loss severities.
  • The current yield on the RMBS portfolio is in the high teens, and the Investment Manager believes the fundamentals of constrained housing supply, borrowers with 40-50% equity in their homes, and over 10 years of performance history make this a compelling asset class in the wake of the broader market sell-off.

- Ends -

Press Enquiries

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

Buchanan PR 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 $700 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 38-person investment team, a robust quantitative data and analytics team, and a deep, tenured business team. As of 31 July, Third Point manages approximately $13.9 billion in assets for sovereign wealth funds, endowments, foundations, corporate & public pensions, high-net-worth individuals, and employees.