Third Point applies an opportunistic approach to investment. Its objective is to provide consistent long-term capital appreciation; to achieve this, the managers look across global credit and equity markets for what they view as the best risk adjusted returns. Daniel S. Loeb is the portfolio manager, overseeing all investment activity supported by a lean investment team of approximately 35. Daniel invests in both long and short opportunities, but over longer time periods it is expected the portfolio will exhibit an element of market directionality.
Third Point reports that the team have increasingly been adding exposure to activist or ‘constructivist’ positions. Their track record in activism is strong, having delivered a gross annualised return of 23% since 2011 in this part of the strategy. Third Point believes that it is well placed to continue to invest profitably in this way; especially given the management company's significant size (in terms of AUM) and experience. The team notes that activism cannot be replicated in an environment where quant and systematic strategies are arbitraging away traditional sources of stock-picking alpha.
Since Third Point Offshore Investors Limited (TPOIL) listed on 25th July 2007, the US shares of the company have delivered NAV total returns of 160.5%; versus an S&P 500 return of 106% in USD terms (source: Morningstar). The shares have also displayed lower volatility than US equities (12.4% versus 14.7%). In contrast to the long-term outperformance of the strategy, however, TPOIL has lagged the equity index over the past five years. Given that TPOIL’s net equity exposure has been less than 100%, we demonstrate that the degree of underperformance is not so large after all.
Perhaps as a result of the apparent underperformance, TPOIL has traded on a wide discount; having last traded on a premium to NAV in 2015. The discount has prompted several initiatives from the board and manager including: merging its share classes into one, a significant management fee cut, and a move to a premium listing on the LSE. In September 2019 the board announced that it was seeking to buy back up to $200m worth of shares over the next three years. This announcement caused the discount to narrow by several percentage points; though the current discount of 21.2% remains wide in absolute terms.