Third Point Re 2Q17 Earnings Call Notes

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Dan Loeb

10.6% return in 1H 2017

“he Third Point Reinsurance investment portfolio managed by Third Point LLC returned 4.5% in the second quarter of 2017, net of fees and expenses versus returns for the S&P and CS event-driven indices of 3.1% and 1.1% respectively for the quarter. The account has returned 10.6% for the first half of 2017 net of fees and expenses. The Third Point Reinsurance account represents approximately 14% of assets managed by Third Point LLC.”

Prospects for change in policies have dimmed but synchronized global growth has kept us positive

“Prospects for a significant near-term change in U.S. healthcare trade and tax policies have dimmed and reflation trade we expect to drive markets higher this year has not materialized. However, synchronized global economic growth has given us a continued reason to be positive on markets and to maintain significant long-term equity exposure to more defensive sectors in Europe, and in constructive investments.”

Found more opportunities to take short positions

“We have found more opportunities to take short positions and single names in companies that we think are overvalued at this peak markets and in sectors undergoing structural declines. ”

We will be carefully watching central bank activity

“We will be carefully watching central bank activity as we approach year end as we expect this will be the major driver of market sentiment. In the interim, we remain excited about our well balanced equity portfolio and its mix of event-driven situations higher multiple defensive companies and activist opportunities.”

Better lucky than right

“I think what I said obviously there’s always downside risk to the market at any time for a number of reasons. Outside of our control and also outside of what’s going on economically. So it’s always something we think about. I think, what I was saying was that, we better – I guess in case of better lucky than right. We expected the market to go up but for different reasons. We thought it would be based on generally positive growth oriented policies in acted by the administration, lower taxes, infrastructure spending, healthcare, reform et cetera, none of these things transpired. But what has transpired has been kind of global synchronized economic growth and a very accommodative global monetary structure. So, I’m happy with the outcome the reason for it was different from what we anticipated, but we’ll take it. And we expect evaluations are getting a little more stretched. We’re still finding lots – really good things to do in the areas of the market that we participate in, which is constructive investments where there’s a lot of upside potential in the companies that we’re invested in. Some of the higher growth companies that are way out growing the economy. And some of the special situations as well as the short – our short book is performing very well.”

Focusing on structurally challenged companies

“Yes, certainly. We wrote about our fracs and that which have gone very well for us. So really what we’re focusing on is, structurally challenged companies that are just going to have a much more – that are having a very difficult time in the current environment. So a lot of these are retail, retailers, consumer brands, I mentioned the energy related companies. And companies – and just some companies we think are have very low quality earnings, who we think might be playing accounting games to achieve their results.”

A lot of respect for Nestle CEO

“Yes. I think that’s a good point that you just made. I think anytime you go into a different geography with a different set of securities laws and rules and different shareholder base and other social conditions you have to be really sensitive to the culture and society that you’re investing into the context. I wouldn’t necessarily call Nestlé as an activist investment per se.

I think we have a lot of respect for Mark Schneider the CEO. This is more a case of a company that we hope is going in the right direction, we think it is. But we’ve articulated we would like them to articulate margin targets and to explore better capital allocation – better capital allocation plans along the lines of what we described in our letter.

And we have very high hopes for their Investor Day on September 26. They just reported earnings, which were I think had to be disappointing to them, they sounded disappointing. But we’re hopeful that in September, they will articulate more specific goals around margin improvement, portfolio optimization and hopefully address the L’Oreal stake.”