Third Point Reinsurance 4Q15 Earnings Call Notes

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Third Point Reinsurance’s Daniel Loeb

See a lot of alert, but not really seeing signs of recession

“we have hedges in place, but we’ve actually increased our net exposure over the course of the month, as some of these sellouts have created silly prices for securities and we’ve either added some existing positions or established a couple of new positions. So as your question about recession, look, along with the other things like China oil prices, Fed policy, et cetera, I mean, that’s kind on the top of people’s list as far as concerns go. We are looking at economic data. We are serving companies that are economically sensitive, and what we do see is weakness in companies with cyclical exposure. And we see the obvious things, overleveraged companies in cyclical businesses that are also maybe in some peril. But as far as industrial companies, consumer companies, certainly healthcare companies, we are not seeing any sign of a recession. We see a lot of people that are on alert, but there haven’t really been any signs of recession from either the economic data, the surveys or individual conversations with companies.”

You don’t have as many activist opportunities because you don’t have as many blatantly underperforming companies

“It’s an interesting question. We have not undertaken any new activist opportunities, but I think what’s happening actually is a lot of companies have undertaken the sorts of operational improvements and more rational capital structure moves, that is making it — I think that’s making it more difficult for activists, because you don’t have as many blatantly underperforming companies, because boards are holding the management teams more accountable, they’re getting lot of pitches from bankers.”

We’re more focused on undervalued securities right now

“So we’re not seeing — that that’s not really what we’re focusing on. We’re really focusing on securities that are under-valued where we can make investments in the constructive and not have to take any kind of confrontational role with management teams.”

Watching energy markets closely but think debt is more interesting than equity

“We’re watching the energy markets very, very closely. We think that the better opportunities are on the credit side than on equities. As far as discounting, potential bad news ahead, we think the equities reflect more optimism about the price. I mean, they’ve come in over the last weak or two, but there is two things going on equities at this point; debt, low oil prices and now the threat of equity offerings to shore up the balance sheets. So we think the more interesting way to play energy is through fulcrum securities of E&P companies, and in some of the distribution companies”

We aren’t investing in China

“We aren’t really investing in China. We’re obviously tracking what’s going in China in terms of the local economy, in terms of it being an end market for many of our companies including young brands. There is serious implication for materials and for luxury companies and other companies that have end markets there, but we aren’t investing directly in China. It’s hard for us not having a local presence and local knowledge to invest in Chinese securities.”