market folly

Thanks to DistressedDebtInvesting for posting this up as below is the latest investor letter from Dan Loeb's hedge fund Third Point. We've covered Loeb's fund in-depth for some time now and last week we posted up Third Point's recent performance and earlier we took a look at their equity portfolio as well.

In the letter, Loeb touched on some of their notable positions and mentioned that their CIT stake is one of their largest and they believe that the company will transition to a lending institution with a retail deposit base. By reducing its debt and extending maturities, CIT now has time on their side to make this segway. In terms of their mortgage backed securities (MBS) exposure, they mainly have invested in single name senior RMBS stakes. Turning to equities, their Health Net (HNT) stake was purchased when shares were hit due to the loss of the Tricare contract. Third point likes HNT due to quality management and expected increase in profitability. Their stake in Mead Johnson Nutrition (MJN) is described as their classic risk arbitrage play as they see it as a "best-in-class asset" that is solid as a standalone company but is a prime takeover target as well.

Turning to Third Point's investment outlook, Loeb is constructive despite the modest valuations we're currently seeing. Interestingly though, Loeb is worried about various risks that could "unravel quickly in a step function." To try and mitigate this, Third Point has put on various tail risk hedges. Lastly, it was interesting for Loeb to note that they have avoided certain 'consensus' hedgie trades such as long gold, commodity stocks, and emerging markets. While Third Point has taken their exposure down a bit since its peak in January, they still remain net long distressed debt and MBS as we noted in Third Point's recent performance.

Embedded below is Third Point's fourth quarter investor letter:



You can directly download a .pdf here.

For more of our coverage of this hedge fund, head to Dan Loeb's recommended reading list as well as our post on Third Point's portfolio.