market folly

Dan Loeb's hedge fund firm Third Point just sent out their third quarter letter to investors for 2011. In it, they talk about their low net exposures and how they've protected capital through the volatility.

This morning we pointed out how Third Point increased exposure in October. Their letter says that they've "added some beta back to the portfolio, primarily by covering shorts, nibbling at credit, and adding to select long positions." Third Point has had a lot of dry powder and has been waiting to deploy it.

Asset Backed Securities

We've often mentioned Third Point's exposure to asset backed securities, but this past quarter's letter gives us some color as to their positions:

"Our portfolio still consists primarily of dented prime “Re‐Remic” securities, which are priced at a mid‐teens yield, and seasoned subprime securities, which are priced at a high‐ teens yield. We have a small number of CMBS bonds and student loan ABS. The cash carry on our mortgage portfolio is about 60‐70 BPS per month."

Embedded below is Third Point's Q3 letter (email readers click the link to come read it):



For activity from this hedge fund in October, head to our post this morning on Third Point's Lehman Brothers position.