Third Point's Loeb bets big, and wins, on Greek debt
Greek government bonds in top 5 positions for Loeb's fund
By Katya Wachtel
Hedge fund manager Daniel Loeb built a major position in distressed
Greek government bonds in September, according to a monthly report and
quarterly letter he sent to his investors.
Loeb's nearly $5
billion Third Point Offshore Fund gained 3.4 percent last month, helped
by a bullish position in Greek debt, said the Sept. 30 monthly note,
which was reviewed by Reuters.
The hedge fund increased its
exposure to European credit through July and August, including Greek
bonds, in anticipation of «a strong reaction from the ECB» to markets in
turmoil from worsening debt troubles in Spain and a European Union
summit that failed to calm anxious investors, Loeb said in a more
detailed quarterly letter released on Wednesday and obtained by Reuters.
Third
Point, which manages $9.3 billion in assets, said its holding of Greek
government bonds ranks in size with the firm's stakes in Apple Inc and
Murphy Oil Corp.
The hedge fund scooped up certain Greek
government bonds for about 17 cents on the dollar, which were part of a
so-called «strip» of 20 newly issued bonds that mostly trade bundled
together, Loeb said in the October 3 letter. The individual bonds have
an average maturity of about 20 years.
Loeb said markets were
mistakenly pricing the debt to reflect a Greek exit from the Euro Zone, a
scenario that Third Point viewed as unlikely.
"ECB Chief Mario
Draghi's campaign to save the Euro began in late July, and reinforced
our belief that the probability of a Greek default was overstated by the
market,» he said.
Greek debt has risen in value as concern that
the euro zone might collapse has eased after steps by the European
Central Bank to prop-up some ailing economies. For example, the total
return on 10-year Greek government bonds in September was 29 percent.
The bonds Third Point bought are currently trading above 20 cents on the
dollar, Loeb said in the letter.
The hedge fund manager, known
for penning entertaining investors letters, quoted deceased rapper Tupac
Shakur's song in the section on Greek debt, singling out the lyric,
«I'm tryin' to make a dolla outta fifteen cents» from the song 'Keep Ya
Heads Up.'
"While we may not achieve the over six-fold return that
Mr. Shakur (Tupac) earned plying his trade, we believe the potential
risk-adjusted return on [Greek Government bonds] is more favorable,
particularly when adjusted for the risk of potential regulatory
intervention he faced,» Loeb wrote.
Third Point has had success
this year with bets on the sovereign debt of Portugal. Investments in
that country's government bonds were one of Third Point's biggest
winners in the second quarter.
The firm's roughly $5 billion
Offshore Fund is now up almost 11 percent for the year through the end
of last month, while most hedge funds rose just over 3 percent through
Sept. 26, according to Bank of America Merrill Lynch. The broader stock
market rose 2.5 percent last month, and has risen 16.4 percent for the
year.
The New York-based hedge fund's other winners in September
included its largest holding, technology company Yahoo, as well as bets
on gold, Ally Financial and an undisclosed short bet.
Losing bets
for Third Point during September were American International Group,
Enphase Energy Inc, two short positions in technology, media or
telecommunications companies and an asset-backed-security short
position.
Loeb, who is one of the most closely watched hedge fund
managers in the $2 trillion industry, also used the quarterly letter to
vent frustration with management at Murphy Oil.
The company
represents one of the hedge fund's largest holdings. Though its holding
is a passive investment at this time, Third Point has applied for
Hart-Scott-Rodino regulatory approval to increase its position, which
would provide the hedge fund with «maximum flexibility» if talks with
the board do not «bear fruit."
The Third Point Offshore Fund has
provided investors with annualized returns of over 17 percent since the
fund's inception in 1996. [Reuters] |
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