Third Point Investors 28 April 2021
Disclosure – Non-Independent Marketing Communication
This is a non-independent marketing communication commissioned by Third Point Investors. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.
Third Point Investors (TPOU) offers exposure to Third Point’s flagship master fund. Third Point applies an opportunistic approach to investing in companies across the capital structure on a global basis. It aims to invest in different asset classes to optimise risk and reward through a market cycle, and provide consistent long-term capital appreciation. The strategy has in the past demonstrated market directionality over short term time frames but, as we discuss in Performance, has delivered returns matching (and sometimes exceeding) those of equities, but with lower volatility.
As we discuss under Portfolio, Daniel Loeb stepped back into the sole-CIO role at Third Point in Q2 2020, and is responsible for overall capital allocation across the teams. He has described four pillars of the strategy, centring around activism, fundamental and event-driven equities, credit, and venture. Net equity exposure is currently higher than the long run average reflecting Third Point’s bullish outlook on the opportunity set.
Venture (or private) investments have been a strong contributor to returns this year, helped by several successful IPOs. Private investments now account for only c. 8% of NAV, down from c. 12% at the beginning of 2020. As part of the board’s strategic review published recently, given the prospective opportunity set and increasingly blurred lines between public and private markets, TPOU will be increasing its exposure to these investments in the future, up to a maximum of 20% at the time of investment.
At 17%, TPOU’s Discount remains wide. At the time of writing, the board has c. $105m of the buyback programme remaining. Additionally, the board has stated that it intends to implement two tender offers for 25% of NAV, at a discount of 2% to NAV, if in the six-month periods ending 31 March 2024 and 31 March 2027, the average discount to NAV is more than 10% and 7.5%, respectively.
Third Point’s activity during 2020 and so far in 2021 encapsulates how they as managers add value, and in our view provides an interesting and differentiated exposure for investors in global equities. During 2020, all of the strategies were employed to deliver strong returns, and private investments have been a key driver this year so far.
In Performance, we compare TPOU to trusts in the AIC’s Global and Flexible sectors. Over various time frames, TPOU has delivered an admirable return profile of returns broadly in line with the Global sector, but with volatility in line with that of the Flexible sector.
As part of the board’s strategic review published recently, TPOU will be increasing its exposure to private investments, up to a maximum of 20%. We think this is potentially an attractive feature for investors in TPOU, given other trusts which offer private company exposure trade at significant premiums to NAV.
Together with the remaining buyback facility, the recently announced conditional tenders in 2024 and 2027 provide a credible long-term route towards seeing the TPOU discount narrow towards the board’s target of 7.5%. As such, the current Discount of 17% – when combined with the measured, risk-aware approach to investing that the manager has demonstrated over the years – offers some very interesting investment properties.
In our view, the share price offers material upside potential from the discount narrowing towards the board’s target. In the context of a challenging equity backdrop, the combination of the NAV returns, and the discount narrowing could prove attractive on a relative basis.
|Good long-term track record
|Compared to typical closed-ended funds, relatively poor disclosure on underlying portfolio
|Manager’s ability to pivot portfolio on asset classes with good potential risk-adjusted returns
|Proposed increase in gearing could lead to higher volatility in the NAV
|Discount at wide level in absolute terms; board buying shares back
|High OCF compared to long-only equity funds