Third Point Investors 08 December 2021

Third Point Investors (LON:TPOU) has had a stand-out year so far in performance terms, with the manager’s differentiated approach to multi-asset investment delivering very strong returns. As we discuss in Performance, the standout performers this year in absolute terms have been the fund’s private investments, which have subsequently IPO’d and continued to deliver very strong returns as public equities.

The manager has specialist teams in credit, equity, merger/activist and venture strategies, not to mention a specialist short-selling team. Daniel Loeb stepped back into the sole-CIO role at Third Point in mid-2020, and he is responsible for overall capital allocation across the teams, which varies depending on Daniel’s reading of market conditions. Public equity has consistently been the biggest exposure for the fund, but private investments – far from being a trend that Third Point has leapt on recently – has had a consistent presence in the portfolio.

Over the last five years, the average discount to NAV has been 19.3%, but so far in 2021 has averaged 14.8% (Source: Morningstar). Strong performance, as well as a range of initiatives from the board, have seen the discount progressively narrow over the past 18 months. At the time of writing the discount is 13%, and the board has c. $50m of the buyback programme remaining. Some investors view the board’s discount narrowing activities as inadequate, but following the conclusion of a vote recently which saw a representative of the manager remain on TPOU’s board, the board have stated that they hope that they can now focus their efforts “on promoting the attractive value-proposition of the Company to current and potential shareholders”.

Third Point has a long history of opportunistically investing across asset classes. Their activity during 2020 and 2021 showcases how returns can be driven from different areas of the market and by different teams. During 2020, all of the strategies contributed. This year private investments have been a key driver, showing the benefits of Third Point’s venture team, but also their willingness to invest for the long term given how much value has been added post-IPO.

This is a truly active investment process, and we think TPOU provides an interesting and differentiated exposure for investors in global equities. Private investments now account for only c. 7% of NAV. However, TPOU can now add to private investments outside the master fund, and so we would expect TPOU to increase exposure up to a maximum of 20% at the time of investment. Given the track record of the team, we see this as an attraction for investors as part of a long-term investment in TPOU.

During Q1 2020, TPOU protected capital better than the AIC flexible sector average but has outperformed the AIC Global trust peer group since the start of the recovery. This is an impressive feat and provides one explanation of why the discount has narrowed alongside other board indicatives. There is a credible long-term route towards seeing the discount narrow further. As such, the current discount of 13% could provide an attractive entry point to highly differentiated equity exposure.