Tuesday, June 15, 2010

Third Point's Dan Loeb Sells Financials: Investor Letter (Q1 2010) BAC; C

If I remember correctly he had 25 Mil. shares of C, 6.6 Mil. BAC.
From Market Folly:
Dan Loeb's hedge fund firm is now fifteen years old. They have a lot to celebrate too considering Third Point has grown assets under management from $3.3 million to now billions. And when we checked in on Loeb's firm back in May, we saw his Offshore Fund had annualized returns of 18.6% versus 5.2% for the S&P 500. With cumulative performance of 892%, Loeb has certainly found success. To get on track toward emulating such success we'd refer you to Dan Loeb's recommended reading list. So, what has he been up to lately? We'll dive into Third Point's first quarter investor letter below.

While Loeb notes that his firm started betting on a recovery in April 2009, he fixates on the fact that investor confidence is still not what it should be. He attributes this lack of pizazz to a continually shifting regulatory environment where the rules are rapidly and repeatedly revised. In his typically eloquent fashion, Loeb summons his famously penned CEO-bashing days of old. This time though, he has a different target. He writes, "The Administration appears unable, or unwilling, to let free-market capitalism resume. Indeed, it is neither health care nor financial reform which has stressed markets most in 2010, but rather the continued politicizing of the regulatory process and the abandonment of free market capitalist principles that have undermined investor confidence".

In fact, Loeb's confidence in the system has been shaken to the point where he has sold out of practically all of Third Point's positions in financial companies. Third Point has exited their Citigroup (C) and Bank of America (BAC) stakes. Additionally, Loeb sold mostly out of his Barclays (BCS) position and only holds a small residual position in a regional bank (to the tune of less than 1%). Loeb is now the perfect example of his own point on investor confidence. Most investors haven't been confident in the markets. Loeb, on the other hand, hasn't been confident in the administration and its actions. However, his lack of confidence in regulators has in turn caused lack of confidence in the ability to invest in financial companies.

In what will surely be labeled as a strange and potentially questionable maneuver, Loeb notes that he talked about his positions in BAC and C back on January 20th at Third Point's annual investor presentation. However, in his first quarter letter he reveals that he quickly sold out of those positions only days later. While he provides rationale for his abrupt exit, it certainly wreaks of oddity and might rub some investors the wrong way that he would essentially be 'pitching' them on the latest investments in financials, only to sell out of them in the days following the event. Loeb labels political action as part of his reason for exiting and so maybe more than anything he is using this as an example to showcase how much of an effect regulators are having on investor confidence....MORE