Hedge Fund Third Point's Latest Exposure Levels: 27.3% Net Long Equities ~ market folly

Monday, June 7, 2010

Hedge Fund Third Point's Latest Exposure Levels: 27.3% Net Long Equities

For the month of May, Dan Loeb's hedge fund Third Point was down 5.6%. While this was a sub-par month by their standards, they still outperformed the S&P 500 which was down 8% over the same time period. Third Point's offshore fund has $1.8 billion under management and has generated 18% annualized returns (836% cumulative performance). To learn to be such a successful investor, we'd of course refer you to Dan Loeb's recommended reading list. Throughout 2010, they've been reducing their gross exposure. In terms of long/short equity exposure, we see that their biggest net long positions are in the financial sector at 8.8% and consumer sector at 5.1%.

In the profits and losses column, the consumer sector was also their biggest loser, returning -1.7% net for the month. Overall long/short equity exposure came in at 40.2% long and -12.9% short, leaving them 27.3% net long. As we've highlighted recently, hedge funds have very low net long exposure. However, Third Point's exposure levels seem to be above that of the overall hedge fund industry. For more detail on their specific positions, we've also covered Third Point's equity portfolio.

Moving next to credit, we see Loeb is still very long distressed at 28.6% net exposure and MBS at 19.1% net. This of course continues from the past few months where we've highlighted how Loeb has been net long distressed debt. Across all asset classes, distressed was also most responsible for their poor month as they lost 2.7% there. In terms of overall geographic exposure, Third Point is 87% net long the Americas, 14% net long Europe, and -1% net short Asia.

In a big down month, it should come as no surprise that three of their short positions were their top winners. Unfortunately, they don't disclose the positions (but can you really blame them?) Their top losing positions consisted of Lyondell, Dana Holding, Barclays, Liberty Media, and Xerox. You'll recall that Jamie Dinan of York Capital recently stated he was bullish on Lyondell at the Ira Sohn Investment Conference (notes from the event here).

Overall, Third Point's top positions were as follows (keep in mind that they hold multiple types of securities in each of these names):

1. Chrysler
2. Delphi
3. CIT Group
4. PHH Corp
5. Dana Holding Corp

Embedded below is the recent monthly report from Dan Loeb's Third Point Offshore Fund:

You can download a .pdf copy here.

So, a poor month performance wise for the hedge fund firm, but they still have solid year to date numbers. We'll have to see if they continue to ratchet down gross exposure as this seems to be a building trend amongst hedge funds. For more from Third Point, be sure to check out Dan Loeb's recommended reading list as well as Third Point's equity portfolio.

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