Lone Pine Capital Discloses Kinder Morgan Stake Via El Paso Deal

Steve Mandel's hedge fund firm Lone Pine Capital filed a Form 3 and 13G with the SEC regarding shares of Kinder Morgan (KMI).  The hedge fund now owns a sizable chunk of common stock and warrants that they received via their previous position in El Paso (EP).

As pointed out in our new issue of Hedge Fund Wisdom two weeks ago, El Paso was Lone Pine's largest disclosed US equity holding as they were playing the risk arbitrage there.  EP was acquired by Kinder Morgan in a stock/warrant/cash deal.

Lone Pine has now disclosed a 12.9% ownership stake in the company with 71,780,836 shares.  This is represented by 17.6 million shares of common stock and 54.1 million shares via warrants.  The warrants have an expiration date of May 25th, 2017 and a conversion/exercise price of 40.

Numerous other prominent hedge funds were playing this arbitrage as well, so it will be interesting to see who holds on to the new entity (KMI) and who sells their position.  Our premium newsletter drew attention to the sizable stakes in El Paso by Lone Pine, Farallon Capital, Paulson & Co, Omega Advisors, JANA Partners, and Third Point.

Per Google Finance, Kinder Morgan "owns and manages a diversified portfolio of energy transportation and storage assets. The Company operates in five business segments: Products Pipelines-KPM, Natural Gas Pipelines-KMP, CO2-KMP, Terminals-KMP and Kinder Morgan Canada-KMP. The Company through Kinder Morgan Energy Partners, L.P. (KMP) operates or owns an interest in approximately 37,000 miles of pipelines and approximately 180 terminals. These pipelines transport natural gas, refined petroleum products, crude oil, carbon dioxide and other products, and its terminals store petroleum products and chemicals, and handle such products as ethanol, coal, petroleum coke and steel."

In other portfolio activity from Mandel's firm, we've highlighted how Lone Pine has been buying Ulta Salon.

Dan Loeb's Third Point Reduces Equity Exposure For Fifth Straight Month

Dan Loeb's Third Point Offshore Fund finished -3.5% for September compared to -7% for the S&P 500. Third Point sits at 0.2% year-to-date. The Offshore Fund manages just over $4 billion and has seen annualized returns of 17.6% since 1996.


Third Point Reduces Equity Exposure For Fifth Straight Month

In what has been an ongoing theme, Third Point reduced equity exposure yet again in September. Earlier in the year, we highlighted Loeb's cautious stance as he began to reduce exposure. At the end of September, Third Point was only 15.6% net long equities, compared to 17.7% net long a month prior.

Obviously such positioning has led to Third Point's outperformance. Geographically, Third Point has been net long the Americas and net short the EMEA and Asia regions. Risk management has been the name of the game for the fund this year.

In September, Loeb's largest net long exposure came in the technology sector at 8.9% and energy at 3.4%. Third Point is net short industrials at -1.3% and utilities at -0.5%.

In credit, Third Point is 15.6% net long, down from 18.5% net long in August. They continue to have the largest exposure to asset backed securities and remain short government issues.


Third Point's Top Positions

1. Yahoo! (YHOO)
2. Gold
3. Delphi
4. El Paso (EP)
5. Technicolor (multiple securities owned)

We detailed Loeb's activist investment in Yahoo when he first took the position. He also presented his bull case for YHOO at the Delivering Alpha conference.

Third Point's biggest winners last month were commodity short A, energy short basket, SanDisk (SNDK), auto suppliers short basket, and short B. Obviously they don't name their short positions but it's no surprise that many shorts were their top percentage gainers. The hedge fund's biggest losing positions last month were gold, Mosaic (MOS), Delphi, CVR Energy (CVI), and Yahoo! (YHOO).

Assuming Third Point still owns Mosaic, you have an opportunity to purchase shares at prices lower than the hedge fund. They originally bought MOS at $65 on the Cargill family secondary and then subsequently bought the dip in June (presumably around $60). MOS shares now trade around $49.

Dan Loeb's Third Point Outperforming, Reduces Exposure Yet Again

In early August, we noted how Dan Loeb's Third Point reduced equity exposure for the third consecutive month. That decision has certainly paid off as Loeb's fund was only down 2.8% in August compared to the S&P 500 which was down 5.4%. Year-to-date as of the end of August, Third Point is up 3.9% while the S&P is down 1.8%.


Reduced Exposure for Fourth Straight Month

At the end of August, Third Point was only 17.7% net long equities, down even further from their 23.3% net long exposure back in July. Their largest net long exposure comes in technology at 6.5% and basic materials at 3.5%. Third Point is net short industrials (-1.5%) and utilities (-0.6%).

In credit, Loeb's Offshore Fund is 18.5% net long, a slight decrease from last month. They continue to be net short government securities (-10.3%) and have their largest net long exposure in asset backed securities (+17.3%).

Geographically, Third Point is net long the Americas at 50%, net short EMEA at -4% and net short Asia at -2%.


Third Point's Outperformance

So while decreased exposure to risk certainly has helped Loeb outperform in this volatile market, his winners the past month include gold, short A, CVR Energy (CVI), Barrick Gold (ABX), and short B.

It should come as no surprise that their gold related investments have helped them outperform as the precious metal rocketed higher as market volatility increased. Not to mention, gold has been one of Third Point's largest positions for some time now.


Top Positions

- gold
- Delphi
- CIT Group (multiple securities held)
- Technicolor (multiple securities held)
- El Paso (EP)

The most notable change in Third Point's top positions since last month is the absence of Mosaic (MOS). There's no way to know exactly why because they could have reduced their position size, other positions could have appreciated more, or they could have bought more of some of their top holdings.

Third Point originally bought MOS on the secondary when the Cargill family unloaded shares at $65 per share. The hedge fund subsequently 'bought the dip' in MOS when it traded down to around $60. During August, MOS traded as low as $55.70, and currently trades around $69.50.

Either way, Third Point's top holdings have largely been what you see above as they wait for Delphi to go public and El Paso to split up.

Hedge Fund Third Point Reduces Equity Exposure For Third Consecutive Month

For the month of July, Dan Loeb's hedge fund firm Third Point offshore fund was up 0.3%. Year to date, they are up 6.9% versus 3.9% for the S&P 500. Seeing 18.4% annualized returns, it's no wonder that Third Point is closed to new investors.

Net Exposures Down Yet Again

Loeb's hedge fund is only 23.3% net long equities (39.7% long and -16.4% short). In June, we detailed how Third Point reduced equity exposure again. July marks the third consecutive month in which Loeb's firm has reduced risk.

In July they ratcheted down exposure from 30.7% net long down to only 23.3% net long. Caution is the name of the game for Loeb's firm and he outlines the rationale in his quarterly letter.

Their largest net long equity exposure comes in the energy sector at 6.1%, as well as consumer and basic materials each at 5.7%. They are net short technology and utilities.

In credit, Third Point is 20.9% net long (32.2% long and -11.3% short). They continue to be net short government issues and their largest net long exposure comes in asset backed securities (ABS).


Third Point's Top Positions

1. Gold
2. Delphi Corp
3. El Paso (EP)
4. CIT Group (CIT ~ multiple securities held)
5. Mosaic (MOS)

Loeb's stake in MOS is brand new and the thesis on Mosaic is detailed in Third Point's Q2 letter. They also continue to hold Delphi, a position numerous hedgies like.

In the past month, Third Point's top winners include gold, Peregrine Metals (PGM), CVR Energy (CVI), Delphi, and an interest rate hedge. Their top losers included NXP Semiconductor (NXPI), CIT Group (CIT), Pall Corp (PLL), Health Net (HNET), and Brenntag AG (BNR).

Shares of NXPI have traded down almost 43% in the past 3 months. Many see this company as a play on the future 'mobile wallet' due to its near field communications (NFC) chip that allows transactions between phones. Third Point has been able to offset the negative performance of this company with gains in other areas.

Third Point Reduces Equity Exposure Further in June

For the month of June, Dan Loeb's Third Point Offshore Fund returned -2.6% but is still up 6.8% for the year and has seen 18.5% annualized returns. The Offshore fund manages just under $4 billion and Third Point recently closed to new investors.

Equity Exposure

At the end of June, Third Point's total equity exposure was 56.3% long and -25.6% short, resulting in 30.7% net long exposure. Their largest net long exposure comes in the consumer sector at 7.1% net long and the energy sector at 6.5% net long. The only sector they were net short was technology.

This marks a reduction in Third Point's equity exposure for the second consecutive month. At the end of May, they were 42.6% net long equities and so they've decreased exposure by almost 12% month over month.

Credit Exposure

Dan Loeb's firm also reduced credit exposure during the quarter down to 21.7% net long (down from 34.4% net long at the end of May). Their largest exposure this time around was 18.1% net long asset backed securities and 10.2% net long distressed debt. On the other side of things, they continue to be -10.1% net short government securities.

Top Positions

1. Delphi
2. El Paso (EP)
3. Gold
4. CIT Group (multiple securities held)
5. Technicolor (multiple securities held)

While at the end of May gold was Third Point's largest position, the slide in the precious metal caused it to slip to their third largest position a month later. CIT Group moves into their top 5 holdings this month, replacing CVR Energy (CVI).

Delphi is Loeb's largest holding and David Einhorn's Greenlight Capital also recently took a stake. In fact, Third Point and Greenlight share a few other common positions such as gold and CIT Group.

Top Winners & Losers

In the month of June, Third Point's positions in CVR Energy, Volkswagen, and various asset backed securities were their top winners. Their top losers in the month included Delphi, LyondellBasell (LYB), El Paso (EP), gold, and Technicolor.

Dan Loeb's Third Point Reduces Equity Exposure

Dan Loeb's Third Point Offshore Fund finished May -0.4% and year-to-date is up 9.7%. Managing around $4 billion, the hedge fund is closed to new investors and has seen 18.8% annualized returns.


Equity Exposure

The month of May was a volatile one for the markets in general and hedge funds were no exception. Third Point ratcheted down exposure to equities as they were 42.6% net long at the end of the month (60.3% long and -17.7% short). The month prior, the hedge fund was 46.8% net long equities, marking a 4.2% decrease in exposure from April to May.

Third Point's largest exposure this time around continued to be the consumer sector at 9.5% net long and basic materials at 8.2% net long.

Credit Exposure

In credit, Third Point was 34.4% long, -7.7% short, leaving them 26.7% net long. This is down from 29.4% net long the month prior. Their largest exposure in this segment continues to be asset backed securities.

Top Positions

Third Point's top holdings at the end of May were:

1. Gold
2. Delphi
3. El Paso (EP)
4. Technicolor (Multiple Securities owned)
5. CVR Energy (CVI)

Earlier today we posted up that David Tepper's Appaloosa Management recently bought more CVR Energy. Also, we highlighted how Delphi will be going public and there are numerous hedge funds involved in that name as well.

In the month of May, Third Point's top winners included: Delphi, El Paso, Short A, Short B, and Aveta.

The hedge fund's top losing positions for the month included: NXP Semiconductor (NXPI), NewPage, Williams Companies (WMB), Big Lots (BIG), and gold.

For rationale behind some of their investments, check out Third Point's investor letter.

Third Point Reveals Technicolor Position: Latest Exposure Levels

Dan Loeb's hedge fund Third Point returned 1.4% in April and is now up 10.1% for the year. His Offshore Fund has returned 19% annualized, manages $6.8 billion, and recently closed to investors.


Equity Exposure

As of the end of April, Third Point's largest net long equity exposure was in the consumer sector at 10% and energy at 9.5% according to their latest monthly factsheet. Their overall equity exposure is 60.2% long, -13.4% short, leaving them net long 46.8%. This marks a slight increase in net long exposure from last month, up 4.6%. In this arena, Third Point is largely focused on spin-outs.

Credit Exposure

Third Point is overall 29.4% net long credit with their largest exposure coming from mortgage backed securities at 17.1% and distressed at 11.9%. These levels remain largely the same from last month. They also remain short government credit at -4.7%.

Top Positions

- Gold
- Delphi Corp
- El Paso (EP)
- NXP Semiconductor (NXPI) ~ multiple securities held
- Technicolor (TCH) ~ multiple securities held

This is the first time we've seen a mention of Technicolor in their portfolio. Notably absent from their top positions this time around is Chrysler, which was their third largest holding last month. Delphi continues to be a top holding for Third Point and a few days ago we highlighted that David Einhorn's Greenlight Capital bought Delphi recently as well.

Third Point's winners in the past month include gold, LyondellBasell (LYB), NXPI, Delphi, and El Paso (EP). Losing positions in April include short A, Icelandic Banks (debt), CVR Energy (CVI), Sunoco (SUN), and NewPage.

You can read Third Point's theses on CVR Energy and El Paso here.

Third Point Focused on Spin-Outs & Closes to New Investors

Dan Loeb's hedge fund Third Point returned 8.6% in the first quarter of 2011 and manages $6.7 billion. Most recently, we noted Third Point's reduced net long exposure. Last time around, Loeb mentioned he would no longer be penning the letter to investors, but we still get some color on their portfolio construction and where they're finding value.

In particular, Third Point is focused on spin-outs as the Q1 letter details:

"At our annual Investor Day in January, we told you that we were enthusiastic about equities in a market poised for a wave of corporate transactional activity on a scale not seen since 2007. A combination of factors including record high levels of cash on corporate balance sheets, highly incentivized LBO firms, the return of cheap debt financing, and anemic top line growth is conspiring to make this an ideal period for the kind of special situation equity opportunities that are a core part of our strategy."

Loeb's hedge fund has focused specifically on the energy sector, owning positions in Williams Companies (WMB), El Paso (EP), and CVR Energy (CVI). We highlighted that Third Point started a position in El Paso in February.

Regarding Williams Companies (WMB), Third Point originally invested in November and has since added to the position as the company announced plans to split itself via an IPO of its E&P business in the second half of the year and a full spin of the remaining business in early 2012.

This is the type of event-driven investing Third Point loves. Besides Third Point, numerous other prominent hedge funds own a position in Williams Companies. You can read an in-depth analysis of WMB by subscribing to our Hedge Fund Wisdom newsletter as we featured the stock in our most recent issue.

Also of note is the fact that Third Point will close to new investors effective June 1st. They believe this is a prudent time and this is not the first time they've done so.

Embedded below is Third Point's first quarter letter to investors (email readers come to the site to read it):



To learn how to invest like Dan Loeb, check out his recommended reading list.

Hedge Fund Third Point Reduces Net Long Exposure: Latest Positioning

Dan Loeb's hedge fund firm Third Point LLC has released its March performance and exposure report. Third Point returned 0.9% in March and is up 8.6% year to date versus 5.9% for the S&P 500. Third Point's Offshore Fund now has an annualized return of 19%.

Latest Exposure Levels

Third Point is net long equities to the tune of 42.2%. This is a decrease of 14%, down from last month's 56.2% net long exposure. As various crises (risk) around the world escalated, Third Point has ratcheted their exposure down. In Loeb's year-end letter, he voiced that he was concerned about the consensus bullish view.

Third Point's largest net exposure is in energy, basic materials, and consumer. In credit, Third Point is 17.1% net long asset backed securities (RMBS & CMBS exposure), 11.5% net long distressed, 6.1% net long performing and -5.1% short government securities. Their credit allocations are largely unchanged from last month.

Third Point's Top Positions:

1. Gold
2. Delphi Corp
3. Chrysler
4. El Paso Corp (EP)
5. NXP Semiconductor (NXPI) ~ multiple securities held

In February, we highlighted how Loeb started El Paso as a new position and it remains one of their top holdings. This month, their exposure to NXP Semiconductor (NXPI) replaces LyondellBasell (LYB) as their fifth largest position.

NXPI is a prime player in the NFC (near field communications) space that seems to be sweeping the mobile industry as interest in mobile payments heats up. The company recently priced a secondary offering at $30 per share and has been doing a roadshow to drum up investor interest. This offering significantly helps liquidity in the stock and should allow larger hedge funds to accumulate positions.

Top Winners & Losers for Third Point

We get a glimpse at some of Third Point's other positions with their top winners from the month, including: CVR Energy (CVI), Short A, Statoil Fuel & Retail ASA (SFR), Aveta, and Health Net (HNET). Their top losing positions for the month include Potash (POT), PHH Corp (multiple securities held), Inmarsat, ProSieben (multiple securities held), and El Paso.

To see analysis of Loeb's portfolio and the investment thesis behind some of his picks, check out our Hedge Fund Wisdom newsletter.

Dan Loeb's Third Point Buys El Paso (EP)

Dan Loeb's Third Point Offshore Fund is out with its monthly update on positioning and exposures. The key takeaway here is that Third Point has initiated a position in gas producer El Paso (EP) since the fourth quarter.

The second most notable takeaway is that Potash (POT) is no longer among their top holdings. The stock sold-off hard recently, so that could be the culprit. Or, perhaps they sold shares, other holdings appreciated in value, or they ramped up their stakes in other names; it's tough to discern.

Third Point's Top Positions

1. Gold
2. Delphi (both equity & debt)
3. Chrysler (multiple securities owned)
4. El Paso (EP)
5. LyondellBasell (LYB)


Some of the fund's top winners were gold, NXP Semiconductors (NXPI), El Paso (EP), Technicolor (multiple securities owned), and Williams Companies (WMB). Per their latest disclosure, Third Point also now owns multiple securities in NXPI after previously owning just the equity.

El Paso is the second gas related entity they've invested in recently. Third Point bought WMB in the fourth quarter, as did many other hedge funds. You can read about the investment thesis on WMB in the equity analysis section of our new issue of Hedge Fund Wisdom.

The top losers last month in Third Point's portfolio included Wells Fargo (WFC), BioFuel Energy (BIOF), CIT Group (CIT), Accuride (ACW), and Rentokil Initial PLC (RTO in London, RTOKY on the pink sheets). Wells Fargo also appears to be a new equity position for the hedge fund, unless it is a debt stake that has previously been undisclosed; the disclosure is unclear.

Overall, Loeb favors post-reorganization equities. In particular, he's been active in Smurfit-Stone Container (SSCC), opposing the takeover. LyondellBasell (LYB), another post-reorg equity, continues to be one of Loeb's largest positions.

For the month of February, Third Point was up 3.6% and is up 7.6% for 2011 thus far. Its Offshore Fund has now seen an impressive 19% annualized return since inception in December 1996.


Exposure Levels

Regarding their latest exposure levels, Third Point is 56.2% net long equities with its largest net long exposure in basic materials at 12.1% and consumer at 11.5%. Over the past month or so, Third Point has reduced net long equity exposure by almost 5%.

In credit, the hedge fund is 11.5% net long distressed, 16.5% net long asset backed securities (ABS) which include residential mortgage backed securities (RMBS) and commercial mortgage backed securities (CMBS). They are also net short -5.4% government securities, cutting their short exposure to this asset class almost in half.

For a full assessment of Loeb's portfolio and the investment thesis behind some of his picks, head to the brand new issue of Hedge Fund Wisdom that was just released.