Third Point Investors Ltd - Third Point Releases Q1 2025 Investor Letter
Third Point Publishes Q1 2025 Investor Letter
Highlights
-- Third Point’s flagship Offshore Fund (the “Master Fund”) declined 3.7%
in the First Quarter as U.S. tariff announcements and the prospect of a
global trade war weighed on markets.
-- While not unscathed, Third Point weathered these developments by
proactively making opportunistic sales and by taking its net and gross
exposures to multi-year lows. The Investment Manager feels it is
currently well positioned following the addition of several new names
selected for the current environment.
-- Third Point LLC (“Third Point” or the “Investment Manager”) outlined its
view on the macroeconomic environment as well as its new position in
CoStar Group. It also provided updates on the corporate credit and
structured credit portfolios, as well as an update on the integration of
Birch Grove , an alternative credit manager.
Performance
-- Third Point returned -3.7% in the Master Fund during the First Quarter
of 2025, versus the
-4.3% return of the S&P 500 Total Return Index.
-- The top five positive contributors for the quarter were Meta Platforms
Inc., Rolls-Royce Holdings PLC, Intercontinental Exchange Inc., Phoenix
Holdings Ltd., and Telephone and Data Systems Inc.
-- The top five negative contributors for the quarter were Pacific Gas &
Electric Co., TSMC, Carvana Co., Amazon.com Inc., and Danaher Corp.
Outlook and Market Commentary
-- The First Quarter began with investor optimism for the Trump
administration’s expected plans for deregulation, improved tax and
energy policy, reduced government spending and a general
business-friendly environment. But by quarter-end, concerns around trade
policy turned sentiment decidedly negative.
-- Over the past few weeks, the administration seems to have mitigated some
of its more aggressive tariff objectives, however, the slowdown in
deal-making, financing, and general economic activity continues.
-- At the time of writing, Third Point awaits details of any individual
trade deals and is working with a wide spectrum of possible economic and
market outcomes until negotiations yield tangible results.
-- The Investment Manager realized gains earlier in the year through
opportunistic sales in Q1 and into Q2 that took its gross and net
exposures to multi-year lows and provided dry powder to deploy at the
right time.
-- Third Point increased its investments in event-driven, activist, and
risk arbitrage positions that it feels will perform well in a more
turbulent market environment due to their catalyst-oriented nature
(CoStar and U.S. Steel), and reduced exposure to numerous
market-sensitive positions, largely in the tech and consumer sectors.
Position Update
-- CoStar Group
o Third Point has long admired this collection of franchises, which
provide the real estate industry with mission-critical data, software,
and services that are designed into workflows and function as a system
of reference. They hold dominant market share, have low market
penetration with a long runway for future growth, have significant
untapped pricing power, and enjoy high-margin business models with
ample room for further margin expansion.
o Despite the continued strength of its core business, Third Point
believes recent capital allocation decisions have derailed CoStar’s
compounding algorithm. Over the past five years, management has
increasingly focused on leveraging CoStar’s dominance in commercial
real estate (CRE) to expand into residential real estate (RRE).
However, this investment has yet to generate meaningful revenue.
Expanding losses at in the RRE business have obscured rapid growth in
the core CRE business and reduced consolidated EBITDA by approximately
80%.
o During the First Quarter, Third Point engaged with the company with
the goal of helping the company improve its capital allocation
framework. CoStar agreed to add three new directors (all of whom have
deep capital allocation experience), create a Capital Allocation
Committee of its Board of Directors tasked with establishing a
rigorous framework for future capital deployment, and review its
executive compensation programs to ensure management’s incentives
remain aligned with stockholder value creation.
o While results will not be immediate, Third Point expects to see a
meaningful improvement in capital allocation by YE 2025. As its core
business continues to compound and improved capital allocation starts
to narrow losses in RRE, the Investment Manager believes the company
can grow EBITDA by a factor of more than 7x over the next few years.
Credit Updates
-- Corporate Credit
o Third Point’s corporate credit portfolio was down about 30 basis
points on a net basis for the quarter. Credit markets were relatively
strong the first two months of the year, but fell back alongside
equity markets in March as tariff rhetoric began to crystalise into
action.
o Third Point remains invested in relatively liquid names with larger
capitalisations that the Investment Manager believes gives these
companies more levers to pull when capital markets become difficult.
o It expects to see more compelling opportunities in the months ahead as
the market digests the tariff impact on leveraged borrowers. Third
Point has a track record of capitalising on these types of
dislocations by deploying capital in credit.
-- Structured Credit
o Third Point’s structured credit portfolio returned 1.1% on a net basis
for the quarter, helped by its exposure to fixed rate residential
mortgages, which remained resilient even as credit spreads started to
widen later in the quarter.
o Third Point continues to believe residential mortgages offer a
compelling risk/reward, as borrowers have a significant level of
equity in their homes and more stable to lower rates should be a
tailwind for this exposure.
o Elsewhere in structured credit, Third Point is seeing opportunities
begin to emerge in CLOs, as price volatility will cause some CLO
managers to become forced sellers.
Birch Grove Integration & Private Credit Launch
-- In February, Third Point completed its acquisition of Birch Grove , a
diversified credit asset manager. Integrating Birch Grove into Third
Point brought over $8 billion of new capital invested in CLOs, private
credit, and other strategies, as well as a talented and experienced
team.
-- The anticipated synergies of this transaction are beginning to manifest
in Third Point’s private credit division, which expects to launch
several different tailored strategies starting in Q2.
-- Third Point believes that its edge comes from its collaborative culture
and ability to allocate flexibly between equities and credit depending
on the market environment. Third Point will celebrate on June 1 the 30th
anniversary of the date in 1995 when it launched as a distressed debt
fund, before evolving to include the many strategies it incorporates
into the main fund portfolio today.
-- Bringing more perspectives into the credit side of the business has
already invigorated its views on credit opportunities. Birch Grove’s
team of CLO analysts brings a wealth of knowledge about the debt
profiles of individual companies and sectors and offer insights into our
main fund equity research process.
Press Enquiries
Burson Buchanan
Third Point Charles Ryland Elissa Doyle , Chief Communications Officer and Head of charlesr@buchanan.uk.com
ESG Engagement
Tel: +44 (0)20 7466 5107
edoyle@thirdpoint.com
Henry Wilson
Tel: +1 212-715-4907
henryw@buchanan.uk.com
Tel: +44 (0)20 7466 5111
Notes to Editors
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