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April 8, 2011
First Quarter 2011 Investor Letter
Set forth below are our results through March 31st, 2011 and a brief discussion of selected
positions that impacted the portfolio during the quarter.
Third Point
Offshore Fund
Ltd. S&P 500 CS Event Driven*
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The outlook for CVR’s refining business is likewise strong. The facility recently underwent
an extensive upgrading process and is ideally located to take advantage of the oil
supply/demand imbalance in the Cushing market. In short, increased supply of oil is
flowing into Cushing, and there is presently inadequate take‐away capacity in this market.
The result has been that WTI oil prices are at a large discount to oil delivered at other
locations, creating the prospect of windfall profits for refineries in this region, as the
competition in other regions must source higher‐cost oil. We think that this imbalance
should persist for at least the next twelve‐to‐eighteen months (and quite possibly much
longer). As a result, we are very constructive on mid‐continent refineries. Further, netting
the value of the fertilizer spin, we believe we are creating the CVR refinery operation at a
50% discount to the mid‐continent comparables.
Mortgages: ABX
Since mid‐2010 we have been buying seasoned subprime mezzanine bonds (from 2004‐06
vintages), purchasing them at levels of ~$0.30‐$0.40 on the dollar. Our average bond that
fits this theme has about 25% of enhancement and is about 17% thick, meaning that the
attach/detach would be 25‐42% (25% + 17%) from these levels.
In an interesting “pair” trade, we are shorting an index – specifically the ABX 06‐1 A’s – that
we think is trading too rich (especially versus our cash bonds), highlighting our approach
to exploiting pockets of value inside the $3 trillion US CMBS and RMBS markets. Each
tranche of the ABX references 20 bonds. Of the 20 bonds making up the 06‐01 A’s, 4 bonds
have already been written off, leaving 16 bonds. Of these 16, 3 are currently being written
down and will be worth nothing, and we expect 5 others will be written down shortly. Of
the remaining 8 bonds, we expect that 5 of them may get some principal back, but they are
lower in the capital structure and more risky than the bonds we are currently long, and the
last 3 will ultimately default but the timing of this default is unclear. The ABX presently
trades at 26.5, setting up a very interesting relative value proposition versus our subprime
mezzanine bond position referred to above.
We think there is a good possibility that the funds will make money on both the long and
short positions.
Important Announcement Regarding Future Subscriptions
Assets under management currently stand at approximately $6.7 Billion. Asset growth
over the past two years has been a result of both investor subscription flows and
appreciation of the portfolio. Periodically over the past sixteen years, the funds have closed
to new subscriptions, and we believe we have reached a point when it is once again
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prudent to close the funds to new relationships effective June 1st. We will continue to
closely monitor our AUM levels and will provide appropriate notice should this position
change.
Personnel Update
We are pleased to announce four additions to our research team:
Munib Islam, who was an analyst and portfolio manager here from 2004‐2008, is rejoining
Third Point as Head of Equities Research and will sit on our Risk Committee. Munib spent
the past three years at Highbridge Capital, where he was a Managing Director and PM of
Highbridge’s European Value Equities fund. Before coming to Third Point, he worked as an
Associate at Oak Hill Capital and at Lazard LLC. Munib received a BA in Economics magna
cum laude from Dartmouth College and an MBA from the Graduate School of Business at
Stanford University. Mandeep Manku will continue in his role as Head of European
Equities.
David Bell has joined Third Point’s Asset Backed Securities team to focus on our mortgage
and other ABS investments. Prior to joining Third Point, David was at Morgan Stanley
where he traded both mortgage and non‐mortgage securities. He received a B.S. in Finance
from NYU Stern.
Marshall Bush has joined our Technology, Media and Telecom (TMT) team. Marshall has
extensive hedge‐fund experience, including at SAC capital and its affiliate Altair Capital, and
most recently at Exis Capital. He was also a Vice President and Portfolio Manager at
JPMorgan, where he managed technology investments on their proprietary trading
desk. Marshall graduated from Dartmouth College with an A.B. in English.
Paulo Passoni will join Third Point in May to focus on investments in Latin America. Paulo
most recently spent five years at Eton Park. Previously, he was an Analyst in the Mergers
and Acquisitions Group of Morgan Stanley in Sao Paulo, Brazil. Paulo was raised in Brazil,
and attended Fundacao Getulio Vargas University. He received an MBA from Harvard
Business School as a Baker Scholar, and also holds an MPA from Harvard’s John F. Kennedy
School of Government.
Additionally, as we announced at the annual Investor Meeting in January, Jim Carruthers
and Ian Wallace have been promoted to the newly created position of Partner. The
creation of these positions is reflective of their success in their senior investing roles.
Congratulations Ian and Jim for these well‐deserved promotions.
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Thank you for your continued loyalty and partnership.
Sincerely,
Third Point LLC
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The performance data presented represents that of Third Point Offshore Master Fund L.P. All P&L or performance results are based on
the net asset value of fee‐paying investors only and are presented net of management fees, brokerage commissions, administrative
expenses, and accrued performance allocation, if any, and include the reinvestment of all dividends, interest, and capital gains. The
performance above represents fund‐level returns, and is not an estimate of any specific investor’s actual performance, which may be
materially different from such performance depending on numerous factors. All performance results are estimates and should not be
regarded as final until audited financial statements are issued. Exposure data represents that of Third Point Offshore Master Fund L.P.
While the performances of the Funds have been compared here with the performance of a well‐known and widely recognized index, the
index has not been selected to represent an appropriate benchmark for the Funds whose holdings, performance and volatility may differ
significantly from the securities that comprise the index. Investors cannot invest directly in an index (although one can invest in an index
fund designed to closely track such index).
Past performance is not necessarily indicative of future results. All information provided herein is for informational purposes only and
should not be deemed as a recommendation to buy or sell securities. All investments involve risk including the loss of principal. This
transmission is confidential and may not be redistributed without the express written consent of Third Point LLC and does not constitute
an offer to sell or the solicitation of an offer to purchase any security or investment product. Any such offer or solicitation may only be
made by means of delivery of an approved confidential offering memorandum.
Information provided herein, or otherwise provided with respect to a potential investment in the Funds, may constitute non‐public
information regarding Third Point Offshore Investors Limited, a feeder fund listed on the London Stock Exchange, and accordingly
dealing or trading in the shares of that fund on the basis of such information may violate securities laws in the United Kingdom and
elsewhere.
_____________________
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