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Morning Brief: Third Point Rebounds to Profitability in April

The firm reported gains in its long equity portfolio and its short credit holdings.

  • By Stephen Taub

Dan Loeb’s Third Point Offshore (barely) moved back into the black in April, gaining 0.7 percent for the month. As a result, it is now up 0.1 percent for the year. In a monthly report, the multistrategy hedge fund firm best known for its activism said all strategies generated positive results.

“April performance was primarily driven by positive performance in core long equity positions across the TMT, consumer, and healthcare sectors,” the report said. Specifically, its long equity book gained 0.7 percent, while its short equity book lost 0.4 percent. Its credit book rose 0.2 percent, driven by strong gains in its short book, which more than offset losses from its long holdings.

“Within credit, gains from investments in distressed and asset-backed securities contributed to the fund’s overall returns for the month,” stated the report. Entering May, Third Point’s five largest positions were health care giant Baxter International Inc., food giant Nestlé SA, industrial conglomerate United Technologies Corp., chemicals giant DowDuPont Inc. and Chinese e-commerce giant Alibaba Group Holding Ltd.

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Finally, some good news for Och-Ziff Capital Management. On Wednesday the embattled multistrategy fund manager reported its first quarterly net inflow of assets since 2015. Specifically, the firm reported a $1 billion increase in assets in the first quarter in its institutional credit strategies unit, which invests in performing credits, including leveraged loans, high-yield bonds, private credit/bespoke financing, and investment grade credit through CLOs and other structured products. During the same period, the multistrategy funds suffered about $552 million in redemptions. Altogether, the firm reported a $380.55 billion net increase in asset flows in the first quarter. Investors liked what they saw, bidding up the stock 6 percent, to close at $2.11.

In a separate filing, the firm said its OZ Master Fund rose 0.19 percent in April, boosting the year’s gain for the multistrategy fund to 2.26 percent. In addition, total firm-wide assets under management rose by $400 million in the past month, to $32.7 billion. This includes $196.7 million of distributions to investors in certain funds.
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Shares of Snap plunged 22 percent, to close at $11.03, after the controversial social media company reported very disappointing results in the first quarter. We earlier reported on growing criticism of the company’s redesign of its app. In response, Credit Suisse cuts it price target from $21 to $16, although it maintained its outperform rating on the stock, citing “upside potential.” But the bank conceded in a note that “further patience may be required.”

Morgan Stanley, however, cut its price target to just $8 from $12, citing challenges turning around the business model. The previously bearish bank maintained its underperform rating on the stock. “We believe a discount is warranted given that SNAP not only has lower margins than the rest of the peer group, but we also do not expect it to generate positive cash flow until 2022,” Morgan Stanley stated in its note to clients.

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Barclays raised its price target on Apple slightly, from $157 to $161, after the maker of the iPhone and iPad reported better-than-expected quarterly results and outlook. The company also said it will buy back $100 billion in stock, which disappointed some investors. “Fundamentals were good, whereas capital return was mixed, and this is interesting given we think investors were more focused on potential capital return goodness,” Barclays stated in a client note. “The magnitude of cap return update is a touch light.” As a result, it believes mergers and acquisitions “may have to play a greater role to overcome the maturing iPhone franchise.” Apple was the fifth-most widely held stock among hedge funds at year-end. We won’t know for a couple of weeks what happened in the first quarter.

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