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Does Dan Loeb Secretly Love Short Selling?

Third Point’s top short seller has launched his own firm — with Loeb’s backing.

Like a lot of hedge fund managers, Dan Loeb might be suspected of having a love-hate relationship with short selling. And who could blame him?

But even though short bets have been painful for Third Point in recent months, Loeb is backing a new long-short equity firm, called Snowhook Capital Management, launched by the man who was formerly Third Point’s top short seller.

When the Covid pandemic hit the markets in the early part of the year, Loeb’s Third Point portfolio was considerably shorter than it is now. But even so, Loeb has admitted he wasn’t prepared for what was to come.

“We did not ascribe adequate probability to a full-blown global pandemic in our scenario analysis around Covid-19 nor to its blunt but necessary cure: a total economic shutdown in much of the world,” he told investors in his first-quarter letter. 

Third Point’s short book provided much-needed ballast during the storm, even as the fund sank in to the red, losing 16 percent during the first quarter. But as markets recovered, Third Point’s short positions have become among the top five monthly losers in five of the past nine months, according to the firm’s reports to investors.  And in 2019, two of the year’s top five losers were short bets.

By September, Third Point managing director Stoyan Hadjivaltchev, who oversaw the equity short book, had left the firm and launched a fund of his own.

Such a departure during a tough year for shorting would ordinarily raise questions about Loeb’s happiness with Third Point’s short positions. But it seems to have been an amicable departure: Snowhook counts Loeb as one of its early investors, according to people familiar with the effort.

Hadjivaltchev, who had rejoined Third Point in 2012 after an earlier two-year stint at the hedge fund, left in September and immediately started Snowhook, according to Hadjivaltchev’s LinkedIn profile.

He’s not just shorting stocks, either. The global equity firm, based in New York, is raising capital, according to an individual familiar with the plans. So far, it hasn’t filed any documents with the Securities and Exchange Commission. 

Third Point and Hadjivaltchev declined to comment.

In February and March of 2020, when the markets were crashing, Third Point’s short bets were among its top five winners for both months. But Third Point’s portfolio is now only 35.5 percent short, compared with 44.1 percent at the end of January, investor reports show. Since short positions get larger as the losses increase, that indicates a substantial decrease in the short book. 

Still, Third Point is now up 12.3 percent for the year, slightly below the S&P 500’s 14 percent.

While Loeb, like most hedge fund managers, does not disclose the names of his short positions, others in the business say some of the short book is expressed in indexes, or portfolio hedges. Because of Third Point’s size — it now runs $14.8 billion — the firm has taken short positions in big-cap companies, and those are typically harder to make work, short sellers say.  

Overall it has been a brutal year for short sellers since markets bounced back. Several dedicated short funds could go out of business this year, short sellers say. 

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That makes the new fund even more intriguing, especially given its pedigree.

Hadjivaltchev took over Third Point’s short book after Jim Carruthers left in 2014 to start Sophos Capital, a short-only fund that became the largest dedicated short seller in the world last year, ending 2019 with $1.16 billion in regulatory assets under management, according to its ADV filing with the SEC.

Hadjivaltchev had worked as an analyst at Third Point between 2006 and 2008, leaving in December. He joined Water Street as an analyst in 2009, leaving there in 2012 to rejoin Third Point.

In building his new fund, Hadjivaltchev has taken Chris McCoy, a principal at Third Point from 2013 until September, with him as a partner of the new fund, according to McCoy’s LinkedIn profile. 

Other employees of the new fund include Charles Kalvaria, who previously worked at Oak HiIl Advisors; James Collins, who was at KKR; and Zachary Truesdell, formerly with Matador Global, their LinkedIn profiles show. Gerald Aquino has joined as CFO from Durant Capital, according to LinkedIn.

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