Dan Loeb Q4 2020 Letter: Reddit Bubble No Different Than Tulip Mania
During the Fourth Quarter, Third Point returned +16.1% in the flagship Offshore Fund and +21.4% in the Ultra Fund. For 2020, the funds returned +20.5% and +24.9% for Offshore and Ultra, respectively. Assets under management at December 31, 2020 were approximately $15.5 billion, including $750 million in the Third Point Structured Credit Opportunities Fund.1
Looking back at 2020, we employed all of Third Point’s strategies and styles – event-driven, activist, and growth equity investing; private securities; and high yield, investment grade, and structured credit – to recover from a challenging first quarter. Our biggest winner in the Fourth Quarter was Upstart Holdings, Inc., which had a successful IPO in December. Constructive investments in The Walt Disney Company and Prudential plc were top performers, along with Pacific Gas & Electric Company, which we originally purchased as credit during its bankruptcy and now hold as equity. Another top winner in Q4 was Foley Trasimene Acquisition Corp. II’s purchase of Paysafe, which we participated in via a PIPE transaction. Detractors included Alibaba Group Holding, three equity shorts, and a private credit position negatively impacted by COVID-19. The recent short squeeze in certain securities is nothing new. Indeed, as Jesse Livermore said in Reminiscences of a Stock Operator, (quoting Ecclesiastes), in investing, “there is nothing new under the sun.” As targeted securities have started to come back to earth, wiping out fortunes on the way down as they did on the way up, we can see that this was a bubble no different than other manias over time, going back to the Dutch Tulip Bulb Mania in the 17th century. What is different today, however, is the rapidity of the rise and collapse of bubbles, fueled by retail trading platforms and social media. Large short interests were also an accelerant in this conflagration. We managed to sidestep substantial losses for two reasons. The first is that we have always felt more comfortable with higher net and lower gross exposure. It is tempting to think that lower nets imply lower risk, but recent events are a stark reminder that leverage, in all its forms, is a double-edged sword. In addition, after
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