Daniel Loeb Doubles Down on Activism

Hedge fund provocateur to devote even more resources to shaking up companies.

Activist investor Daniel Loeb is upping the ante on investor activism. He is going to devote even more of his firm’s resources to activism, which involves buying a stock position in a company and pushing it to boost returns via strategic changes.

Third Point, which manages about $15 billion, currently has 40% of its assets devoted to activism. Increasing that level will allow it to enhance its returns, Loeb said in a letter to investors, which industry newsletter Hedge Fund Alert reported.

Beating the market (a.k.a. alpha) is getting harder using quantitative analysis or fundamental research, Loeb wrote. “Today, we are dedicating more time and capital to activism,” he announced, “which has become an even more valuable strategy in markets increasingly dominated by passive and quantitative players.”

Loeb’s firm has had a pretty good record—returning 15.7% yearly over two decades, ending in 2016—although not without bumps. Third Point lost about 11% in 2018, its worst performance since 2008. Last year, in fairness, many prominent hedge funds struggled. Steve Cohen’s Point 72 Management dropped about 5% and David Einhorn’s Greenlight Capital was down 34%.  

As of September 30, billionaire Loeb’s vehicle was up 12.7% for 2019, according to newsletter Dealbreaker, an advance that was trimmed by a bad call in South America. In August, Third Point took a pounding when the Argentine peso plummeted following the decisive loss of its president in a reelection contest.

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One of his latest crusades is against Nestlé, pushing the company to pump up its financial returns by, among other things, divesting its stake in cosmetics company L’Oreal. The hedge fund, which owns about 1.25% of Nestlé’s shares, isn’t satisfied with the Swiss food giant’s moves to overhaul strategy. A major stock buyback, an alliance with coffee chain Starbucks, and investments of fast-growing outfits like Blue Bottle Coffee weren’t enough from Nestlé. 

Another Third Point campaign centers on Japan’s Sony, the entertainment and electronics giant, which Loeb considers to be too complex. He calls on it to spin off its semiconductor business, as well as to shed its holdings in streaming music provider Spotify, camera maker Olympus, and healthcare services company M3.  

The Loeb firm managed about $18 billion as of last year. After a career as a distressed debt and high-yield bond investor, Loeb founded Third Point in 1995 with $3 million. A lifelong surfer, he named it after a surf locale in his native California.

Third Point didn’t return a request for comment.

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Green Coalition: Pension Plans Miss Billions by Not Divesting from Fossil Fuels

Environmental groups say CalPERS, CalSTRS, and Colorado PERA missed $19 billion by keeping fossil fuel stocks in their portfolios.

A new study shows that the two largest pension funds in the US—the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS)—as well as the Colorado Public Employees’ Retirement Association, combined missed out on $19 billion in investment returns over the last decade by investing in fossil fuel stocks.

The study is the latest salvo by environmentalists in their battle to convince the large pension funds to divest their portfolios of the stocks of oil and gas companies, something the pension systems refuse to do.

The report by a coalition of environmental groups, which includes Fossil Free California, Fossil Free PERA and Corporate Knights, a media and research organization with an environmental bent, does highlight the fact that energy stocks have seen the worst performance of any of the S&P 500 sectors for more than 10 years.

It found that the $380 billion CalPERS would have generated an estimated additional $11.9 billion in investment returns had the funds divested of fossil fuel stocks a decade ago. CalPERS is the largest US pension system by assets under management; CalSTRS is No. 2.

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The study found that the missed returns for CalSTRS were also substantial. The $238 billion system would have gained an additional $5.5 billion during the 10-year period.

The third system, the $45 billion Colorado PERA, missed an estimated $1.77 billion during the 10-year period, the report found.

The study highlights “that large fossil fuel companies pulled down overall performance, while technology, health care, retail, and entertainment boosted performance, the groups said.

The coalition also renewed calls for the pension systems to divest of fossil fuel stocks on climate change grounds.

No major state pension system in the US has divested of fossil fuel stocks, although advocates have had a little better luck with foundations and endowments. The largest endowment to divest of fossil fuel stocks is the University of California Regents, with more than $13 billion in assets under management. The approximate $70 billion UC pension system is also in the process of divesting of fossil fuel stocks over a five-year period.

“Cherry-picking selective time periods to analyze investments and then making broad, sweeping conclusions about how those investments will perform in the future does little to inform the discussion or address the issue of climate risk,” said CalPERS spokeswoman Megan White in an emailed statement.

White said that CalPERS does believe that climate change presents a “systemic risk” to the pension systems portfolio.

CalPERS is known in institutional investing circles for its engagement of corporations. It aims to help transform fossil fuel companies to a cleaner energy future. Climate advocates, however, want a more aggressive divestment plan now: dumping the fossil fuel stocks pension plans hold.

White said the pension system supports efforts to limit global temperature increases to well below 2 degrees Celsius, in accordance with 2015 global Paris Climate Agreement. President Trump is pulling the US out of the agreement, arguing it puts the country at a disadvantage economically.

White said CalPERS focuses on three key areas in its work on climate change, “advocating for policies and regulations to protect investors; integrating energy efficiency to increase the long-term value of our holdings; and engaging with global investors and businesses.”

CalSTRS spokeswoman Vanessa Garcia said CalSTRS doesn’t base investment decisions on short-term trends and favors a policy of engagement with fossil fuel companies.

“By engaging with policymakers and companies, and analyzing a broad range of research and data, CalSTRS will manage climate risk and find the best investments that help deliver climate solutions,” she said.

Colorado’s PERA also rejected the plans to divest from fossil fuel stocks.

“The best way we can serve those who serve Colorado is to keep the investment program away from politics and focused on sound economics,” said Ron Baker, executive director of Colorado PERA in a statement. “Additionally, we strongly believe that engagement is a more effective than divestment.”

Corporate Knights said in a statement that to determine the financial impact of fossil fuels on the three pension funds, it analyzed the funds’ holdings, weights and valuations for each of the past 10 years, from July 1, 2009, to June 30, 2019.

Corporate Knights said it then used publicly disclosed information to compare the actual investment returns of the pension system’s equity portfolio with those of a fossil fuel-free version (no oil, gas, or coal stocks).

The Oil, Gas and Consumable Fuels sector of the S&P 500 saw a 72.47% decline in the 10-year period and the Energy Equipment and Services sector saw a 17.57% loss.

In comparison, the median of all S&P sectors saw investment gains of 266.36% during the decade-long period.

The report found the pension funds missed investment gains of $6,072 per member of CalPERS, $5,572 per member of CalSTRS, and $2,900 per member of Colorado PERA.

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