Thursday, September 22, 2005

My new favorite hedge fund manager - Dan Loeb - Third Point

DEPT. OF NOISEMAKING
THE ANGRY INVESTOR
Issue of 2005-04-18
Posted 2005-04-11

Last week marked the end of an era at Madison Square Garden, when Spike Lee, the Knicks’ iconic superfan, hugged his nemesis Reggie Miller, who is retiring from the Indiana Pacers, at center court. After more than a decade of combat, no more heckling, no more yapping. The truce doesn’t exactly leave a void in the local-loudmouths department, but recent events, at the Garden and elsewhere, have occasioned a realignment of the yappers’ pecking order, and no one seems quite as energized these days as Daniel Loeb, the forty-something multimillionaire who has positioned himself as a kind of investor’s H. L. Mencken, dedicated to puncturing the social habits and pretensions of powerful executives from his courtside perch at Third Point L.L.C., a hedge fund on Madison Avenue.

Loeb’s favored device is the scolding letter, formally addressed, publicly released, and ruthlessly frank in its assessments of managerial competence. He writes the boards and C.E.O.s of companies that his fund has invested in, complaining, in effect, that they are not making him and his clients enough money. And, like a certain kind of basketball fan unhappy with an overpaid, underperforming point guard, he recommends, in hyperbolic language (“to ensure you a dazzling place in the firmament of bad management”), that they be replaced—benched. To some degree, his manner is that of the traditional Wall Street crank: swagger and self-interest disguised as moralistic bombast. What Loeb brings, in terms of value-added, is tacked-on social commentary: the sly references to Brooks Brothers (“out-dated men’s fashions catering to the country club set”) or to “the Appalachian coal men coming with aspirations to wear crocodile skin cowboy boots, silver spurs and ten-gallon hats.” His style—call it hedge-fund populism—has earned him a wide readership that extends far beyond the shareholders and directors who have an interest in the matter at hand. Each new abusive dispatch makes the rounds among financial professionals, as Loeb’s more astute fans and detractors take note of his recurring motifs: chauffeurs, hobnobbing, the phrase “inexplicable insouciance.”

One day in February, for example, Loeb fired off scalding letters to two C.E.O.s, accusing each, ostensibly, of producing insufficient profits and paltry returns. What really had him bothered, in the case of Salton, Inc., wasn’t so much the dwindling stock price as the suggestion of entitlement and sloth. It especially galled him to see the Salton chief, Leonhard Dreimann, at the U.S. Open tennis final. “My bewilderment quickly turned to anger,” Loeb wrote, “when I saw the crowd seeking autographs from the Olsen twins just below the private box that seemed to be occupied by Mr. Dreimann and others who were enjoying the match and summer sun while hobnobbing, snacking on shrimp cocktails, and sipping chilled Gew├╝rztraminer.”

Then there was the letter to Irik Sevin, the chief of Star Gas Partners (and “one of the most dangerous and incompetent executives in America”): “Do what you do best: retreat to your waterfront mansion in the Hamptons where you can play tennis and hobnob with your fellow socialites.” (Loeb himself has a fifteen-million-dollar waterfront house in East Hampton.) Hobnobbing was not Sevin’s only crime: Loeb had learned of an Irik Sevin scholarship at Cornell. “One can only pity the poor student who suffers the indignity of attaching your name to his academic record,” he wrote. He got even more personal. “How is it possible that you selected your elderly 78-year old mom to serve on the Company’s Board of Directors and as a full-time employee?” Loeb wondered. “Under what theory of corporate governance does one’s mom sit on a Company board?” A heckler’s cardinal rule: When in doubt, drop the mom bomb.

Sometimes, yapping can even seem to be very effective. A few weeks ago, Irik Sevin quietly resigned. So did his mother, Audrey. (Dreimann remains at Salton. Neither man cared to respond to Loeb’s attacks.)

And so it was on the wave of that recent success that Loeb was moved, the other day, to expand his critical reach across the Atlantic. In an e-mail exchange with a London-based money manager named Alan Lewis, who was exploring the idea of working for Third Point, Loeb grew impatient with the polite pace of their discussions. “We find most Brits are a bit set in their ways and prefer to knock back a pint at the pub and go shooting on weekends rather than work hard,” he wrote Lewis.

“Daniel, I guess your reputation is proven correct,” Lewis replied, noting that, as a matter of fact, he is half American and half French. “Things are done differently here, yes place in society still matters, where one went to school, etc.”

“Your ‘inexplicable insouciance’ and disrespect is fascinating; it must be a French/English aristocratic thing,” Loeb shot back, adding a classic hedge-fund diss: “There must be an insurance company or mutual fund out there for you.”

The discussion wound down with a volley of one-word grenades: “hubris” from Lewis, “laziness” from Loeb. Finally, satisfied that the correspondence merited inclusion in the canon, Loeb did what he does best: he went public. “It is hard to find good help these days,” he wrote to an undisclosed list of colleagues and friends, attaching the entire exchange. “Read from the bottom.”




— Ben McGrath



AND... Read this:

he following exchange is mentioned but not reprinted in the New Yorker piece, but it was emailed around quite widely. It isn't a typical Loeb-ian bit of writing, but it is a wildly entertaining email exchange between Loeb and a would-be Third Point hedge fund employee from the U.K. -- one that goes, well, slightly off-kilter:
From: Alan Lewis
To: Daniel Loeb
March 22, 2005

Daniel, thanks for calling earlier today. Enclosed is my CV for your review. I look forward to following up with you when you have more time.

Best regards, Alan.

----------------------

From: Daniel Loeb
To: Alan Lewis
March 28, 2005

What are your three best current European ideas?

----------------------

From: Alan Lewis
To: Daniel Loeb
March 28, 2005

Daniel, I am sorry but it does not interest me to move forward in this way.

If you wish to have a proper discussion about what you are looking to accomplish in Europe, and see how I might fit in, fine. Lesson One of dealing in Europe: Business is not conducted in the same informal manner as in the U.S.

Best regards, Alan.

----------------------

From: Daniel Loeb
To: Alan Lewis
March 28, 2005

One idea would suffice.

We are an aggressive, performance-oriented fund looking for bloodthirsty competitive individuals, who show initiative and drive, to make outstanding investments.

This is why I have built Third Point into a $3bn (£1.6bn) fund with average net returns of 30% over 10 years. We find most Brits are a bit set in their ways and prefer to knock back a pint at the pub and go shooting on weekends rather than work hard. Lifestyle choices are important, and knowing one's limitations with respect to dealing in a competitive environment is too. That is Lesson One at my shop. It is good that we learned about this incompatibility early in the process, and I wish you all the best in your career in traditional fund management.

----------------------

From: Alan Lewis
To: Daniel Loeb
March 28, 2005

Daniel, I guess your reputation is proved correct. I have not been in traditional fund management for more than 11 years. I did not achieve the success I have by knocking back a pint, as you say. I am aggressive, and I do love this business.

I am half-American and half-French, and having spent more than half my life on this side of the pond I think I know a little something about how one conducts business in the U.K. and Europe.

There are many opportunities in the U.K. and Europe, shareholder regard is only beginning to be accepted and understood. However, if you come here and handle it in the same brash way you have in the U.S., I guarantee you will fail. Things are done differently here. Yes, place in society still matters, where one went to school etc. It will take tact and patience (traits you obviously do not have) to succeed in this arena. Good luck! Alan.

----------------------

From: Daniel Loeb
To: Alan Lewis
March 28, 2005

Well, you will have plenty of time to discuss your "place in society" with the other fellows at the club. I love the idea of a French/English unemployed guy, whose fund just blew up, telling me that I am going to fail.

At Third Point, like the financial markets in general, "one's place in society" does not matter at all. We are a bunch of scrappy guys from diverse backgrounds (Jewish, Muslim, Hindu etc.) who enjoy outwitting pompous asses, like yourself, in financial markets globally.

Your "inexplicable insouciance" and disrespect is fascinating; it must be a French/English aristocratic thing. I will be following your "career" with great interest.

I have copied Patrick so that he can introduce you to people who might be a better fit. There must be an insurance company or mutual fund out there for you. Dan Loeb.

----------------------

From: Alan Lewis
To: Daniel Loeb
March 28, 2005

Hubris.

----------------------

From: Daniel Loeb
To: Alan Lewis
March 28, 2005

Laziness.


Biggest US Hedge Funds

Survey published of biggest U.S. hedge funds
02 Sep 2005



Hedge funds with more than $1 billion make up majority of the industry.

Absolute Return magazine, a publication dedicated to the hedge fund industry, has published its annual survey of hedge funds with $1 billion or more in assets under management and has found that there are 196 hedge funds in that category which account for $743 billion, the vast majority of the industry, CNN reports.

Top of the list was Connecticut-based Bridgewater Associates with $17.7 billion, New York-based D.E. Shaw followed close behind with $17.1 billion.

Goldman Sachs are third biggest with $15.3 billion in assets, a clear demonstration of how seriously Wall Street's major investment banks are about hedge funds. Barclays Global Investors came in sixth with $12.2 billion.

Last year the industry absorbed $123 billion in new capital, up from $72 billion the previous year according to Tremont Capital Management.

Absolute Return found that overall assets grew 9.3 percent since its last survey earlier this year.

Daniel Loeb has seen assets at his firm Third Point Management, grow 52 percent from $2.1 billion at the start of the year to $3 billion.

Other funds in the top 10 include Farallon Capital Management, with $13.8 billion; Citadel Investments Group, $12 billion; Och Ziff Capital, $12 billion and Maverick Capital, $11.5 billion.

Some firm shave experienced losses as a result of the difficult environment such as Angelo, Gordon & Co. who has seen assets drop 30 percent to $8 billion.

First coined by Alfred Winslow Jones in 1949, the term "hedge fund" originally referred to a portfolio of stocks with both long positions and short positions. The short positions were included to act as a hedge against losses in the long positions.

Wednesday, September 21, 2005

For those of you who don't know Bud Fox

An attempt at a team notes system for information on the run...

I created this web site as a possible real-time system for sharing ideas, thoughts and articles of interest for our team. I have opened it up to our team only, and everyone is encouraged to add posts. You'll find it's an easy system to use, not unlike typing an email. I haven't figured out yet how to attach files, but you can link to other sites/articles : http://www.bloomberg.com/markets/commodities/energyprices.html

Why Bud Fox? Because...

The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own.

Lunch is for wimps

Lunch is for wimps
It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another.