Third Point’s Dan Loeb has become more confident that Donald Trump will be elected president, or at least that Republicans will wind up controlling the Senate after the November 5 elections. And the hedge fund manager is optimistic about what this would mean for the macro global economy and his investing strategy going forward.
“We believe that the likelihood of a Republican victory in the White House has increased, which would have a positive impact on certain sectors and the market overall,” Loeb writes in his third-quarter letter, dated October 16 and seen by Institutional Investor.
“We believe the proposed ‘America First’ policy’s tariffs will increase domestic manufacturing, infrastructure spending, and prices of certain materials and commodities. We also believe that a reduction in regulation generally and especially in the activist antitrust stance of the Biden-Harris administration will unleash productivity and a wave of corporate activity.”
The Biden administration has been aggressive in opposing mergers and acquisitions. A change in the federal government’s attitude toward deal-making would certainly help hedge fund firms like Third Point, which emphasizes event-driven investments and is sometimes an active advocate for change. Indeed, Loeb tells clients that Third Point has increased certain positions that could benefit from such a scenario via both stock and option purchases. It continues to shift its portfolio away from companies that will not.
“Whatever the outcome of the presidential election, we have carefully studied the Senate races and believe that the Republicans will establish a majority, limiting the economic downside of a ‘Blue Sweep’ which could theoretically usher in crushing taxes, stifling regulations, and a headwind to growth,” Loeb adds.
Meanwhile, Loeb is confident that the economy will not slip into a recession, although he does think inflation still needs to slow down and real interest rates have to come down.
“We believe healthy consumer spending and active levels of individual investing should provide a liquidity backdrop to sustain market levels,” he says. “We think this setup is a particularly good one for event-driven investing, particularly since most of our competitors in this area have retired or moved on.”
He also asserts that the potential for risk arbitrage transactions and corporate activity “could usher in a golden age for the strategy.” Loeb stresses that he is in a good position to pounce on these anticipated opportunities.
He notes that his gross exposures are low and that he has “modest nets.” Third Point’s gross equity exposure was about 144 percent and its net exposure was 75.5 percent at the end of September, according to the most recent monthly tear sheet.
Loeb adds: “[We] are well positioned in our current portfolio, and can deploy fresh capital as opportunities arise.”