Hedge fund reinsurer Third Point Reinsurance Ltd.'s investment manager Third Point LLC is hoping its investment in Nestlé SA will prompt the company to consider several changes.
Third Point LLC had built a $3.5 billion stake in Nestlé as of late June, according to Bloomberg.
During a second-quarter earnings call, Third Point LLC CEO Daniel Loeb said he does not necessarily consider the Nestlé stake an activist investment. He said Third Point LLC respects Nestlé's CEO and believes that the company is going in the right direction. But Loeb said management would like Nestlé to articulate its margin targets, consider stronger capital allocation plans and address its stake in L'Oréal SA.
More broadly, Loeb said Third Point LLC has found increasing opportunities to take short positions in companies that it believes are overvalued at the peak market and in sectors subject to structural declines. Within its short book, the company is focused on organizations that are struggling in the current environment, such as retailers, consumer brands and energy-related names. Loeb said Third Point LLC is eyeing other companies with low-quality earnings that may be "playing accounting games" to obtain their financial results.
The executive also said global economic growth has given the company reason to stay positive on markets and maintain substantial long-term equity exposure to Europe's defensive sectors and in constructive investments. The company is carefully monitoring central bank activity throughout the remainder of 2017, which Loeb said should be a major driver of market sentiment.
Third Point Re's investment portfolio was up 1.0% in July and 11.7% year-to-date.
During the call, Third Point Re President and CEO Robert Bredahl also said reinsurance market conditions are still challenging. To counter the difficult market, Third Point Re is pushing for improved pricing on treaty renewals and letting underpriced deals trade away, he said. The company is also working to "carefully and slowly" reposition its portfolio toward higher-margin lines of business and is focused on transactions such as reserve covers, management said.