Loeb Says Harder to Gain on Mortgages, Targets Bank Assets

May 09, 2014 4:06 pm ET

(Updates shares in the sixth paragraph.)

May 9 (Bloomberg) -- Billionaire hedge-fund manager Dan Loeb said he’s targeting junior debt of financial firms and assets being divested by banks as he scales back securities such as mortgage bonds.

“It’s gotten much more difficult to make money in mortgages, and asset-backed securities generally,” Loeb said today on a conference call for Third Point Reinsurance Ltd. “We have largely taken profits in our re-remic portfolio and we’ve mostly redeployed that capital elsewhere.” Re-remics are securities, created from other mortgage bonds, that divide the debt into safer and riskier pieces.

Mezzanine slices of re-remics returned about 5 percent this year through April, according to Credit Suisse Group AG, extending their surge as the U.S. housing market recovered. That compares with the 3.7 percent gain for high-yield, high risk company debt. Investors embraced riskier debt as the Federal Reserve restrained yields on assets with lower default risk.

Loeb, who oversees $14 billion at Third Point LLC, is a co- founder of the Bermuda-based reinsuer, which had an initial public offering last year. Third Point Re invests in the hedge fund, and had a 3.1 percent in the first quarter, driven by gains in ABS.

Loeb said he’s been increasing bets outside the U.S., “primarily in European peripheral securities,” without providing specifics. Third Point expects opportunities to buy assets being divested by banks that need to conform with new regulations, he said.

Public Offering

The reinsurer slipped 2 cents to $15.73 at 4:02 p.m. in New York. The company raised more than $300 million in its August IPO when it sold shares for $12.50.

First-quarter profit declined 47 percent to $39.8 million, or 37 cents a share, as investment returns deteriorated from a year earlier, the company said late yesterday in a statement. The reinsurer recorded an underwriting loss of $5.2 million.

Policy sales fell 8.8 percent to $87.6 million. Third Point Re is scaling back from crop insurance after losses on the coverage, Chief Executive Officer John Berger said today on the conference call.

--With assistance from Jody Shenn in New York.