by Travis Johnson, Stock Gumshoe | August 15, 2013 11:22 am
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Great minds think alike. I also got in on this IPO @ $12.30 and have a purchase order for more if it ever dips to $12. Are there any other IPO’s you are examining at the time?
David Townsend, you show distinct faith by your order for more if it dips. I got in later on today as I didn’t read my email promptly this AM. It had gone up but I took a few shares at $13.25. I’ll just watch this closely for awhile.
From IPODesktop on SeekingAlpha:
http://seekingalpha.com/article/1636512-ipo-preview-third-point-reinsurance
QUOTE:
Conclusion:
Neutral to negative because more than all the profits for the 6 months ended June 30, 2013, came from “investments,” which are managed by a relatively large hedge fund on an outsourced basis.
One of the hedge fund’s officers is also a shareholder in TPRE, which begs the question of whether those outsized investment profits were “manufactured” to help the IPO.
I expect most of the profits to come from investments for the foreseeable future, it’s a new reinsurer and doesn’t have any backlog of earnings to come from freeing up reserves and has not yet been profitable.
And no, the investment returns were not manufactured to make the IPO better — the investment returns were earned to profit Loeb’s Third Point hedge funds. And the reason Loeb owns a large chunk is because he essentially started the hedge fund to give him access to a large pool of stable capital (the insurance company’s portfolio and float) that wouldn’t be calling him for redemptions after a bad quarter and would allow him to get good tax-free or tax-advantaged compounded returns, the same reasons David Einhorn started GLRE and Stephen Cohen started his (non-public) reinsurance company. Part of the reason I’ve started with a small position is that I haven’t researched Loeb’s compensation or contractual connection or the specifics of the portfolio — unlike GLRE, TPRE does talk about also having a substantial bond portfolio to reassure the insurance regulators (less than half the portfolio, which is tiny compared to most other insurance companies, but still).
The hedge fund(s) are managed using the same strategy as the reinsurance company’s investment portfolio, but the hedge funds have assets of $15 billion or so last I saw and the reinsurance company portfolio is less than a billion, I would be very surprised if the tail were wagging the dog. I would NOT be surprised if the IPO was timed to wait for them to show some progress in getting the combined ratio under control, and they may have also waited for a good investment quarter from the portfolio to make the IPO more appealing, but all companies try to time their IPO to a quarter when they can report good returns and future optimism.
It’s going to be a risky one, absolutely, and I’m not convinced that it will absolutely be great — but buying at book value seems a reasonable speculation as I wait to see how they operate. They are likely to depend on investment returns for any profit they generate for the next year or so, I would guess, and after that point they will hopefully have the reinsurance company working well enough that it either breaks even or starts to generate a small underwriting profit at least some of the time. But for these guys and for Greenlight Re (and for most insurers I follow), the potential for any substantial upside comes from the returns they earn on their investment portfolio. That’s why I like having the portfolio managed by an excellent investor, like David Einhorn or Daniel Loeb or Warren Buffett or Tom Gayner.
Interesting. I missed where you speak about any dividend or payment to investors. Is this a Warren Buffett model, where earnings are reinvested into the entity?