Financial Times - Daniel Loeb, master of the universe makes a comeback
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June 30, 2017. Lindsay Fortado.
The surf-loving founder of Third Point now has Europe in his sights.
At a lavish annual hedge fund conference in Las Vegas that attracts some of the biggest players in the industry, a familiar name was on the agenda earlier this year. But unlike in previous years, this time there was a stipulation: Daniel Loeb would be speaking off the record.
Mr Loeb, the 55-year-old sharp-tongued activist investor and founder of Third Point, is not usually one to censor himself. Two years earlier, at the same conference, he took a swipe at Warren Buffett for the “wide disconnect” between what he practices and preaches regarding hedge funds.
He has sued Sotheby’s, the auction house, helped oust the chief executive of Yahoo and publicly targeted companies ranging from Dow Chemical to Sony. But Mr Loeb’s latest investment, a stake in Nestlé worth about $3.5bn, reflects the more tempered persona that the once-fiery investor has adopted of late. There were no angry letters to the board or demands for inept management to step down. The stake was announced in a letter to Third Point investors earlier this week with a list of requests: the Swiss food group should sell its remaining 23 per cent shareholding in L’Oréal; boost its debt to buy back shares; and set a formal profit margin target of 18 to 20 per cent by 2020. Many of those may have already been set in train by Nestlé chief executive Mark Schneider, who is still in his first year in the role and is working on plans to revamp the conglomerate.
Mr Loeb, a health buff and yoga fanatic who often retweets the Dalai Lama’s inspirational quotes, has not necessarily chilled out in the third decade of his fund’s operation. Yet activism has changed as the strategy has grown commonplace. Boards are more willing to engage, so the public foot-stomping by some activists has faded, while institutional investors are more ready to vote in line with activists, and even to court them.
While Mr Loeb and investors such as Carl Icahn and Bill Ackman championed public battles with companies, a group of funds, including Europe’s Cevian Capital and San Francisco-based ValueAct, employed a “constructivist” style of activism, where they sought to engage management behind the scenes in the hopes of driving change that way. It’s an approach Mr Loeb is increasingly adopting — and one that is more commonly deployed in Europe, a region he and other activists have in their sights.
But the Nestlé stake is also the largest investment Mr Loeb has ever made, and shows that even multinational conglomerates are not immune to being targeted by activist shareholders. Third Point, which manages $18bn, raised another $1bn in a special purpose vehicle to purchase the stake.
Activism has been experiencing a resurgence in the past year after the high-profile struggles of Valeant, a US drugmaker whose shares plunged after it was targeted by activists, and Bill Ackman’s ill-fated campaign against Herbalife had led some investors to go sour on the strategy.
Mr Loeb, too, has been making a comeback. After his fund returned more than 20 per cent in 2012 and 2013, returns fell to 5.7 per cent in 2014 and were down 1.4 per cent in 2015 and returned 6.1 per cent last year. But Third Point’s master fund was up 10 per cent at the end of May and assets have returned to a previous peak of $18bn.
Mr Loeb, who is estimated to be worth about $2.9bn, started his fund in 1995 in the weight room of David Tepper, the founder of the hedge fund Appaloosa Management, with a desk he found on the side of the road and a few million he raised from family and friends.
Born in 1961 in Santa Monica, California, to a high-powered lawyer and a historian, Mr Loeb always seemed to have an entrepreneurial streak. In high school, he started a skateboard company called “B Industries”. He attended the University of California at Berkeley before graduating from Columbia University in New York with a degree in economics. He cycled through jobs in finance over a decade from the mid-1980s to mid-1990s, first at the private equity firm Warburg Pincus, then in corporate development at the record label Island Records, and later at Jefferies and Citigroup.
In the pantheon of masters of the universe, Mr Loeb is one of the more colourful — an avid surfer who has cited the rapper Tupac in his investment letters and once challenged a group of former navy Seals to a half iron triathlon to raise money for charity. When Third Point celebrated its 20-year anniversary in 2015, its invitation letters featured a younger Mr Loeb on the cover of a fake rap album entitled “2 Legit 2 Quit”.
He is married with three children and reportedly spent a then-record-breaking $45m in 2005 on an Upper West Side penthouse. He also owns a yacht he bought from former Citigroup chief executive Sandy Weill and a palatial home in East Hampton.
With the Nestlé stake, Mr Loeb has also shown his readiness to tackle Europe as opportunities in the US dwindle. People close to Third Point say the fund is increasingly looking towards the continent as the eurozone stabilises following the election of Emmanuel Macron in France.
But Mr Loeb has been burnt before when wandering into new territory — for example in Japan, where he targeted Sony, proposing that the company split in two. But Sony did not heed his demands and the share price continued to fall. Nevertheless, Third Point sold the stake at a profit in late 2014.
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