Third Point Q2 Letter

Via Market Folly: 

Europe in 2012 

We are often asked what “event‐driven” investing means in today’s environment, and whether that landscape is still fertile. We have found it to be especially so in Europe in 2012, where we have managed to make money despite the continental chaos by looking for negative events, capitalizing on the dislocations they generate, and trading well around these individual situations. While Europe overall is a place where we currently have little interest in long‐term investing given the circumstances, surprisingly, many of our top winners so far in 2012 are European situations. 

In times of turmoil, we look for “fat pitches” that come from factors like forced or panicked selling, market dislocations, or a move in the cycle away from greed towards fear. With all of the mayhem in Europe in the past 12 months, we have been able to find quite a few of these types of investments while remaining disciplined about avoiding anything in the region that falls outside of our very narrowly defined investment parameters. Investors are familiar already with our profitable trades in Eksportfinanz credit, the Unicredito rights offering, and Portuguese sovereign bonds, as we have discussed these in previous letters and in conversations with many of you. Each represented a sizeable opportunity driven by a negative event resulting in a mispricing that we believed would remedy itself within 12‐18 months. We were able to deploy dry powder decisively and take profits quickly when equilibrium was restored, capitalizing on the fear resulting from an unexpected, downside-inducing event in a market already spooked by its own shadow. 

With the turmoil in Europe showing no signs of abating, we expect to continue seeing these types of attractive opportunities.