Bermuda based total return reinsurance firm Third Point Re has renewed its investment management agreements with Daniel Loeb’s Third Point LLC for a further five years, and added an agreement between the reinsurers U.S. arm and the hedge fund manager.
When reinsurance firm Third Point Re launched in 2011 it retained Loeb’s Third Point LLC hedge fund as its exclusive investment manager under a five year investment management arrangement.
This agreement, and also a separate investment management agreement for Third Point Reinsurance (USA) Ltd., have been renewed for a further five year term with effect from 22nd December 22 2016.
Importantly, the management fee has been reduced for this renewal of the agreement, with Third Point Re set to pay Loeb 1.5% of the investable asset balance (down from 2%) when the new contracts come into force.
John Berger, CEO of Third Point Re, commented on the announcement; “Third Point has been an outstanding partner in all respects. They helped us form Third Point Re, have supported us in building out our financial reporting and treasury functions, and have performed strongly as our investment manager. Since our inception and through the first quarter of 2016, Third Point has generated an annualized return on our invested assets of 9.6%.”
Daniel Loeb, Third Point LLC’s CEO, added; “We are pleased to extend our partnership with Third Point Re and look forward to continuing to create long term value for shareholders by delivering superior risk-adjusted investment returns.”
The hedge fund reinsurance strategy remains a viable one, although increasingly it is being referred to as an investment oriented or total return approach. The strategy involves combining the underwriting of longer tailed risks, with a more active and typically higher-risk investment strategy.
The longer-tailed lines of reinsurance business enable the investment manager, typically a hedge fund, to invest the capital in its strategies for longer in the hopes of outperforming the market through combined underwriting and investment returns. Of course it hasn’t always worked out that way.
Following a torrid time in the investment markets in the second half of 2015, which drove Loeb’s Third Point hedge fund negative for the year, the manager has only managed a 1.5% return so far in 2016. This demonstrates the volatility associated with this strategy and it will be interesting to see how the hedge fund managers linked to reinsurers have performed during recent Brexit related upheaval.