Dan Loeb’s letter to Third Point investors for the second quarter ended June 30, 2025.
Dear Investor:
During the Second Quarter, Third Point returned 7.5% in the flagship Offshore Fund.
The top five winners for the quarter were Siemens Energy AG, US Steel, TSMC, Nvidia, and Vistra. The top five losers for the quarter, excluding hedges, were Pacific Gas and Electric, Kenvue, a short position, London Stock Exchange Group, and Fortive.
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Portfolio Updates
The Second Quarter began tumultuously, as “Liberation Day” and subsequent forecasts of an imminent recession spooked markets. By the end of the quarter, the market came to see initial tariff proposals as trial balloons and an astute negotiation tactic. Sentiment shifted positively, economic data turned upwards, and favorable AI data points drove a rebound in markets and our portfolio. Opportunistic purchases near market lows and timely covering of our hedges enabled us to capture much of the market rebound.
Nippon Steel’s takeover of US Steel was the highlight of the quarter, contributing 200bps gross (188bps net) to performance.1 We believe this outsized return opportunity arose from the cross currents of trade policy, industrial policy, and the MAGA agenda that created noise and kept certain investors away from the situation. As we noted in our Q1 letter, we view opportunities in risk arbitrage as compelling right now since active managers have increasingly de-emphasized it as a core investment strategy.
In the technology sector, continued consumer and enterprise adoption of AI as well as relentless commitment to AI capex drove further gains. We re-initiated a position in Nvidia, which we believed had sold off sharply due to tariff concerns, recession fears, rack deployment slowdown and increased scrutiny of prospective ROI of new data center capex.
In Europe, major shifts underway including developments in European politics, a €1 trillion defense spending bill passed by the German Parliament, and a growing trend of asset flows towards non-dollar markets benefited our European equity investments like Siemens Energy, Rolls Royce, and DSV.
Despite elevated market multiples and sustained policy uncertainty, we see an expanding opportunity set and have a steady idea flow of what we believe are digitally savvy, capital efficient, and exceptionally run companies to invest in as we head into the back half of the year.
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Rocket Companies
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We initiated a position in Rocket Companies Inc (NYSE:RKT) during the Second Quarter based on its transformative all-stock acquisition of Mr. Cooper. Rocket has been a persistent share gainer in the fragmented mortgage origination industry, with a 12% market share of refi originations and a 4% share of purchase originations. It has differentiated, industry-leading cost and time to originate, driven by its continuous reinvestment in technology and automation. While the average originator takes 45 days to close a refi loan, Rocket only takes 20 days – and that key metric continues to fall. In fact, over 50% of loans now close in less than 15 days.
Mr. Cooper is the leading mortgage servicer, with 11% market share, making it over 50% larger than its next largest competitor. Much like Rocket in the origination space, Mr. Cooper has industry-leading cost-to-service that has fallen by ~50% over the last five years. These differentiated unit economics have allowed Mr. Cooper to be a primary beneficiary of MSR sales by cash-poor, subscale originators struggling to keep afloat in the current high-rate environment.
Casey’s General Stores
During the quarter, we continued adding to a new long position in Casey’s General Stores (NASDAQ:CASY). At ~2,900 locations, Casey’s is the third largest convenience store chain in the US by store count. More importantly, it is the fifth largest pizza chain in the country. It is a “boring” business to some, but there is an art to boring – we believe the returns and their consistency have been exceptional and stem from a quirky counter-positioning of the business. When a company chooses not to do the easy thing, it is often a powerful signal that something special is at work. Selling gas and cigarettes is easy. Selling fresh food at scale as successfully as Casey’s is not. Figuring out food creates a powerful feedback loop – Casey’s earns more profit dollars per visit, enabling them to price fuel at a discount to independent gas stations and pizza at a discount to competing QSRs. Consumers save on both purchases, and the result is a brand beloved by a loyal customer base, whose Net Promoter Scores look nothing like the rest of the industry.
How has Casey’s solved for food? We attribute their success to differentiated employee retention and approaching the business like a community-centric restaurant that consumers trust to feed their families. Annualized labor churn rates north of 100% have long plagued convenience stores – it is hard to retain employees, let alone incentivize them to sell perishables and run open air kitchens. Not so with Casey’s. Their stores have 40% more staff than your typical gas station and they have used this as an opportunity to offer viable career paths on a store-by-store basis throughout rural America. We have eaten our fair share of Casey’s brisket pizza, and in our store tours we were impressed by the consistency of quality and employee and customer loyalty that they have created at the store level. A recent test roll-out of chicken wings has seen high satisfaction scores and we believe the company is on its way to a system wide rollout of wings that has the potential to meaningfully increase sales densities.
Informa PLC
During the quarter we made a new investment in Informa PLC (LON:INF), the global leader in B2B live events. The company connects buyers and sellers in various industries, enabling business interactions, and disseminating knowledge across verticals. We believe Informa has built a strong, underappreciated moat around its core events business benefiting from network effects, scale, and process power since managing events with tens of thousands of attendees is not an easy endeavor. For example, some trade associations have reported incurring losses on their annual shows, while Informa enjoys ~30% margins. Well-run scale events build a brand and become “must-attend” franchises for industry participants.
Informa owns and runs some of the most recognizable events globally, including the Monaco/Ft. Lauderdale Boat Shows, the Dubai Air Show, Cannes Lions, SuperReturn, BlackHat, and Money 20/20. The business has strong visibility and positive working capital dynamics. Often, next year’s iteration of an event will be more than half pre-sold by the end of the current year’s show, giving the company elevated levels of predictability and relatively low cyclicality.
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Corporate Credit Update
Third Point corporate credit was up 2.9% gross (2.1% net) for the second quarter, bringing 2025 performance to 3.0% gross (1.8% net). Our year-to-date performance has lagged the ICE BofA US high yield index primarily due to costs associated with hedges made to protect capital during the quarter’s downturn as well as disappointing results from three credits during Q1. We took the opportunity to add exposure to two of the three laggards.
Like equities, credit experienced extraordinary volatility during the quarter, with spreads blowing out +100bps in the wake of “Liberation Day”, only to recover quickly. While we have been able to identify opportunities to capitalize on brief credit dislocations in the past, this was over in days and did not reach the levels or liquidity that make committing substantial capital easy. We increased exposure on the back end of the spread spike as the tariff rhetoric dialed down.
High yield bond spreads are plumbing the depths of the 2021 record lows, although yields are still +300bps higher, providing some total return support. The real action in the market continues to be in leveraged loans where spreads in CCC names remain close to 1000bps over B spreads. These wide spreads reflect the lower quality of the leverage loan universe – defaults (including exchange offers) are running close to 5% – but are also a function of the technical selling pressure created by CLOs. CLOs are highly leveraged structures that buy diversified pools of leveraged loans and have limited baskets to own “CCC” credits. CLOs own approximately 74% of the leveraged loan universe, up from 62% in 2020. Historically leveraged loans were thought to be higher credit quality than high yield bonds since they are typically senior and secured; however, today the reverse is true. That is partially a function of CLO’s large, growing and arguably less discriminating buyer base. When you need to accumulate positions in over one hundred credits in short order, it is inevitable that you do not love every single one. Our team is devoting much of its time combing through this universe and has been able to strengthen our research thanks to the number of leveraged loans in the CLOs of the recently acquired Birch Grove business.
While longevity brings about aches and pains, it also aids in one of the most important skills in investing: pattern recognition. In 2014, energy was the largest sector in the high yield market at about 18% and “fracking” dramatically shifted the cost curve for oil and gas production. Not only was credit’s energy sector eviscerated but the malaise spread across the entire credit universe (exacerbated by a slowdown in China) and spreads blew out from about 450bps to over 800bps. In 2016, as markets normalized, our corporate credit book generated a return of 48.7% gross (46.2% net).
Today the largest sector of the leveraged loan universe is technology, at about 17%. While a lot remains to be seen about the impact of AI technology on software providers, we believe that, like fracking, AI represents a massive downward shift in the cost curve. In our view, there will doubtless be beneficiaries in the space, but we suspect that it will be a challenging transition for legacy software suppliers, especially highly leveraged ones with a limited ability to reinvest. We are presently underweighting this sector but are spending a lot of time here as there are already a number of stressed/distressed credits. If this unfolds as we think it might, AI might do for credit in 2025/26 what fracking did in 2015/16.
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Structured Credit Update
While most market cycles have shortened since the Great Financial Crisis of 2008, we believe the snapback after “Liberation Day” across equities and credit was impressively short. In June, we saw the conclusion of an active quarter of trading with a Treasury rally of about 15bps on the 5-Year and investment grade credit spread tightening. As the equity market traded to new highs, we saw three themes emerge.
- The demand for residential mortgage credit remains strong. New US housing supply remains low and with rates at these levels, we continue to see low housing turnover. House price appreciation is trending towards 4% year-over-year and in our view, that has created a resilient mortgage borrower that wants to hold onto their home given the material amount of home equity. In particular, we have seen that there is a bid for first lien, owner occupied residential mortgages as compared to second-lien loans at 75-80 LTV which are more susceptible to a price correction. As a result, we priced a reperforming mortgage deal in June with the AAA tranche (representing approximately 65% of market value) at a 5.5% yield with over fifteen different investors. As rates potentially decline over the next few quarters, we see the potential for a compelling total return on our mortgage positions as our discount dollar price reperforming loans trade higher with more refinancings.
- Hedge funds can find alpha in tradeable, liquid securities versus chasing private credit. We have discussed our rental car ABS exposure in the previous letters. In June, we added risk at around 550bps spread or 10% yield. Within three weeks, we saw those spreads tighten to around 475bps, and we have been able to monetize some of the position. Competition amongst large private credit firms has pushed execution on larger blocks of loans to local tights, but, in our estimation our ability to capitalize on dislocations provides compelling returns with increased liquidity.
- Public companies with structured credit financing who are in distress can create opportunities to source mid- to high-teens returns. In solar loan and lease financing, we have seen multiple companies file for bankruptcy as persistently high rates overload their capital structures and business models. These companies originated long duration solar loans at interest rates of 1.99-2.99% and relied on the securitization market to finance these investments at comparably low rates. As rates sold off, the profitability of these assets fell dramatically. The slew of bankruptcy filings has challenged the assumptions of ABS investors, allowing us to source debt tranches at steep discounts of $85 to $60 which to us have the capacity to deliver returns in the mid- to high-teens.
While many investors see tightening credit spreads and the equity market at new highs, we are excited by the emerging opportunity set in sectors like rental car ABS, solar ABS and monetizing our reperforming mortgage trade in the coming quarters. Being nimble on trading has enabled us to source sizeable opportunities that seek to generate capital appreciation.
Sincerely,
Daniel S. Loeb
CEO
Third Point
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