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Daniel Loeb faces taste of his own medicine in UK investment trust tussle

The activist hedge fund manager Daniel Loeb is facing a challenge from a frustrated investor of his own in a tussle over how he is running his UK-listed investment vehicle.

Loeb, known for waging campaigns against the management of companies such as Sony and Sotheby’s, has found himself the target of Asset Value Investors, a London-based firm that owns a 10.1 per cent stake in Third Point Investors Ltd.

TPIL is an investment trust managed by Loeb that was floated on the London Stock Exchange in 2007 and which trades at a 17.5 per cent discount to the value of its holdings.

AVI on Wednesday published a letter complaining about performance and governance at TPIL, saying a recent strategy review fell “woefully short of the structural changes that we believe are necessary” to close the discount.

The public spat follows a tense webinar with investors in February during which, according to AVI, Loeb said he would not cower to shareholders “seeking to earn a quick buck by trying to bully or force the board or me to do something that isn’t in the long-term interests of all of our investors”.

Activist investors such as Loeb, who build stakes in companies and agitate for change, have often themselves been criticised for short-termism.

Tom Treanor, executive director at AVI, said the comments from Loeb were “remarkable for their hypocrisy and lack of self-awareness”. Treanor claimed that five minutes of tape, including Loeb’s sharpest remarks, were cut from a recording of the call later circulated to investors.

“Third Point’s excision of these comments from the official recording suggests either Mr Loeb was embarrassed by his own unprofessionalism and unintended candour as to his views on shareholder rights and corporate governance, or his marketing team were embarrassed by their boss,” he said.

AVI, which runs the £1.2bn AVI Global trust, is well known among London investment trusts for buying into vehicles that trade at a discount and then trying to push the management to close the gap, which increases the value of AVI’s holdings.

“TPIL’s board welcomes engagement with its shareholders and, as shown by our recent strategic review, values their feedback,” the company said in a statement to the Financial Times.

TPIL, which has about $900m in total assets, allows investors to access Loeb’s Third Point Offshore hedge fund.

The UK investment trust structure was set up by Loeb in 2007 amid a rush by fund managers to draw in more permanent capital, with investors often agreeing to lock up their cash for years. Other hedge fund managers, including Bill Ackman’s Pershing Square and Brevan Howard, followed suit.

AVI’s campaign centres on the persistent discount of TPIL’s share price compared to its net assets over several years. The gap stood at 16 per cent on average over the past year, according to Morningstar data.

TPIL’s board concluded a strategic review in April to address the discount. The board has offered to let investors cash out via a tender offer in 2024, if the trust is still trading at a substantial discount. They also plan to increase the fund’s exposure to private equity from its current level at about 7 per cent up to a cap of 20 per cent.

AVI argues TPIL should change its structure to let investors redeem their shares every quarter at prices close to net asset value and is pushing for a general meeting to consider the measure.

Rising markets have boosted TPIL shares, along with a narrowing of the discount from its widest point close to 30 per cent last year, and the stock price is at an all-time high.


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