BREAKINGVIEWS-Dan Loeb makes bold play for London mini-Apollo

By Neil Unmack

LONDON, May 27 (Reuters Breakingviews) - Dan Loeb is testing a novel way of breathing life into London’s stagnant fund market. His closed-ended listed vehicle, Third Point Investors (TPI) TPOGu.L, has like many peers languished at a depressed price, and struggled to grow. The proposed solution, to turn it into an Apollo-style APO.N bond investment insurer, is clever, but could be tricky to pull off.

London’s 250 billion pound closed-ended funds market is in hibernation: on average, the vehicles trade at a 16% discount to the value of their assets. Loeb’s existing vehicle, Third Point Investors, is worth just under 80% of its book value. Given the performance it’s little wonder why some investors have been agitating for Loeb to return their money. Amid this tension, the company launched a strategic review in 2024.

Following that review, Third Point’s directors are instead proposing to merge it with a fledgling insurer, set up and managed by Loeb’s fund management group, called Malibu Life. It will use TPI’s capital to write annuities on books of life insurance policies and invest in illiquid, higher-yielding debt, similar to the model made famous by Apollo’s Athene. Creaming off a spread between annuity rates and bond yields of, say, 1.5 percentage points could deliver a return on capital of around 15%, Third Point Investors reckons. But the company still needs investors to believe that the strategy makes more sense than simply returning their funds, and it also needs to convince them to vote for the change at a shareholder meeting.

That’s not a given. Some investors aren’t happy, arguing that when a fund changes its raison d’être, shareholders should be given the chance to get their money back. Instead, they are being offered a partial tender, at a 12.5% discount to the net asset value. They also object to the fact that Loeb’s management group, which is selling Malibu, may help swing the vote, given it owns a quarter of TPI’s stock. Asset Value Investors, one shareholder, has called it an “odious related party deal.”

Still, the new model could deliver handsome returns for investors. In exchange for their shares, they will get a stake in an insurer at a discount to book value, without having to pony up for the set-up costs. They could make a return of over 20% if the new insurer were merely to trade in line with the value of its assets, whereas U.S. life and annuity companies like MetLife MET.N, Ameriprise Financial AMP.N or Corebridge Financial CRBG.N on average trade with a multiple of around 1.2 times book, TPI reckons.

Still, there are risks. Malibu will be a new venture, with just $600 million of capital, competing against vast, sophisticated players like Apollo’s Athene, which has $36 billion of capital and benefits from a host of origination platforms to source assets. Another question is how the new vehicle will trade. There are no listed peers in London, raising the risk it becomes another neglected stock. Yet if it trades at a big discount to U.S. peers, transatlantic investors might pile in. Malibu will be another test of the London market’s ability to fund adventurous business.

CONTEXT NEWS

The directors of Third Point Investors (TPI), a London-listed fund managed by Dan Loeb’s Third Point, on May 21 proposed converting the company into a new reinsurer.

The proposed transaction would see TPI acquire Malibu Life, a reinsurer previously set up by Third Point to underwrite annuities, and invest in bonds and loans, which will be advised by Third Point. It is targeting a return on equity in the mid teen area.

Investors will have the option of redeeming 25% of their holdings, at a 12.5% discount to the prevailing net asset value.