Don Loeb: I Am Not Gordon Gekko
Don't forget - sign up for our free daily newsletter to stay in the activist investing know. Dan Loeb launched Third Point with just $3.5 million in friends and family money way back in 1995. This after working at the likes of Warburg Pincus, Jefferies and Citigroup.
Today the hedge fund giant has some $17 billion in assets under management, having netted about $12 billion in capital gains. And outperforming the S&P with a 20.5% CAGR - versus the S&P’s 9.1% over the same period.
Per Dan Loeb’s recent (2Q) Third Point investor letter [linked here], Loeb really highlights value he and his fund have created for investors, and in particular, shareholders in general.
Loeb does take issue with powerful union bosses, politicians and candidates, a certain asset management executive, ivory tower types, and any others that have called that activism short term in nature. Two of the biggest bullshitters in Loeb’s eyes are Hillary Clinton and BlackRock’s Larry Fink.
Clinton has termed activists as “hit and run” investors and Fink has written an open letter taking activism to task.
Someone is lying.
Loeb points to support from Japan’s Prime Minister Abe and Abe’s push for better corporate governance. Governance and activism is been used by the Japanese government as a tool to encourage economic momentum and wage growth.
Today’s activists are being unfairly compared with the corporate liquidators of 1980s.
Contrary to Clinton’s beliefs, Dan Loeb is adamant that he is not Gordon Gekko. Yet, activism has ushered in an era of mega buybacks and dividend increases, being fueled by cheap debt. And we have R&D spending and long-term projects being cut.
That type of activism, cut spending to drive future growth in order to boost the stock today buybacks, is still something that Loeb can’t get away from. It’s like a drug, as is buybacks. Once you start, it’s hard to stop. Ask IBM, which has been a buyback machine over the last decade, something that’s effectively killed the company.
Case in point, Loeb finds Allergen extremely attractive. Saying that Allergan’s mission to be a growth focused pharma company with attractive long-duration assets is great, but they need strict expense controls to avoid high-risk and undisciplined R&D spending. If this $130 billion company is going to hit the brakes on R&D spending for new drugs, is there any hope for the rest of the industry?