Third Point Reinsurance Ltd. (NYSE:TPRE), the reinsurance wing of superstar hedge fund manager Daniel S. Loeb's Third Point Capital, is nearing the end of the 180-day lockup period, following its August 14, 2013 IPO. The conclusion of the lockup period on Tuesday, February 11 will permit investment firms, along with TPRE directors and executives, to sell their shares in TPRE.
This event may lead to a temporary decrease in the price of the firm's shares as a result of the sudden glut of shares on the market. Aggressive investors may find a shorting opportunity as February 11 approaches.
The recent market downturn could also put pressure on TPRE.
TPRE offered 22.1 million of its approximately 100.6 million shares in its August IPO; the remaining shares will become unlocked for sale at the conclusion of the quiet period. Some 27.3 million of these shares are held by firms controlled by the Kelso & Company private equity firm, and an additional 13.7 million shares are held by Pine Brook LVR, LP.
Both of these firms may be eager to sell at least some of their shares in the interest of raising capital for their investors as the economy recovers.
TPRE executives and directors also collectively own some 31.2 million shares that will become unlocked on February 11. While none are under pressure to sell, many may choose to unload some of their shares in the interest of diversification, as they have not had an opportunity to do so since the IPO.
TPRE is a reinsurance firm. In a nutshell, the company offers to take over policies from insurance companies in exchange for a fee. TPRE's success is not dependent on the quality of its underwriting; however, the firm's results are also tied up with its investment returns which may be impacted by the recent market correction.
Daniel Loeb manages TPRE's investment portfolio as he does for Third Point Capital-where he has seen consistent success. Loeb is known for throwing his weight around in the boardrooms of firms he's invested in; he has done so to great effect for years.
Loeb's recent exploits include pushing Scott Thompson from his CEO position at Yahoo! (NASDAQ:YHOO) and seizing board memberships for himself and his associates. TPRE's reliance on Loeb's investment acumen has helped to make it resistant to the current softness in the reinsurance market. While Loeb does not control the day-to-day operations of TPRE, he holds 8.5 million shares of the firm, and uses it more or less as another source of capital for his investment strategies.
Though the presence of Daniel Loeb and Third Point Capital in TPRE's corner is the central reason to own TPRE, the reinsurer's dependence on Loeb's investments also renders it vulnerable to any misplay.
TPRE also faces numerous competitors in the reinsurance market, which is of particular concern, given the relatively soft current condition of that market. Major competitors include Tokio Millennium Re Ltd., Endurance Specialty Reinsurance Ltd., AXIS Specialty Limited, Arch Reinsurance Ltd., ACE Tempest Reinsurance Ltd., Transatlantic Reinsurance Company, and S.A.C. Re, Ltd.
Disclosure: I am short TPRE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.