This scenario would be bad for risk assets broadly and impa ct long duration assets more harshly as the discount rate inflects higher. We are looking to identify a rapid rise in rates or a de-coupling of real rates and inflation (where the former rises and the latter falls). Rising rates are not bad for equities but can drive sector and factor rotation. The interaction between US nomin al yield, the US real rate, and the effective difference between the two (e.g. We are focused on interest rates, which will help define how and what type of assets “work” at the margin going forw ard. Consensus is strong that it will remain subdued given the high slack in the labor market but, if this is incorrect, the Fed will hike rates more qui ckly, shocking mark ets and challenging the r ecovery. Against this favora ble backdrop, inflation remain s a chief concern. We expect substantia l additional stimulus in Q1 or early Q2 and the Fed remains firmly on hold, keeping nominal rates fairly low by historical standards. Both monetary and fiscal policy are also supportiv e tailwinds. Employment is still down 7% from pre-p andemic levels but jobs in sectors disproportionately impacted by COVID-19 such as retail, restaurants, and entertainment should return quickly as vaccinations ramp and consumers eagerly return to normal life.

On the economic front, the surprising resilience of the US consumer has informed our optimism since Q3 2020 about a rapid economic recovery following widespread vaccine rollouts. Since then, we have mostly avoided taking short stakes in companies with modest liquidity and large short interests. Indeed, as Jesse Livermore said in Reminiscences of a Stock Operator, (quoting Ecclesiastes), in investing, “there is nothing new under the sun.” As targeted secur ities have started to come back to earth, wiping out fortunes on the way down as they did on the way up, we can see that this was a bubble no different than other manias over time, going back to the Dutch Tulip Bulb Mania in the 17Ī few previous painful experiences of our own taking positions against companies with large short interests, we had a preview of what can h appen and cut our losses. The recent short squeeze i n certain securities is nothing new. Detractors included Alibaba Group Holding, three equity shorts, an d a private credit position negatively impacted by COVID-19. II’s purchase of Paysafe, which we participated in via a PIPE transaction. Another top winner i n Q4 was Foley Trasimene Acquisition Corp. Constructive investments in The Walt Disney Company and Prudential plc were top performers, along with Pacific Gas & Electric Company, which we originally purchased as credit during its bankrup tcy and now hold as equity.

Our biggest winner in the Fourth Quarter was Upstart Holdings, Inc., which had a successful IPO in December. Looking back at 2020, we employed all of Third Point’s strategies and styles – event-driven, activist, and growth equity investing private securities and high yield, investment grade, and structured credit – to recover from a challenging first quarter.

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