Legendary Investor Dan Loeb on AI, Credit, & Third Point’s $25B Strategy

There was a time when you could say, 'I'm just going to punt on tech and focus on industrials and consumer and whatever.' I think you have to be a tech person today. It's such a big and growing and compounding part of the economy. It affects everything else. Hold on to your seats because things are only going to accelerate from here. You have to figure out the things that are most important and most relevant. Maybe that's where the human element comes in to understand and to be able to make those tough trading decisions when fundamentals are going one way and stock prices are going the other way. What an awesome opportunity to be able to incorporate everything that you can possibly know about the world that's relevant.

I wish I could say I have a Claude code that has organized all the information in one place and I go through it all. But, you know, I check the news and see what's relevant for the economy and what's relevant for our positions. I try not to get too obsessed with the minute-to-minute stuff because that will drive you crazy. I try to be a little more tactical than strategic. But people will ask me about like macro, what's important? And I think when people think about macro, they think about all the typical stuff that the government reports: growth, unemployment, inflation, rates, currencies, or where was gold, where's crypto. And I think that all that stuff is trumped right now by two things: where's oil, and that's going to be dictated by what happens in the war and geopolitics, and what's happening with AI, both on the spending front, infrastructure, and what's the impact of that going to be on society and on the economy. So those are the main things I'm focused on really trying to deeply understand.

You know, I'm not like natively a tech person, but I think given where the world is today, I think there was a time when you could say I'm just going to punt on tech and focus on industrials and consumer and healthcare or whatever. I think you have to be a tech person today. It's such a big and growing and compounding part of the economy. It affects everything else. So, I think as best as I can, I try to talk to smart people regularly. Jensen has laid out well and everybody kind of talks about the AI stack, you know, starting with power and energy at the bottom and chips and infrastructure and moving up through LLMs and software and applications and how that plays through. And I think that's a good mental model to just think about all of it. And we've played different elements of that through industrials and infrastructure and hyperscalers and things like that, but look, I think right now, I mean the SOX is up 40%. I don't think I've ever seen an event like that. In fact, if you just go back a few years, semiconductors were kind of left for dead. They were like roadkill in the market. Like people were just not thinking about them at all. And I think that all changed when Nvidia reported its March results three years ago. And I think you either were there or it's okay if you weren't, you could quickly play catch-up. And that was the big event and now of course it's sort of thinking about the Nvidia, the Tranium, and the TPU ecosystems and how those play out and relative strength and how that plays through the different hyperscalers and then of course the foundational models. I try to think in terms of that stack, but I also think about what's going on in probably the three most consequential companies today: Nvidia, Anthropic, and Elon World, you know, all of his companies collectively. I think there's a lot of ways to look through the prism, but for me, that's been an effective way to kind of think about how things flow through.

So the roots of Third Point really come out of my experience as a credit investor and my time at Jefferies. And Jeff was like my laboratory for studying some of the best investors. And my clients were people like David Tepper, who had not yet started Appaloosa but started Appaloosa, guys like Eric Mindich who ran the trading desk at Goldman, firms like Angelo Gordon, Fidelity. So I was able to watch firsthand like how the best, I guess at that point we would call them either distressed debt or event-driven or risk arbitrage investors. So my natural first lens was to think about credit but on the equity side to think about it in terms of a hierarchy and a mental model. I completely thought about it through the lens of event-driven investing. So merger arbitrage a little bit off to the side because that's less directional. But on the non-merger arb part, which is really just a mathematical exercise in earning a return and the risk that you're taking. But in terms of a fundamental investment lens, I think it would be best characterized by those types of firms. And the best book, which I think is still relevant today, would be Joel Greenblatt's book, the classic 'You Can Be a Stock Market Genius.' I think the original title was 'You Can Be a Stock Market Genius Even If You're Not That Smart.' I think he took that part out because investors don't like to think of themselves that way. But a brilliant book and most of the people I know in that world kind of use that as their framework. Talked about things like spin-offs, demutualizations, privatizations, post-reorg equities. And that's how I thought about things. I was totally unfocused on business quality, the moat, return on capital. I barely even thought about relative multiples for different kinds of businesses. All I thought about is am I buying something really cheap that has the following characteristics: a new security is often created which is priced and valued at a very cheap price because of a lack of liquidity. So when a large company or any company spins off a subsidiary, especially in those days or part of the business, there's a new stock being born. The existing investors at that point in time, especially usually mutual fund types or folks that didn't want to, for whatever reason, maybe it wasn't in their sector, they just weren't doing the work. So it would just routinely sell it. So there'd be this sort of liquidity gap. And if you could figure out the value of the business, those tended to be good trades. And that was exacerbated by the fact that the management teams would go out in the case of a spin-off and do a road show that would present a very conservative view. Some might even say sandbag the numbers. Why? Because people are always creatures of incentives. Their incentive package would be set at the time of the spin-off. So they would come out very conservatively. But there's more. The companies themselves were inefficiently operated within these larger businesses. So margins were lower than they should have been. Sales were probably less. The management team didn't have the incentives to really optimize the businesses. So that was an incredible business model. And that dynamic that I just described, it applied to spin-offs, it applied to privatizations, it applied to demutualizations, it applied to newly created companies like Visa or Mastercard. So that was a beautiful business and it was sort of underappreciated for a long, long time and you could generate really excess returns. And then we would take that basic framework and start applying it to other things like the synergies that come when you combine two companies in a major merger. You know, something like Union Pacific, Norfolk Southern, things like that. From 1995 when we started the fund probably up until the early 2013 to '15, that was our bread and butter and how we thought about investing.

No, they still exist all the time. The real opportunity today is kind of overlaying that understanding of those types of opportunities and looking for something that combines that with a business quality lens. So let's talk about how my business evolved and how we evolved. I think if you look at a lot of the people who have underperformed or haven't survived the last decade or so, when people are really stuck on the idea of deep value, low multiples, and being really stubborn about how they viewed businesses and less flexible about moving into higher multiple companies or growthier companies. We basically just started to look at companies that grew faster, that had better returns on capital, that were quote-unquote quality businesses. That kind of opened up a whole new world for us. So I would call that kind of the other significant part of what we do, which would be quality investing, thematic investing, and that's when we started to organize our team around industry experts and less generalists and less around the transactions. And if I would suggest a couple of books, I'm sure people have mentioned them and you may have, I think you may have even interviewed some of the people who wrote them. Two of the most consequential books that I read that had the most influence on me in that area: 'The Outsiders.'

So it talks about them more from the perspective of the managers who understand capital allocation along with great operations. So companies like Danaher, TransDigm, and others. The most influential and eye-opening book to me was this book 'Quality Investing' by Cunningham. And that I think really lays out the idea of super high-quality businesses with good moats and high return on capital and that you might want to own for many, many years. Now, what happened last year was really interesting because a lot of these companies that appeared to be super high quality, it's probably the worst year and going into the beginning of this year because the disruption of AI, a lot of these apparently high-quality companies very rapidly became less.

I remember in 2013 I was in a room. It was a dinner in Davos, which I don't go to anymore. It was a Goldman Sachs dinner and Eric Schmidt was there and gave a talk. And you go back to around 2013, it was a time of, when you look back at it, it was almost quaint in terms of the technological innovation. This was probably around the time that maybe the Uber app, it was around the time that the Uber app came out and the iPhone was starting to explode. I say explode, but it was starting to come up with some interesting apps which were starting to be adopted. The SaaS revolution was sort of at the front end. Companies like Microsoft were starting to find their footing. Think about all the period from the dot-com bubble through the GFC. The '90s were a time of incredible technological innovation and yes stuff was happening but it wasn't, I don't think we felt there was a lot going on. There are other things going on in those years but it was, you know, the sexy industries at times were natural resources, energy, financial services. So he said to the room, it will be your natural tendency to think that this increase in technological innovation and disruption and change that we've been experiencing for the last couple years is an anomaly and that things are going to go back to a kind of a steadier type of innovation and growth. Hold on to your seats. Things are only going to accelerate from here. And he was really right. And I think you could have said that again in 2017. You could have said it again in 2020. I think you can really say that right now. Like it has just continued to logarithmically accelerate and we're going through something now where we're at the front end of AI. But I just think we're just going to have to learn to live with this. I don't know that from an evolutionary standpoint, our brains have been able to deal with things like social media and some of the other changes. It's going to take a lot of work for us to just prepare ourselves as a species and even mentally how to ingest all this information. And Brad Gerstner talks about this book, 'Essentialism.' And I think we also have to adopt this idea of essentialism because you can't do it all. You have to figure out the things that are most important and most relevant to what you do.

I honestly, I have no idea. I don't even know what it's going to look like in six months or a year from now. I think we're okay for the next couple of years. I think companies will need to raise money. The securities that are created from that will need to change hands somehow. People want to save. People want to invest. People need to borrow. And I think you always need some human interface in the middle of that. But how that's going to, I think it's highly unlikely that there will be a completely AI-managed capital system.

I talk a lot about investment books. I think there's so much wisdom in books for investing. Like one of my favorite books, 'Reminiscences of a Stock Operator,' the guy who wrote it quotes, I think it's from Ecclesiastes, which says there's nothing new under the sun and human nature. The question is will AI take human nature and the flaws in human emotion out of the investment process? Because there is a lot of, or might the AI even adopt some of that under the name of, you know, risk management or managing downside or whatever. I mean in theory I guess it could take it out but if you go back to, it will test the theory that there's nothing new under the sun and the thing that doesn't change is hysteresis, bubbles, panics, and just the extremes of human nature both optimistically and pessimistically. I mean you think about just this year, why is the SOX up so much? Well it's up so much because all the evidence has pointed to the fundamentals in semiconductors, semi-cap equipment, memory, everything around it being super strong. So what happened? Expectations were too high. And in the same way that Nvidia in after Q1 three years ago had this monster quarter, people piled on and it kept going up. You had a couple of quarters in a row where it put up solid numbers, then shockingly good numbers and the stock tanked and then the whole sector went down and I think people were just scratching their heads saying why is everything, why the numbers look so good and numbers keep going and stock prices keep going down. And then the same thing happened with Micron. They had a phenomenal quarter, up 80%. You know, way ahead of expectations. The stock went up a little bit because expectations were too high and then it went down. Now that happens a lot. Happened to Meta a couple of years ago. They put up a good quarter. Stock went up, was like Wile E. Coyote. There was no one else to buy the stock. It tanked. And you know, so those things happen and I think that's what, you know, maybe that's where the human element comes in to understand and to be able to make those tough trading decisions when fundamentals are going one way and stock prices are going the other way and to be able to take the pain of losses in the short run. I think you have enough of an advantage that someone like me, and someone like me being a fundamental investor who doesn't make trading decisions based on computers, is that there are still a lot of market irregularities caused by some very good strategies, but collectively they create these anomalies. So you have quants and CTAs, you have pods, you know, let's just talk about them for a second. They have a great strategy for them and their investors, but it causes some unusual behaviors because fundamental investors believe that when, you know, as Warren Buffett would say, if a stock goes down, you celebrate it because it's a chance to buy more at a better price. They have risk metrics which have forced selling on the way down. And so they do the opposite of what it might be rational for their business model, but it's not rational for long-term investors. So you have a lot of these things that will continue to create opportunities, I think, for fundamental investors.

Yeah. But then, you know, you'll have corporate transactions that will create opportunities. It feels like there's always something. There's failures, there's credit cycles, there's bankruptcies. It's hard to imagine the computers sitting on a creditor's committee and working through the capital structure and being able to transact. If you think about a continuum of public securities and private equity, the AI will not do private equity. You always need people to do deals. I think you will. And then you have the kind of the stuff in between that requires a lot of negotiation and human interaction and high-touch, you know, private credit or like I said before, working through a restructuring. You'll probably always need human beings to do that part of the investment business.

Well, actually my dad, who was a securities lawyer, was an expert on corporate governance and wrote books about it. So I always heard about it at home. He's actually the first person I'd ever heard of who actually talked about corporate responsibility. He was on the board of Mattel and later Williams-Sonoma. He would go visit these factories where they were sourcing their materials from and wanted to make sure that they were ethically sourced and the workers were treated well at Mattel or Williams-Sonoma. So, he was really ahead of his time on that stuff.

My dad was incredibly funny, warm, irreverent, really smart. He was the only son of two immigrants from Europe. My grandmother, his mother came from Poland in 1914. His father came from Romania in like 1898. Incidentally, his mother's youngest sister ended up, she was the first of that family that was born in this country. Her younger sister founded Mattel Toys. He was a self-made person. He went to UCLA, did well, went to Harvard Law School, and spent most of his career at one law firm.

We have an incredible system. Let's start with that. Like there's something beautiful about the American capitalist system in the aspect of it that creates boards of directors that ultimately have a role within both capitalism and in a democratic system where the board is responsible for and answerable to the shareholders and is responsible for accountability for the management, setting strategy, and the key financial decisions. So we have a great system in place where the shortcomings within governance happen is when the board members lose sight of what their duties are as fiduciaries, or the composition of the board is such that they aren't really equipped to carry out that duty because there is a lack of deep knowledge or intellectual or talent diversity on the board, or they are thinking excessively about things other than their duty to shareholders. Not to say that the board doesn't have other responsibilities, but I think ultimately they should feed into creating shareholder value. If you go back to both Milton Friedman and things that Warren Buffett have said, of course boards care about the communities that they serve, the products, the employees, proper conduct, etc. All those things are very important and they are not inconsistent with creating shareholder value. In fact, it's part of creating shareholder value. But I think especially a few years ago, I think it was the Business Roundtable said we're no longer going to say that the board's responsibility is primarily to drive shareholder value. It's this thing and that thing and the other thing. Well, I think it was a distraction from what their real duty is. And it didn't recognize how all these things of course go together. So the bad governance I've seen is when, from a number of things. One, they let their loyalty or relationship to a CEO who's not up to the job overshadow their duty to shareholders. That's probably the main thing because the CEO, you know, it's very important to understand the boards don't run the companies. The board is strategic, not tactical. So they should be really focusing on those things. But if the company isn't allocating capital well or isn't holding the management team responsible or there's some very obvious things that should be done differently, that's when we can come in. Most of the time in our experience is we've been able to work with existing boards in kind of redirecting them and offering solutions or sometimes we don't even have to get on the board to get those things done. Kind of, you hear about the extreme cases where we have to or try to shake things up where we actually, you know, we have to, our presence is needed on the board to do that.

All great writing is really about clear thinking and organizing your thoughts, communicating them to people in a clear way to get a desired outcome. I would say that, you know, you can also use writing to influence and, you know, in our case it's been helpful in getting the attention of other shareholders, sometimes the board itself, shaking them up a little bit, getting media attention focused on a board. I think about, you know, activism, you've got a few different levers. You can have a financial lever by, you know, obviously we can make a bid for the company. You have legal levers, proxy contests, litigation, information requests, etc. Social pressure is actually a very effective way and I think the best way to put social pressure on a company is through writing and PR efforts around the company.

That's interesting. Certainly was the case in Sotheby's.

I'll come back to the story about Sotheby's in a second. But I think all board members often feel a sense of status for being on these boards. And I think that in itself needs to be dispelled because I think if you're on a board because you are either getting status or you're getting income and that's your primary reason for doing it, not for representing shareholders, then that's where we come in to try to disintermediate that and take away some of the status or increase the cost of doing that. You know, Sotheby's, I thought was just an interesting company. It was a pretty small company and a small target for us. It's actually a very good example of what you're talking about because although it was a public company, it wasn't really run for the shareholders. It was run because I think people did feel like it was a high-status business. Had been mismanaged. Didn't really recover from an antitrust violation that spilled into kind of criminal charges brought against the company and some of the individuals. And the business itself was a good business, but just run unbelievably unprofitably. And, you know, the company had been around since the 1700s and some of the business practices had not really been updated since that time. So we took a position, we bought 9.9% of the company. We went after the board but really just wanted them to implement some basic business practices that we thought would be better. We didn't think the CEO that was there had sort of come up. He didn't have a particularly deep knowledge of art. He came, I think he came out of the rug division. Didn't really have deep relationships with the collectors either. So we came in and gave him a shot for a year and then I think the board came to realize he wasn't the right guy. We brought in a guy named Tad Smith who was terrific from MSG. Cleaned up the operations, improved the technology, and then they sold the company.

Yeah. A good result.

There's probably some of that in the kind of sub-two billion market cap space and not necessarily even bad management but maybe B-plus management, not optimizing. What we're finding is that it's almost like a negative selection process. It's like we'd much rather invest in a great company with awesome management that's doing all the right things and cheer them on than kind of find something that but for mismanagement the company would be worth a lot more because what you find is that if the things that you've identified are badly run then there's probably, you know, ten times more things that are badly run. It just gets to be sort of a morass.

Yeah. Well, first of all, Third Point is a whole collection of businesses. My main focus is on the hedge fund strategy which started at three million. It's now about nine billion today. That fund itself is about 20%. It's about 30% credit in total. The rest of the portfolio, I mean it moves all over the place.

It is primarily equities, and I think our equity book is generically around 110 long by 30 or 40 short, but that can be all over the place. I mean, I think going into the war, we really dialed back our risk, and we were, I think for the first time since 2009, we did have more credit exposure than equity. But we very quickly have taken that back up. We are the hedge fund, we're still more equity than credit, but across the fund we have a CLO business with about $7 billion in it. Within Third Point itself, we have about 30% of that, which would make it close to $3 billion in structured credit and corporate credit, but that's within the hedge fund. And then we have an insurance company that we manage about a billion dollars in credit for. We have a couple billion dollars in asbestos liabilities that we manage in its own pool, and we just started a private credit business which is small.

Well, we haven't even talked about the fact that we have a venture capital business, right? I've worked in venture capital, I've worked in risk arbitrage, I've worked in credit, I've worked in equities. And I think having a view of value and thinking about valuing enterprises, whether they are earlier stage, mid-stage, or mature businesses, and looking to invest in whatever the fulcrum security is in that enterprise. Obviously, for an early stage company, the only fulcrum is the equity.

The one that's going to have the best risk-reward.

Let me give you two examples. We had a workable, a good enough knowledge of Twitter and xAI to understand the equity value of both of those businesses. And without making a decision whether or not we wanted to own equity in xAI, and having not participated in the Twitter deal, there were two financing transactions that came up. One for xAI and another one for Twitter. The Twitter debt was a resale of the financing debt that was offered when Elon bought the company. Morgan Stanley sat on it for a while. It was deep underwater. When it got close to par, they decided to sell it. Most credit investors were really scared and nervous to buy that even though it was like 96, 97 cents on the dollar. It was yielding around a 12% yield. We were comfortable enough with the underlying value of the business and with the fundamentals that we made that at that time our largest credit position. And then when xAI did a debt financing, very few credit people wanted to play in that one because there was no cash flow, $2 billion in revenues and a $20 billion enterprise value. But we were very comfortable that this was a real business. We looked at them as credit investors, but we also were able to bring in the resources of our kind of private investing knowledge.

Let me just push back on that. I'm the portfolio manager of the hedge fund. Private credit, CLOs, operating structured credit, a high yield business, they all have their own PMs. I will come in if there's an interesting opportunity, like we supersized both of those, both Twitter and xAI when I got involved, but I'm not even on the investment committees of those businesses.

I think the setup's great. I mean, you can still buy Nvidia. Maybe the multiple's slightly higher right now. I mean, there's such a catch-up trade in Nvidia at 15 times '27, 12x '28 for the most dominant, fastest—I don't know if it's the fastest growing, but very fast growing company at its size. I looked through our whole semis, cap equipment, hyperscaler portfolio, and I thought my instinct was going to be, okay, we've got to take profits here. I looked at the valuations, I looked at their growth rates. Unless you are really draconian or negative and you think that somehow the AI world is going to roll over in '31 or '32, I think it's some of the most attractive—yeah, I think it's the most attractive sector right now. It's where the bulk of our capital is invested.

If you don't believe the capex numbers are going to yield a return, then you would have to believe that they're just flushing money down the toilet and that they're not going to get a return. Because the earnings are really strong and the multiples on that, and they might say, 'Yes, but the cash flow after capex is...' but these are companies also that are investing money off their balance sheets and are generating enormous amounts of cash. So it's very different from the dot-com bubble, which we were short going into and had good numbers in those years. I just don't see—you don't have the valuation bubble now on those companies that you had on those companies back in those days. You look at Anthropic's revenue growth and the adoption and the usefulness of its products and the anecdotes you hear about the next generation, Mythos, and what that's going to do. You can make a good argument we're barely scratching the surface. I mean, there's so many layers of corporations that have just—they're just getting started. So I'm in the optimist camp in terms of seeing this as something that's going to play out.

Israel is an interesting market. It's kind of a nichier market, and we had one of our top investments there that despite the war has been one of the best performing stocks in our portfolio. But in terms of the big markets, yeah, there's a lot going on in Korea, Taiwan, Japan. I'm probably more bullish on them just in terms of a hunting ground to find great companies. The European markets are just tough right now given the regulatory environment. They just have a different attitude about business and capitalism. And you know, we're invested in a couple businesses there, Rolls-Royce, ASML, but the companies that are in Europe dependent on the local economy are more challenged.

I mean, Sony was—I mean at one point we owned 7% of Sony. And there's a list of companies that we at one point owned significant stakes in that had I not sold would be worth, you know, in the mid to upper single digits billions of dollars. So...

Yeah. I mean we all have that. Like we sort of took two runs at Sony. The first time we invested in it, it was basically a conglomerate. It had obviously the main Sony studios, it had a semiconductor business, a life insurance business, obviously had all the consumer electronics. We advised them to separate these businesses. Certainly at a minimum take out the insurance business which had no place in it. And we met with the management team. We had a big deck that we went through. And at the end of the meeting, we told them in the interest of transparency, we shared our investment thesis with the New York Times. Andrew Ross Sorkin wrote the story. They went into a panic when we told them about that, and Andrew agreed to embargo the story until the Japanese market closed. The story came out and they had pre-arranged us to go on a tour of their kind of innovation center. So but before we went on the innovation center, when we told him that there was going to be a story, they came out and his name was Kaz Hirai at the time, he goes, 'You told the New York Times?' I said, 'Yeah, but just the New York Times, nobody else.' He says, 'Okay, just the New York Times.' So anyway, it was wild. We were walking around the innovation center and we're looking at our Blackberries at that time and it was just like the story went everywhere. And anyway, it ended up being a really good investment. They really pushed back on everything that we recommended until, you know, it took them about five years and I think one by one they've done many of the things. They've broken out the semi business, they partially spun out or they plan to spin out their financial services business. The one thing I learned is that activism in Japan is really hard.

I'll tell you what's interesting about activism in Japan. We on one of our first trips we met with the Prime Minister and we met with his right-hand man, Suga-san. And I told him I would write a paper explaining to him why activism was good for Japan as a country. And they had released something called the Three Arrows, which was about fiscal, monetary, and restructuring. And my suggestion was that they needed to include corporate governance and in particular a focus on return on invested capital as part of their Three Arrow strategy. And I came back to New York. I met with Larry Lindsey and Niall Ferguson. We wrote a three-person paper. They did most of the writing. But we wrote a paper for AEI. It was then picked up as an editorial in the Wall Street Journal and they then adopted that. It was pretty cool. But the government actually really wants the companies to do this. It's really the management teams that are more entrenched because the shareholders and the government kind of want that. And you've really seen progress since we first went over there. They're breaking up some of these cross-shareholdings. They're penalizing companies that trade at discounts to book value. There's a bunch of other things. So I think, you know, they're definitely moving in the right direction.

I think investing in Danaher has been the most instructive because it really is truly one of the best-run businesses. It was also one of the first experiences that I had investing in a super high-quality business that internalized some of the best practices of creating a corporate operating system. My partner then, Munie, and I actually went to Danaher and got them to boil down their five-day DBS, Danaher Business System, training into a one-day thing for us. It was really instructive. It was a really, really good investment for about four years. By observing them, by watching them kind of incrementally improve the business quality of the company by shedding lower-quality businesses, buying higher return on capital, better quality, higher margin businesses to shift from kind of general industrials into healthcare. I learned a ton. And then it stopped working as an investment because of COVID. There were all kinds of irregularities like surges in orders and increases in inventory and then a correction for that. And what, you know, all the benefits that they got from the surge in demand that was a tailwind became a headwind and they still haven't really come out of it. It'll be interesting to see how they navigate AI in the next few years. We actually sold it and recently with the recent selloff have gotten back in, but in a small way. But I learned a lot about how really thoughtful businesses think philosophically and deeply about their operating system, about optimizing and motivating and inspiring their team, and even the fact that they have a system in place. And it's also been incredibly instructive watching the diaspora of executives.

Yeah, Larry Culp was there. There have been a lot of other—the guy from Ingersoll Rand, which has been a well-run business.

Cult is a little bit too strong of a word to describe it, but they had a very strong corporate identity and culture. It's one thing to say we are a Kaizen company and we're dedicated to continual improvement, but what they have is a whole system of implementing improvement across the organization. And you know, one of my big takeaways from that day—there were a lot of things that I learned that day—but one of the things I took away is that they would hold people very accountable and individually show when people were underperforming. But the interesting thing about it was that because these things were all addressable and fixable, when they found someone that was underperforming, it was celebrated instead of shamed because, 'Look what all these things you're doing wrong. We can fix those.' And they did. They do that over and over and over again. And they do it both in terms of operations, working capital. And it was really cool to just walk around a place and everybody—it was really amazing how everybody's on the same wavelength trying to accomplish that.

We actually started an insurance company, DaVinci. It was 2010. We were backed by myself, Kelso, and Pinebrook, and we started a Bermuda-based reinsurance company. And the thesis there when we started was we have an executive that will do these reinsurance deals, we will invest the float all in Third Point and in treasuries, so sort of a barbell. Then we can defer taxes, get leverage on our capital. Greenlight Re at the time was trading at 140% of book value. I thought this would be the future, we'll just keep raising money for this vehicle. The problem was that the reinsurance business took a sharp turn for the worse, and we had some good years at Third Point, but we were scrambling to offset the losses from the insurance company. About three years ago, I said, 'Well, we had the right idea, but we had the wrong insurance vehicle. We were doing P&C insurance. We really should have just done plain vanilla annuities basically.' And the problem is the annuity business though can't invest in the hedge fund. It can only do credit. Well, the good news is we had had about five years when DaVinci stopped investing in my hedge fund, but we started investing in structured credit, corporate credit, and other things that were either rated or more appropriate for an insurance company. We've done two things since then. We merged our reinsurance company into a closed-end fund that we had in the UK, Third Point Offshore Investors. We reincorporated that business from Guernsey to Cayman and we repurposed it from a closed-end investor in my hedge fund into an insurance company. It still has some of the investment in the hedge fund, but it now owns our reinsurance company. That company will then be in a position to do more reinsurance deals, issue primary annuities, and then Third Point manages the money in private credit, structured credit, whole loan mortgages, some direct lending in real estate, some investment grade corporate debt, and private investment grade. But we also put the equity of that business in things like the junior tranches of structured financings. But we'll also be using it for growth equity investments.

I would have to say our investment in FTX. It looked great. The company was growing fast. We could verify it all on the blockchain. We felt like we had some good company on the cap table with us. We did it. It just turned out there was just, you know, it wasn't what we thought it was. And it was painful because, you know, I think in general, one of the amazing things about our capitalist system and the ability to go out and that venture-backed companies have this incredible ability to go out and raise capital for interesting ideas. And I'd say, you know, most people are good actors with good intentions and we've rarely had any kind of mishap. Doesn't mean that you don't do very careful due diligence. I will say that now our due diligence process, we definitely check bank balances and do the most basic due diligence that probably would have turned stuff up on this. But if left alone or if he hadn't ended up being a crook or very sloppy, the venture investments he made would have been like the best venture investor of this era. Cursor, Anthropic, Solana, everything he did. I mean, the guy had a great nose for value. So that was probably the toughest, the mistake that we made within the last two years. We obviously were looking for—and we've made some great short investments in—or so we've taken some great shorts in things that are being disrupted by AI. But where we've made the mistake is that we're controversial, but we thought we knew better that AI wasn't really going to affect this part of the info services business or these guys had proprietary information. That's where we've made some mistakes. Now I still think there could be a shakeout. There probably will be a shakeout there where there will be some phoenixes that rise from the ashes, but that's been kind of the investment lesson of the last year or so.

Yeah, I mean, first of all, we all have to just start using it. The only way to get good at this is just to use it. And we have people at different levels. We have experts that we have brought on that are native computer scientists that are kind of coming at this as expert AI people who are working on specific projects. They're coaching the team, but we're also encouraging everyone to use AI and find as many applications. You can hire system integrators. We have a system integrator working with us. We're starting a new insurance company, we talked about that a little bit later. You know, I'm obsessive about continual improvement both at individual level and organizationally. But Claude really is like a—and it really enables you to be an individual self-improver. It makes you very autonomous and your ability is sort of like it'll give you back whatever you put into it, if you put a lot of time and energy and effort into it. So I'm encouraging everyone to do that. And I think, you know, collectively, we're all sharing best practices and, you know, some people are running agents overnight and using tons and tons of tokens. Other people are probably more like me, just using it more for queries and things, but we're all very involved with it.

I think we're probably more optimistic, or you say that maybe less pessimistic that there's going to be some kind of apocalypse from AI. Like I'm still pretty optimistic that it will create opportunities and create jobs and create net jobs. Obviously, it'll lose in some places, gain in other places. I think the differentiator for us is that we can always default into credit investing. And when things get—I mean we haven't been in a scenario where we had like a real credit cycle, but I'm very comfortable investing in incredibly stressed times. We really haven't had any since 2020. So going back to like COVID, the thing that we got really right because we had a good year that year, but it wasn't because we piled into stocks, we piled into IG credit when it was so—maybe that's answering the question a little bit differently.

It's so different. Like I grew up in credit. I worked on a trading desk. You don't just electronically trade bonds. You have to have relationships with these firms. You know, part of the reason for expanding into the CLO business is that we had the high yield market, trillion and a half dollar market, pretty well-wired. We were sort of dabbling in the broadly syndicated loan market, which is another trillion and a half dollars. But we also have eyes on a $6 trillion structured credit market. But these are not markets that lend themselves to tourism. When the opportunities really come up, we're already there with the relationships and the understanding of the companies.

Yeah, I think that the great analyst 20 years ago was like someone that could build a model really fast and understand some really complicated restructuring. Like when I was—I'll use myself as the example of that ancient dinosaur of an analyst that used to be useful—like when I was at Jefferies, Drexel went bankrupt and there was a thick disclosure statement, about 3 or 4 inches thick on this bankruptcy of a company called Drexel Burnham. And this thing got passed around and nobody could crack the code on this thing. And I was relatively new and I knew I had to differentiate myself. So I just spent like a whole weekend studying this thing and ultimately that was one of the best investments ever in the history of bankruptcies was the claims on Drexel because people didn't understand the complexity of the different value pools and liquidations and the claims were overstated, the assets were understated. But it was super complicated and that was the kind of thing that differentiated the analysts of the 90s when I did that or even the 2000s. I think now it's somebody who's like a Gavin Baker type, a junior Gavin Baker, somebody who understands a company or understands an industry and understands the nuances of a technology. Let's get away from technology for a minute. Casey's General Stores, like why was this one of the best performing stocks? It looked like a tech stock. It was because they were not a convenience store chain, they were a pizza chain kind of masquerading as convenience stores. Had an analyst who went to Texas and ate pizza and saw, you know, so that kind of an analyst today I think is what was different.

The thing that worries me the most is just not having the time to do the things that I care about, you know, spending the time with my family or being able to go surfing and read books that I want to read. Not really worried about the business. So you have good process, good, you know, invest things with good value. And the thing that excites me is just the things that have excited me that kind of keep me going. I mean, God, what an awesome opportunity to be able to incorporate everything that you can possibly know about the world that's relevant. To study industries, to study technology, to study consumer behavior, to look at the US economy, look at politics, to travel to the Middle East, which I think is probably the most vibrant, interesting part of the world. I mean, who would have thought 20 years ago or even three years ago Bahrain, the Emirates, Saudi, Morocco, Azerbaijan would be better allies to the US than NATO? Crazy. And who would have thought that their growth rates would way exceed them or that their growth and their embracing of technology. That's the stuff that keeps me going. It's like just being able to incorporate all these different things and also to form relationships with people that are doing interesting things. Jeremy O'Brien who founded PsiQuantum and talk about quantum computing, or Elad Ros who started NextSilicon, or the CEOs of the companies that we invest in. I've got to know Mitch Rails from Danaher.

Gosh, I thought about that because I knew the question was coming and I had a lot of different ways to answer it. But before I answer that, I do want to talk about the importance of kindness. And I know you know it's important because you ask this question every time you interview someone. And it's important on many levels because I think if you kind of elevate kindness as a characteristic that you want to elevate in your hierarchy of things that you want to be—honest and truthful and smart, clever, innovative, whatever. Like I think kindness is very important. I think it goes with forming deep relationships with people. I think kindness enables you to be empathetic. That enables you to connect with people, to learn from them, to be better as a human being, and ultimately—I hate to sound crass—but ultimately it will benefit your business. So I will say on the kindness front, be kind to the people not just that will benefit from you. Be kind to people you have no idea how it will ever benefit you. And sometimes it will and sometimes it won't. Sometimes you just connect with someone who thinks you're a better person. Good for its own sake. But anyway, I came down to my friend Carter who when I was, let's just say in between jobs before I started at Jefferies, I had about a six or nine month period where I wasn't working. And he let me sleep on his couch. And then when I got my job at Jefferies, I suggested to him a bunch of different distressed debt situations. And he trusted me with a few hundred thousand of his money and then it turned into a little over a million dollars and then he then rolled that into my fund and it really enabled me to get my business started. So that was one of the kindest things. I want to say one other thing on the kindness topic. Gavin actually said this and I think he was quoting Palmer Luckey. He said, 'The one thing money doesn't buy you is friends that believed in you when you had nothing.'

All right. Thank you very much.