Daniel Loeb’s $9.3 billion Third Point LLC hedge fund added shares of American International Group Inc. last quarter, betting the stock will rise as the U.S. cuts a stake acquired in the insurer’s rescue.
AIG shares have “significant upside,” the New York-based fund said today in a letter to investors.
The U.S. Treasury Department has lowered its stake in the New York-based insurer to 16 percent from 92 percent as the stock climbed after results improved at the Chartis property-casualty unit, the company’s largest business. Chartis has worked to expand in emerging markets and reduce business in so-called long-tail lines, which require the company to hold larger sums of capital to back obligations to commercial clients.
“Chartis’s management, led by the talented Peter Hancock, is emphasizing international and shorter-tail consumer property lines,” Third Point wrote.
AIG advanced 2.2 percent to $34.21 at the close of New York trading. The insurer has rallied 47 percent this year, the biggest advance in the 22-company Standard & Poor’s 500 Insurance Index.
When the U.S. winds down its stake, AIG will be freed from government pay limits for top managers and may start paying a dividend, Third Point wrote. The government oversees executive compensation as part of the bailout that began amid the 2008 credit crisis and swelled to $182.3 billion.
Treasury’s exit “will serve as a critical catalyst for the company,” allowing for a shift in compensation to an incentive-based bonus model, Third Point said.
AIG has said pay restrictions make it more difficult to attract and retain the best employees. The U.S. has recouped the cost of rescuing AIG, and the limits remain in place until Treasury sells its final share. Jim Ankner, a company spokesman, declined to comment.
Third Point held 2.25 million shares as of June 30, according to a regulatory filing listing holdings as of the end of the second quarter. Loeb said in today’s letter that his fund “continued to accumulate AIG shares in Treasury’s offerings in the second and third quarters” without specifying the size of the latest purchases. Elissa Doyle, a spokeswoman for Third Point, declined to comment on the letter.
Blue Ridge Capital LLC., the hedge fund run by John Griffin, added an AIG stake in the second quarter and Leon Cooperman’s Omega Advisors Inc. tripled its AIG holding in the period, the firms said in August. Bruce Berkowitz’s Fairholme Capital Management LLC. is the largest owner after the U.S. with about 88 million AIG shares.