Invests in Israel, sues Intel, avoids Nvidia

Dan Loeb  credit: Reuters/Brendan McDermid
Dan Loeb credit: Reuters/Brendan McDermid

Dan Loeb grew his hedge fund from $3 million to $7.7 billion, although he missed the AI revolution. Now his combative activist spirit is also tackling anti-Israel campus protests.

Daniel Loeb doesn't hide what he thinks. In letters to investors or in rare interviews, he can be unsparingly critical. For example, he said of Intel that it suffers from "substantial problems" and that production failures and talent loss could harm not only the company but also Western dominance in semiconductors. Regarding Google, he has said that "Gemini’s initial blunders further contributed to the narrative that Alphabet will end up an AI loser." He ran a campaign against the board of the Campbell Soup Company, with the slogan "Empty the Can," hinting at replacing all its members.

Daniel "Dan" Loeb, founder of hedge fund Third Point, is an old-fashioned activist investor: he isn't afraid to express his opinions, initiate organizational changes, replace management members, and, in extreme cases, even engage in legal battles. Unlike other hedge fund big guns, he also manages a portfolio of investments in private technology companies, and there too he tends to take somewhat more active role than other venture capital investors.

Since the mid-1990s, he has been known for his strategy: buying many shares at once, gaining a presence on the board of directors, and instituting moves that often cause managers to leave, assets to be sold, and sharp changes in direction. He stunned the world when he took over Yahoo!'s board in 2012, and revealed that CEO Scott Thompson did not actually hold a computer science degree as previously reported. Thompson had to resign, and former Google executive Marissa Mayer was appointed in his place.

So, for example, in early 2020, after years of managerial crisis at Intel, Loeb bought shares to the tune of a billion dollars through Third Point, and pressured the board to bring Pat Gelsinger back as CEO. Loeb believed that Intel needed a managerial shakeup, and sold all his shares in the meantime, but this is not an indication of his degree of faith in the company. In fact, in the past, Loeb has bought shares in Nvidia and AMD, and sold them all.

Moreover, through one of his portfolio companies, California-based chip company R2, he is now suing Intel, a competitor to the startup, after negotiations between them for its acquisition failed. The lawsuit, which is being heard in Germany, also alleges patent infringement by Intel. Loeb holds 75% of R2 through the fund, and is believed to have financed the lawsuit against Intel with tens of millions of dollars, placing close to $80 million in a special account for the legal battle.

Didn’t expect the AI revolution

Loeb (62) was born and raised in Santa Monica, California. His aunt, Ruth Handler, was the inventor of the Barbie doll and one of the founders of toy giant Mattel, where his father became a director. He studied at UC Berkeley, then moved to Columbia University in New York, where he studied alongside Barack Obama. That same year, he made one of his largest and riskiest stock investments: $120,000 in a medical products company-a total loss. After his studies, he worked in several investment houses and funds: Warburg-Pincus, Jefferies, and Citi, where he served as vice president and was in charge of high-yield bond sales.

He founded Third Point 29 years ago, in 1995, with only $3.3 million; it currently has $7.7 billion under management. He raised the initial amount from family and friends, and has since generated an average annual return of 13%. His strategy since the mid-1990s has been to buy shares of undervalued companies in one fell swoop to make organizational changes-usually accompanied by a sharp and direct personally written letter. However, this strategy hasn't always proven itself.

In fact, last year, Loeb was caught unprepared for the AI revolution. In the first eight months of 2023, the hedge fund recorded a 1.6% drop after a more significant drop of nearly 22% in 2022. It was a year of rising interest rates and falling market indices, but Third Point underperformed the market, leading some investors to withdraw their investments-about 7% of the fund's assets, or $850 million.

Loeb was criticized for taking a conservative approach in the expectation that rising interest rates would harm tech companies, resulting in not holding enough stocks in the sector, which, would have allowed him to benefit from the AI stock rally. In fact, in the same quarter when the rally began-the third quarter of 2023-Loeb sold all his holdings in chip companies.

Loeb realized that the strategy which had served him throughout the years of boardroom activism, short selling, and startup investments, no longer worked. He admitted in a past interview with "The Wall Street Journal" that he was not satisfied with the results but added, "Every time we had 20% declines, we made up for them." For example, in the first quarter of 2020, the fund suffered huge losses with the outbreak of the Covid-19 pandemic, but it ended the year on a 19% rise.

Between the third quarter of 2023 and the first quarter of 2024, Loeb increased the percentage of tech companies in his portfolio from 23.9% to about 27.1%. At the same time, he significantly reduced exposure to the industrial sector, from 22.9% to 11.6%, and liquidated all his holdings in the healthcare and life sciences sector.

In the past half year, he has been busy increasing his holdings in AI stocks, but, contrary to the trend, he has chosen not to invest in Nvidia, which he sees as an overvalued stock. Instead of Nvidia, Loeb has invested in stocks like Microsoft, Google, Meta, and Marvell, as well as in the company that makes Nvidia's chips, Taiwan Semiconductor, and in electricity company Vistra, which reports high demand because of server farm construction to support AI technology. Loeb's bet on AI stocks paid off. Third Point recorded a 5.6% rise in May, and more than doubled its performance to 10.5% in the first five months of 2024. By comparison, the S&P 500 index rose by 5% in May, and is up 14% for the year to date.

Pro-Israel campus graduates - first in line

Even before the Hamas attack on October 7, Loeb was active in the fight against antisemitism in the US. In fact, a few days before the massacre, a discussion on the topic with Disney CEO Bob Iger, actor Chris Pine, and journalist Bari Weiss, was supposed to take place at his home. Following the attack, the discussion was postponed to late October.

As a Columbia University graduate, Loeb, like many Jewish Columbia alumni, was horrified to see how the campus had become one of the largest and most vocal pro-Palestinian protest centers in the US. At the end of April, during the massive protests, Loeb told "The New York Post" that the anti-Israel riots might change his criteria for hiring candidates. The decision led him to give preference to graduates of pro-Israel campuses over old institutions that did not fight antisemitism like Harvard, Yale, and MIT.

His pro-Israel activity is not new, but it has gained public attention in recent weeks, after a "Washington Post" article described his prominent participation in a WhatsApp group on Israeli advocacy. The group includes Jewish businessmen like Len Blavatnik, Bill Ackman, Michael Dell, former Starbucks CEO Howard Schultz, real estate tycoon Joseph Sitt, and Joshua Kushner, brother of Donald Trump's son-in-law Jared Kushner. A few weeks ago, Loeb and his partners held a Zoom call with New York City Mayor Eric Adams to discuss the anti-Israel protests on the Columbia campus.

Loeb is described by his acquaintances as a Jew whose faith has deepened since the Covid-19 pandemic. He sends pictures of himself putting on tefillin to employees and acquaintances in Israel, praying for the return of their near and dear ones in the IDF reserves. "Globes" has learned that Loeb supports Chabad and Hillel activities on US campuses, providing Jewish frameworks for students after school hours; he also supports the N7 initiative that encourages joint investments for Israeli and Arab companies within the framework of the Abraham Accords. Additionally, he is a significant donor to Rise (formerly Start-Up Nation Central), which promotes policies to advance Israeli high-tech, and he is also a major donor to the National Black Empowerment Council, an organization that connects the US Jewish and Black communities.

The bodyguard turned partner

Loeb also has a private venture capital fund, raised from external investors, and separate from his hedge fund. Its investments are managed by Robert (Rob) Schwartz, a friend from high school. Their friendship began when they learned judo together, and later Loeb asked Schwartz to be his unofficial bodyguard in the schoolyard, as he is several heads taller than him. Today, Schwartz is the strongman at Third Point Ventures, managing about 130 investments, most in the US.

Loeb invests extensively in Israel. These investments are referred to by senior members of the local venture capital industry as "part of his Zionist activity, although not philanthropy." One investment in Israel was in Verbit, which three months ago laid off dozens of employees. Despite the need for changes at the company, reorganization has been slow and, some say, a bit too late. "If Loeb had taken a role in Verbit, as he does with the large companies in his hedge fund, it might have been possible to take more action in time," says someone familiar with Loeb’s investment in Verbit.

Despite his support for Israel, in the past Loeb was not known as an investor in Israeli companies or shares. An early investment he led in cybersecurity company SentinelOne - founded in the US by Israeli entrepreneur Tomer Weingarten - became one of his greatest successes, and eventually led him to open an office in Israel. According to estimates, Third Point realized shares in SentinelOne worth hundreds of millions of dollars, achieving more than a hundredfold return on investment.

Not all of Third Point's investments are successful. Unlike the hedge fund managed directly by Loeb, it cannot simply enter and exit investments in companies when it likes. Equity investments in privately-held companies require years of board involvement, and selling shares in such companies is a long and drawn-out process, especially if the company encounters difficulties. Third Point has had some success stories, including exits through the IPOs of Lyft and SoFi. On the other hand, it also holds shares in Didi, the Chinese ride-hailing company that came under Chinese government scrutiny, and declined in value, as well as in crypto company FTX, which shut down following massive fraud.

At the beginning of 2022, Loeb and Schwartz contacted Sapir Harosh, then an investment manager at Pitango and an active member of the organization of people who have served in the IDF unit 8200, an organization that Loeb supports. A few months later, as the private market began to correct following the rise in interest rates, Harosh joined the fund as its representative in Israel alongside Schwartz.

Third Point finally established an official presence in Israel in 2022, making investments in several companies, mostly in fintech and artificial intelligences. These include payment security company Forter; AI server company Next Silicon; Trullion, which has developed AI-powered automation software for financial audit and accounting, and works with major investment houses in New York; and, recently, cybersecurity company Grip Security, which to date is Harosh's biggest investment for the fund.

Published by Globes, Israel business news - - on July 7, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Dan Loeb  credit: Reuters/Brendan McDermid
Dan Loeb credit: Reuters/Brendan McDermid
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