Hedge Fund Manager's Reinsurance Firm With No U.S. Workers Gains From JOBS Act

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By Lee Spears and Noah Buhayar

Billionaire hedge-fund manager Daniel Loeb's Third Point Reinsurance Ltd., which has no staff in the United States, said it can limit financial disclosure after a public offering because of rules promoting domestic job creation.

Third Point Reinsurance is an “emerging growth company” under the Jumpstart Our Business Startups--or JOBS--Act (Pub. L. No. 112-106), according to filings for the planned initial public offering. Under the act, companies with less than $1 billion in annual revenue can qualify, allowing reduced disclosure about executive pay and waiving requirements for auditors to attest to a company's financial controls.

“Was this anticipated by the JOBS Act? Well, not if you paid attention to the rhetoric we heard.”

Barry Ritholtz of FusionIQ

President Obama has said the JOBS Act, which became law last year, would make it easier for companies to raise money, leading to employment growth. Bermuda-based Third Point Reinsurance shows how the benefits are not exclusive to companies adding U.S. jobs, said Barry Ritholtz, chief executive officer of FusionIQ, the provider of equity-analysis software.

“This was all about small companies and startups, not wealthy hedge-fund managers,” Ritholtz said in a telephone interview. “Was this anticipated by the JOBS Act? Well, not if you paid attention to the rhetoric we heard.”

Rob Bredahl, the reinsurer's chief financial officer, did not respond to messages by phone and email seeking comment about plans for hiring or financial disclosure. Elissa Doyle, a managing director at Loeb's Third Point LLC hedge fund, declined to comment.

Confidential Filing
Third Point Reinsurance plans to raise as much as $322.2 million in an IPO, according to an Aug. 5 filing. The company said Loeb's Third Point LLC manages almost all the reinsurer's investment portfolio of more than $900 million. New York-based Third Point LLC managed $13.2 billion in assets as of June 30.

Loeb's reinsurer does not plan to use all the special treatment available in the JOBS Act. It opted out of the ability to be exempt from future revisions of public-company accounting standards, according to filings.

Third Point Reinsurance kept its initial draft IPO prospectus confidential in May while the Securities and Exchange Commission reviewed it. Such confidentiality is permitted for emerging growth companies under the JOBS Act, and contrasts with the usual approach of larger U.S. IPOs.

A revised Third Point Reinsurance filing and the first draft were made public in July.

“We cannot predict whether investors will find our common shares less attractive if we choose to rely on one or more of these exemptions or if our decision to avail ourselves of the reduced requirements may make it more difficult for investors and securities analysts to evaluate our company,” Third Point Reinsurance said in a filing.

JPMorgan, Citigroup
JPMorgan Chase & Co., Credit Suisse Group AG, Morgan Stanley, Bank of America Corp., and Citigroup Inc. are among the banks managing the sale, according to the prospectus.

The reinsurer said it may qualify as an emerging growth company until as late as the end of 2018. Obama said the act was designed to make it easier for companies to get funding.

“Going public is a major step towards expanding and hiring more workers,” Obama said in April 2012 as he signed the JOBS Act. “Our job is to help our companies grow and hire. That's why I pushed for this bill.”

Sixteen of Third Point Reinsurance's 17 employees were based in Bermuda, and the other was in the United Kingdom as of Aug. 5, according to the prospectus. The reinsurer had revenue of $232.9 million in the 12 months through Dec. 31, regulatory filings show.

Reinsurers take part of the risks written by insurers, which limits the need for sales staff and claims-management personnel.

Broad Category
“The reinsurance business is not a people-intensive business that normally results in a high number of jobs created per dollar of capital raised,” Jay Ritter, the Cordell professor of finance at the University of Florida, said in a telephone interview.

“In writing the law, there's always a trade-off between narrowly targeting some special interest group or having it more broad. The JOBS Act is generally in that more- broad category.”

Greenlight Capital Re Ltd., which counts hedge fund manager David Einhorn as its chairman, said in a 2007 registration statement that it ended the prior year with nine employees, all in the Cayman Islands. The count climbed to 26 at the end of 2012, with 22 in the Cayman Islands and 4 in Dublin.

Loeb, Einhorn, Steven A. Cohen of SAC Capital Advisors LP, and billionaire John Paulson have set up reinsurers in Bermuda and the Cayman Islands to invest premiums. The ventures provide a pool of capital for the hedge fund managers that can be less subject to redemption.

Manchester United Plc, the English soccer club that is more than a century old, also invoked the JOBS Act while based outside the United States. The team registered for its August 2012 IPO as an emerging growth company and raised about $233 million in the sale, filings and data compiled by Bloomberg show. Revenue was about 320 million pounds ($507 million) in the year ended June 30, 2012.

Of 62 IPOs completed in the United States in the second quarter, 77 percent were by emerging growth companies, according to PricewaterhouseCoopers LLP.

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