Our newest position, Prudential plc (PUK, Financial), lost 27% during the quarter, contributing 170 basis points to losses after accounting for financial sector hedges. Nothing about the price plunge since we announced our stake has materially changed our outlook for the company or its value potential and we added modestly to our stake near the lows. While we believed initially that the spread of coronavirus would have limited impact on the long-term earnings power of the company’s Asian business and might even drive increased sales and awareness of health and life insurance in the region, we underestimated how concerned markets would be about the ability of Prudential plc’s US subsidiary, Jackson National, to manage through both a sharp market decline and plunging interest rates. Jackson National is a great annuity franchise with significant value but despite this, shares currently imply a negative value for the business in excess of $20B, leading us to believe that Prudential is the most significantly undervalued security in our portfolio. This unfortunate market inefficiency has only made our case for separating Jackson stronger.
In the past few weeks, we have begun a constructive dialogue with management and the Board. Based on these conversations and the company’s recent public statements, we believe that they are considering all options to create more value for Prudential plc, including a full separation of Jackson National. While we appreciate the inherent complexity of such a transaction and the nature of the market environment, we believe that it is imperative that management work with urgency toward our shared goal of improved operations, optimized capital allocation, and creation of long-term value for all shareholders.
From Daniel Loeb (Trades, Portfolio)'s Third Point first-quarter 2020 shareholder letter.
