Delivering Alpha Best Ideas Panel: Mark Kingdon, Chris Hohn, Jim Chanos, Lee Cooperman

The Delivering Alpha Conference today featured a 'best ideas' panel that featured some hedge fund titans including Jim Chanos (Kynikos Associates), Chris Hohn (Children's Investment Fund), Mark Kingdon (Kingdon Capital), and Lee Cooperman (Omega Advisors).  Here's a brief summary of their picks:

Mark Kingdon, Kingdon Capital

Long Japanese automakers: Long Toyota (TM), Long Fuji Heavy (7270.TO) Long Mazda (7261.JP)

He says these companies obviously benefit from Abenomics in Japan.  Toyota he likes as an innovative leader with focus on hybrid technology.  Fuji Heavy (Subaru) is moving from low margin to high margin products.   He says Mazda might have the most upside of the names. 

Chris Cooper-Hohn, Children's Investment Fund

Long Porsche (PAH3.DE) - It's basically a holding company owning 150 million shares of Volkswagen.  If the two merge eventually, the stock doubles.  We've highlighted Hohn's thesis on Porsche before.

Long EADS (EAD.FR) - A liquid large cap with a new focus on making money.  Could double over 2 years. 

Long Aurizon Holdings (AZJ.AU)- Australian railroad, a total turnaround story as the company has transitioned from government-owned to a company more aimed at profit.  He thinks it could double over next 3 years


Lee Cooperman, Omega Advisors

Long Qualcomm (QCOM) - points to a large amount of cash on the balance sheet and a lot of pessimism on the name.

Long Sandridge (SD) - could be a double.

Long Express Scripts (ESRX) - company is growing and buying back stock.  We've also posted up another Cooperman interview recently where he talked about other stocks he likes.


Jim Chanos, Kynikos Associates

Short Caterpillar (CAT) - a bet on China's property development slowdown and he says the company is just exposed to the wrong products at the wrong part of the cycle.  Here's Chanos' pitch on CAT here.

Short Hewlett Packard (HPQ) - he also reiterated his call against the PC, saying it's dying a slow death.  This has been a longstanding short and we've posted up Chanos' thesis on HPQ as he called it a value trap last year.



For more from the Delivering Alpha Conference, head to:

- John Paulson on gold, real estate & merger arbitrage

- Nelson Peltz on PepsiCo & Mondelez

- Larry Robbins & Jacob Gottlieb on healthcare plays

- Carl Icahn on activism 

Nelson Peltz on PepsiCo, Mondelez & DuPont: Delivering Alpha Conference

Trian Partners' Nelson Peltz sat down at the Delivering Alpha Conference today and talked about PepsiCo (PEP), Mondelez (MDLZ) and Andrew Ross Sorkin revealed that Peltz has been building a position in DuPont (DD).

Back in April, we highlighted how Peltz took stakes in both PEP & MDLZ.  At the event today, he laid out two scenarios for PEP which he thinks the company should pursue:


On PepsiCo and Mondelez

1. PEP should buy Mondelez (MDLZ) for $35-38 per share.  MDLZ is part of the split from the old Kraft that broke up into Mondelez and Kraft Foods (KRFT).  MDLZ is seen as the fast growing snacks business (Cadbury etc).

The problem with MDLZ he says is operational.  He loves that the CEO made important strategic moves (splitting up the old Kraft entity), but notes that management really needs to boost margins to catch up with direct competitors.


2. Separate Pepsi's beverage side from its snacks business (FritoLay).  Peltz says that these businesses have dis-synergies and they would benefit from a split.  He says Pepsi's beverage side can go to a cashflow generating company run with appropriate leverage.

Then, Peltz noted that the FritoLay snacks business can flourish on its own and even possibly pursue an acquisition of MDLZ after a potential PEP break up since they're both in the snacks business.

Peltz did acknowledge the secular trend of consumers focusing more on healthy items.  He thinks this is more-so focused on sugary drinks, but does note that sweet/salty snacks could be vulnerable as well.


Peltz's New Stake in DuPont?

Andrew Ross Sorkin also said that sources are pointing to Peltz acquiring a stake in DuPont (DD).  Peltz wouldn't really add any color when asked about it (pun intended).

Embedded below is video of Peltz's interview:



For more on this investor, we've highlighted some of Peltz's trading activity here.


And for more summary of the Delivering Alpha Conference, head to:

- John Paulson on gold, real estate & merger arbitrage

- Best Ideas Panel with Mark Kingdon, Chris Hohn, Jim Chanos & Lee Cooperman

- Larry Robbins on healthcare

- Carl Icahn on activism

John Paulson on Gold, Housing/Real Estate & Risk Arbitrage: Delivering Alpha Conference

John Paulson, founder of hedge fund firm Paulson & Co, sat down with CNBC's Carl Quintanilla at the Delivering Alpha Conference today and touched on numerous topics, mainly focusing on gold and the housing recovery/real estate.  He noted that his returns this year at his main funds range from 5% and 32%.


Paulson on Gold

He's been getting a lot of negative publicity for his Gold Fund.  However, he points out that this fund is only around 2% of his assets under management.  He was looking for a currency alternative to the US dollar in the event we get inflation, and he notes that gold has been an excellent candidate for this in the past.

Paulson said, "Although the Fed has printed a lot of money to date, there is little inflation.  Some (investors) who bought gold have lost patience.  The rationale for owning gold has not gone away.  The consequences for printing money over time will be inflation... it's just difficult to predict when."

He thinks gold is in a 'pause period' right now and sees demand for gold increasing again and points out that it's always been volatile.  He thinks it's an important part of anyone's portfolio.


Paulson on Housing / Real Estate / Land

They took a long-term view on housing, as it's a cyclical area (7 years up, 7 years down).  They saw a peak around 2006 (and shorted subprime) and they think it's bottomed so they've gone long.  He sees it as the beginning of the recovery and said it could last another 4-7 years, inviting others to jump in, saying "it's not too late."

Paulson went on to say, "Buying a home is the best investment an individual can make.  Affordability is at an all time high.  You can lock in rates of a fixed rate mortgage and get the benefits."

He then continued, noting, "I'm not sure (home prices) will increase 10% every 5 years, but probably around 5-7%."

Paulson has exposure in real estate via land as he says land is actually affected the worst in real estate cycles.  He noticed this pattern in the crisis of 1990, so he set up special real estate funds to exclusively buy entitled lots across the country.

Prices fell almost 80% from their peak value in 2006.  They like to buy in distressed situations (from banks, builders, etc) in growth areas of the country.  They've focused on Arizona, California, Colorado, Nevada, and Florida.

They've also played securities:  Before/during the crisis, they shorted BBB tranches, then started buying AAA tranches that fell in price by 40%.

He also highlights his stake in Realogy (RLGY), the largest residential broker in the country (we flagged Paulson's stake in RLGY late last year and also pointed out how Lone Pine Capital bet on RLGY recently as well).

On his bet on the housing recovery, John Paulson said he's as sure of this bet as he was about his subprime short.


Paulson on His Legacy Risk Arbitrage Strategy

Paulson's legacy fund strategy is merger arbitrage.  He talked about how companies he likes to buy are often ones from the announced deals that could get a competitive bid.  He's also looking to see which industries will see consolidation and take a stake in companies that could be takeover targets.

He also talked about his stakes in Sprint and Leap Wireless that have panned out well.

Paulson also noted how there's a lot of talk/chatter in the cable business.  He pointed to John Malone's stake in Charter Communications (CHTR), which he thinks will acquire more cable assets.  While there's been talk of Time Warner Cable (TWC), he says that's a large entity.  He also named Cablevision (CVC) as a potential target, but notes that's up to the Dolan family.

In risk arbitrage, he says "There's always a regulatory risk, and that's an important part of the analysis."

Paulson said he never considered retiring after his successful big subprime bet: "The goal in money management is not to do one great year, it's to compound returns over many years."  He says he'd like to manage money another 20 years, as he admires Warren Buffett and George Soros.

Video from Paulson's interview is embedded below:




For more from the Delivering Alpha Conference, head to:

- Nelson Peltz on PepsiCo & Mondelez

- Best ideas panel with Mark Kingdon, Chris Hohn, Jim Chanos & Lee Cooperman

- Larry Robbins & Jacob Gottlieb on healthcare plays

- Carl Icahn on activism 

Jim Chanos Short Caterpillar (CAT): Delivering Alpha Conference

At the Delivering Alpha Conference today, Kynikos Associates' Jim Chanos laid out the chase to short Caterpillar (CAT).  Basically, he sees CAT as a loser in a commodities super cycle (on the heels of a Chinese construction boom) is coming to an end.

This notion isn't really new from Chanos, as he has repeatedly talked about his bearishness on China property/development.

Chanos says Caterpillar is a great company, but they're essentially levered to the wrong products at the wrong time (the worst part of a cycle).  While it's cheap at 12-13x earnings, he points out that earnings aren't really expected to grow in the next few years (meaningfully above historical levels).

Embedded below is the video of Chanos' idea explained in full:



For more on this short seller, head to Jim Chanos' Sohn Conference presentation on shorting hard disk drive makers.

What We're Reading ~ Analytical Links 7/17/13

Notes from the Delivering Alpha conference: part 1 and then part 2 [Reformed Broker]

There is no such thing as emotionless investing [Abnormal Returns]

Curse of the macro tourists [Big Picture]

Are you guaranteed to lose 3.5% every year? [Pragmatic Capitalist]

Muddy Waters Research negative on American Tower (AMT) [Barrons]

Finding value outside of the US [Institutional Investor]

Lessons learned from well-behaved investors [NYTimes]

NAAIM survey of manager sentiment [NAAIM.org]

Reminder to all investors: bonds are not safe [The Atlantic]

Razors, lighters & pens: a pitch on Societe Bic [Graham Disciple]

High net worth investors taking more risk [WSJ]

3 rules to make your company exceptional [Harvard Business Review]

Carson Block: adventures abroad could hurt US companies [Dealbook]

Meet the man responsible for steering China's currency reserves [WSJ]

Google has discovered a new revenue driver and it's a threat to Amazon [Yahoo Finance]

Carlos Slim invests in Shazam [WSJ]

The Growing Trend of Hedge Funds Starting Reinsurers

In the hedge fund industry, there's a growing trend of managers setting up reinsurers.  While Warren Buffett's Berkshire Hathaway is the most prominent example of using insurance float to invest, many other top managers have started reinsurers, including:

- David Einhorn's Greenlight Capital
- Dan Loeb's Third Point
- George Soros has apparently been involved with 4
- Steve Cohen's SAC Capital
... and many more

Opalesque TV recently sat down with Joe Taussig of Taussig Capital to talk about this trend.  So why have all these funds acquired or started reinsurers?  He notes,

"The primary reason is that the reinsurers are virtually certain to outperform the managers' funds.  Secondarily, the managers obtain assets from sources otherwise unavailable to them and all of these assets are permanent capital.  Tertiary benefits include gentler tax treatment for reinsurers compared to funds in the UK, Canada, Australia, and the US, daily liquidity if the reinsurers become publicly traded, and a better way to monetize the fund manager than selling some or all to a financial institution or doing an IPO."

Some of the publicly traded reinsureres include Greenlight Re (GLRE) and Third Point Offshore (TPOG).

Obviously a major draw is permanent capital.  To truly be a long-term investor, you have to be able to focus on the long-term and not worry about whether or not your investor base is going to pull their capital at the first sign of trouble.  Reinsurers help to partially offset this problem by giving the fund manager stable capital, and in Buffett's case, nullify fickle capital entirely.

Taussig goes into detail explaining this trend, why funds are doing it, and the benefits of doing so in the interview. Embedded below is Opalesque's video:

Coatue's Philippe Laffont on Investing & Career Advice: Interview

Philippe Laffont, founder of hedge fund firm Coatue Management, recently sat down with OneWire to give an interview on investing, his career, how he got started, and advice for others.


Laffont on Investing

On how to think as an investor: "For us, the key to investing is thinking: how can a company perform 3 to 5 years out?  Not to focus so much on the short term, try to see the forest from the trees, think about the long term.  Few people in the market think about the long term, and that's our edge.  It's patience and long term thinking."


On going long:  "The long side is hard because you're trying to project what can happen 5 years out and then come back.  It so happens, it's much easier to disprove things."


On short selling:  "If there's enough red flags, sooner or later it's like a sand castle, there's too many bad pillars.  Sooner or later, the castle crumbles.  The short side is more about pattern recognition and seeing odd things.  If there's enough odd things, that leads you to believe the company is wrong.  There's a second type of short, which is opposite of your long, which is: if Google does well, the Yellow Pages are probably not going to do well.  If Apple does well, that's probably not great for Nokia/RIM.  So that's the sort of thesis/anti-thesis winner vs loser. There's a whole big other group of shorts that are like strange anomalies that you have to pick."


On Coatue's beginnings:  "We started with $50 million in 1999.  In our first few years, the Nasdaq was down 80%.  In your professional life, more than once, you're going to come across something that goes absolutely the opposite way of what you were hoping."


On how he started as an investor:  ""We (he and his brother) started buying tech stocks in the 90's, blue chip's like Microsoft, Intel, stuff we knew (like Peter Lynch's approach).  We confused luck with skill.  But nevertheless, it gave us the passion.  If the market had gone down in those three years, I would have been doing something else.  The luck is very important."


Laffont's Career Advice

His advice: "The career advice I would have for people, is you need to do two things when you graduate. You need to do them both passionately. You need to do one thing passionately that is the obvious thing that you are supposed to do after you graduate (if you are in business, go to Goldman Sachs or Morgan Stanley).  At the same time you do that, in my mind, you need to do one thing completely off the beaten path, but also passionately.”

If you're seeking an investment career, he strongly advocated going to the big investment banks for 2-3 years in a "competitive" environment because you'll get the training you need, you'll see if you have the passion for it, and you'll learn a lot.

On seizing the moment: "When someone opens a door for you.. and everyone in life will have a few times doors opened... you have to come to that meeting prepared to achieve one thing.  For me, I knew I would speak with (Julian Robertson) for 1 minute, I went right for it (asking for a job)."


For more on Coatue's founder, we posted up Laffont's most recent media appearance on technology trends.

Embedded below are the videos of Laffont's OneWire interview, h/t to ValueWalk:

Video 1




Video 2



For other rare interviews with 'Tiger Cub' hedge fund managers, we also posted up Viking Global's Andreas Halvorsen and his thoughts on investment process.

Ruffer Investment Company on the 3 Arrows of Deflation: Q2 Letter

Jonathan Ruffer is out with his Ruffer Investment Company Q2 letter.  This time, the commentary is written by Henry Maxey.  Maxey joined Ruffer in 1998 and became Chief Executive in April 2012.  Entitled "Three Arrows of Deflation," the Q2 letter addresses what they think will control the direction of markets over the coming year.

Maxey lays out the situations in Japan, US and China and labels them "a three-way disinflationary impulse in an otherwise powerfully reflationary world."

Embedded below is Ruffer Investment Company's Q2 letter:
























As we've noted a few months ago, Ruffer was reducing equity exposure and adding interest rate hedges.

What We're Reading ~ Hedge Fund Links 7/12/13

Hedge funds are for suckers [BusinessWeek]

Kyle Bass: China could see 'full scale recession' next year [ValueWalk]

JOBS Act: On hedge fund marketing strategies [AllAboutAlpha]

Perry Capital sues US Treasury over Fannie & Freddie dividends [FT]

Also,  here's Berkowitz's legal filing re: Fannie/Freddie [Reuters]

Ackman's Pershing Square trying to raise $ for single-stock fund (AGAIN) [Reuters]

Eddie Lampert's troubles at Sears [BusinessWeek]

Are hedge funds worth the money? Depends on who you ask [Forbes]

Even more negativity: don't invest in hedge funds [The Atlantic]

A label for activist investors that no longer fits [NYTimes]

RenTec's Jim Simons: strategy to shield profit from taxes draws IRS ire [Bloomberg]

Investment banks eye hedge funds for the masses [CNBC]

For financial geeks, a do-it-yourself hedge fund site [Reuters]

A hedge fund investing in soccer stars [Bloomberg]

Hedge fund superstars earn extreme wealth through increasingly scalable tech [HFI]

Major Vivus shareholder to support activist's slate [Hedgeworld]

Dubin gives up CEO role at Highbridge Capital [WSJ]

For readers down under: John Hempton's Bronte Capital is hiring [Bronte]

What We're Reading ~ Analytical Links 7/10/13

On saving investors from themselves [WSJ]

Smart and stupid arguments for active management [Reformed Broker]

Incorporating right-brain thinking into your investment process [Investing 501]

How gold lost its luster [The Big Picture]

A dozen things I've learned about the psychology of investing [25iq]

Steel: an inferno of unprofitability [The Economist]

On dealing with a rising interest rate environment [WSJ]

30-year mortgage rates surge to highest level in 2 years [Zillow]

The Dow Jones Index between 1789 and today [Go Infront]

MJN, ABT, NSRGY: China investigates foreign makers of baby formula [WSJ]

DVA: dialysis pay would drop $970 million under CMS proposed rule [BNA]

DIS: An interview with head of ESPN John Skipper [HollywoodReporter]

Talk of mergers stirs cable TV's big players [NYTimes]

Labor market spider chart [Federal Reserve Bank of Atlanta]

The best investment advice you'll never get [San Francisco Magazine]

Merchant banks make a comeback [WSJ]

The scam Wall Street learned from the mafia [Rolling Stone]

A report on Corrections Corp of America (CXW) [Scribd]

Introducing the Winklevoss Bitcoin trust [FT Alphaville]

Investment Thesis on Altisource Portfolio Solutions (ASPS)

The following is a guest post from Glenn Chan who is passionate about investing and maintains a blog at glennchan.wordpress.com.  He is based in Toronto and is currently looking for a position as a junior analyst.  He can be contacted at: glennchan [at] gmail [dot] com


Investment Thesis on Altisource Portfolio Solutions (ASPS)

Altisource is a rapidly-growing business that is riding the trend of financial companies outsourcing their mortgage servicing.  The process of servicing mortgages has become more complex as the US government continually adds more regulations to protect homeowners from foreclosure.  The cost of complying with government regulations and creating automated systems to handle mortgage servicing is mostly fixed.  These economies of scale will likely push the industry towards consolidation.

Altisource has grown its revenues per share by an incredible 36%/year from 2008-2012 (historical stats) and currently trades at a P/E ratio of 21.6 (at $97.36/share).  Its growth next year is practically guaranteed due to its unique relationship with Ocwen Financial (OCN).  ASPS' forward P/E is roughly 11.8 (according to Yahoo Finance).  I believe that Altisource is the best managed mortgage servicer in its field. 


History and Financial Structure

Altisource spun off from the parent Ocwen in 2009.  Altisource contains the “good” high-margin businesses while Ocwen is the “not as good” business with lower returns on capital.  Interestingly enough, the CFO at the time (Robert D Stiles) chose to jump ship and join the smaller company.  I’m guessing his stock options have done well since Altisource shares are up 508% since the spinoff.

Normally one would stay at the larger company as it is likely to pay a larger salary.  He had the foresight to jump ship to the rapidly-growing Altisource.  As the CFO, he structured Altisource as a Luxembourg company so that Altisource would save money on taxes.  I personally think that he is a very smart guy.  Unfortunately, he resigned on Feb 22, 2012.  Some of the clauses in his separation agreement suggest that he and his bosses had disagreements.  For example there is a clause that states: “The undersigned Managers agree not to disparage Stiles.”  I suppose I won’t know what happened.

One key aspect of the spinoff is that Ocwen has to use Altisource’s services.  This means that whenever Ocwen sells shares or raises debt to buy mortgage servicing portfolios, it brings business to Altisource.  Altisource does not have to spend money on attracting this new business.  And of course it grows when Ocwen grows.  The financial structure also allows Ocwen to grow very quickly through selling stock, allowing both companies to enjoy economies of scale.  If the endgame of the mortgage servicing industry is ‘survival of the biggest’, Ocwen and Altisource are well positioned.  Unlike Ocwen, Altisource will not face share dilution.  Altisource is buying back its shares, not selling them.


The Other Spinoffs and IPOs

William C. Erbey is the chairman of Ocwen and Altisource.  His empire has since expanded into even more companies.  Home Loan Servicing Solutions (HLSS) is an new company that raised funds in an IPO.  It will focus on owning mortgage servicing rights (MSRs).  HLSS use services from Ocwen and Altisource at cost plus a 15% markup.

Altisource split up into three stocks, of which there are four important entities:

ASPS - The parent company.

RESI - Altisource Residential.  RESI’s business model is to (A) buy and manage portfolios of non-performing and sub-performing mortgages and (B) rent out the homes they get stuck with whenever foreclosure cannot be avoided.  This is a new venture that has no operating history.  ASPS will benefit from growth in RESI as ASPS will provide services to manage RESI’s real estate.

AAMC - Altisource Asset Management.  AAMC is RESI's asset manager and is entitled to payments from RESI based on the level of RESI's dividend payments.

NewSource Title Reinsurance.  NewSource will provide title insurance services to Altisource/ASPS and RESI.  The financial structure is very tricky as all three companies have different positions in its ownership structure.  AAMC will invest $2M in NewSource equity while RESI will invest $18M into NewSource non-voting preferred shares (12% dividend).  ASPS will provide services to NewSource under a Title Insurance Services Agreement.  ASPS will receive 90% of NewSource’s net income after “NewSource pays Residential a preferred dividend of 12% (which is an annual cumulative rate)”.

RESI will receive a 12% dividend yield... this is a good return.

AAMC will receive $840K (adjusted by CPI) in management fees from NewSource plus 10% of net income.  This is a very high return for a $2M investment.  Net income will likely consist of returns from the insurance float and profit from title insurance/reinsurance, which has extremely high margins.  When homeowners buy a house, they typically go with the mortgage originator’s recommended title insurance company.  They overpay for title insurance because:

1. They may not know any better.
2. Compared to the cost of the house, title insurance costs very little.
3. They may not want the inconvenience of shopping around for title insurance.  A different title insurance company can lead to paperwork delays.

ASPS is the loser in this deal in my opinion.  ASPS will be directing its profitable title insurance/reinsurance business towards NewSource where RESI and AAMC will take their cut.  NewSource is expected to have a “steady stream of title insurance and reinsurance sourced by Altisource through its relationships with Ocwen and Lenders One, a national alliance of leading community mortgage bankers, correspondent lenders and suppliers of mortgage products and services” (see AAMC’s filings).

OCN, RESI, and HLSS will likely continue to raise capital and continue to do secondary offerings.  They will drive more business towards ASPS and AAMC.


Following the Money

Overall, Erbey's stock ownership looks something like this:

1. Altisource Asset Management (AAMC): 30.1% according to this 13D filing
2. Altisource (ASPS) – 25.4% (5,935,343 shares / 23.36M shares outstanding)
3. Ocwen (OCN) – 13.2%
4. Altisource Residential (RESI) – 9.9% after the secondary offering closes according to this 424B1 filing
5. Home Loan Servicing (HLSS) – 2.8%

Based on these ownership figures, AAMC and ASPS are the stocks to own.

Erbey owns a larger portion of AAMC than ASPS due to unvested restricted shares.  The 3-way split of ASPS/RESI/AAMC may have been designed to be beneficial to Mr. Erbey as he increased his ownership of the most desirable spinoff.  However, AAMC is quite overvalued at the moment so I am not interested in it.


Institutional Ownership

(This section by MarketFolly): Numerous hedge funds have been involved in OCN and we posted up how Steve Eisman pitched OCN at the Ira Sohn Conference.  Additionally, OCN has been analyzed in past issue of our Hedge Fund Wisdom newsletter.

Turning to top institutional owners of ASPS, Omega Advisors' Lee Cooperman is one of the largest owners of ASPS (he also owns OCN).  In a recent interview he said he likes both as housing proxy plays.

Other top holders of ASPS at the end of Q1 included Matt Iorio's White Elm Capital.  Prior to founding White Elm, Iorio worked at Steve Mandel's Lone Pine Capital.  Like Cooperman, Iorio owns both OCN and ASPS (and both were top 5 holdings at the end of Q1).

In White Elm's Q2 letter, they note:

"Altisource now trades at 10x 2013E consensus earnings per share.  Investors appear to be discounting (1) a material decline in foreclosure activity and (2) ongoing payments from Altisource to help fund Ocwen's future acquisitions.  These concerns are perplexing given that Ocwen's growth has virtually guaranteed a large pipeline of foreclosed properties for Altisource over the next three years and the non-default businesses are growing rapidly.  Over the next three years, we expect Altisource to grow earnings per share at a compound annual rate of nearly 40% and generate approximately $30 per share in free cash flow (or almost 40% of its current market value).  Based on our earnings growth expectations and assuming a modest multiple of 12x 2015E EPS, we believe our road-map to a three-year double with Altisource is achievable."

Quant firm Renaissance Technologies is also one of the top holders at of the end of Q1, though the position size was only a miniscule portion of their overall portfolio.  We won't see who the top holders as of Q2 were until mid-August due to SEC delay rules.  Now back to the rest of Glenn's writeup:


Industry Overview

The Mortgage Lifecycle

On a mortgage, the lender has to handle paperwork and mortgage payments.  If the homeowner is late on payments or stops paying entirely, then the lender has a lot more work to do.  The lender may try to negotiate with the homeowner to get back on track with paying their mortgage.  It may try to get the homeowner to participate in government programs designed to keep people in their homes (in the wake of the subprime housing crisis there are a lot of these programs).  It may try to work with the homeowner on a short sale to avoid the costs of a foreclosure.

Some mortgages will end up in foreclosure.  There are many laws and regulations designed to protect homeowners during the foreclosure process.  Lenders have compliance costs in making sure that they follow all laws and regulations.  After the lenders initiate the foreclosure process, things get really messy.  Ex-homeowners often completely trash the property and may steal appliances, wiring for scrap metal, etc.  Before the property is ultimately sold to a retail consumer, the property will need to be cleaned up and repaired.  Some people squat in their home and may return to it even after they are kicked out; this can sometimes create scary situations for others who are cleaning up the property.  Some lenders don’t want to deal with foreclosure-related problems so they will sell houses to investors for them to fix.  These houses are often sold at large discounts.  Or, they may pay fees to companies like Altisource to clean up the property.  As an alternative, the lender could hold onto the property and rent it out (this is Altisource Residential’s business model).

Mortgage servicers may handle some or all aspects of the mortgage lifecycle.  Some aspects of the mortgage lifecycle are very open-ended and create opportunities for adding value.


Ocwen/Altisource's Performance

A WSJ article makes the following points about Ocwen/Altisource:

- It "has won praise from consumer advocates for its willingness to re-work mortgages and help struggling borrowers stay in their homes".
- The vast majority of its labour force is in India and offshore.  While this lowers costs, there are some concerns about protection of personal data and regulatory compliance.
- It has many offshore incorporations to keep taxes down.

Ocwen/Altisource tries to automate as much as possible.  For example, delinquent mortgagers are sent multiple letters and a DVD explaining the situation (e.g. how to apply to HARP).  This saves time from having a call center employee repeat information to mortgagers.  However, there is still a need for trained call center workers as not everything can be automated.  On Ocwen’s website there is a Morningstar “Operational Risk Assessment” report that contains a lot of detail on Ocwen’s operations.

As for foreclosures, Ocwen/Altisource tries to minimize its sales commissions by running its own real estate portal (Hubzu) and offering real estate agents lower commissions.  Moving away from the traditional MLS models allows Ocwen/Altisource to lower their costs.  Not surprisingly, real estate professionals complain about this (see complaints about Hubzu/gohoming.com/Ocwen/Altisource on pissedconsumer.com).  For activities that require a human touch, Ocwen/Altisource is not perfect.  The complaints page on pissedconsumer.com does suggest that Ocwen/Altisource employees do make mistakes.  The webpage also suggests that Hubzu has a problem with fake bids.


Does Altisource Enjoy a Competitive Advantage?

Labour arbitrage:  I don’t know why but it seems that Altisource’s competitors have not set themselves up to use offshore labour.  Publicly-traded competitors such as Walter Investment Management (WAC) and Nationstar (NSM) only employ Americans.  Outsourcing labour to foreign countries is a difficult problem.  The problem is difficult enough that there are publicly-traded companies which specialize in it (G, CTSH).

Software:  Starting a successful software company is very difficult.  One of the hardest things to do is finding great programmers.  Joel Spolsky (he runs his software company) has a blog post that explains why the process is difficult.  Simply running a software company is very difficult by itself.  It’s even more difficult if you add in the complications of running a foreign operation.  My opinion is that the labour arbitrage is very difficult to pull off.  I don’t know how well Altisource has pulled off its labour arbitrage.  However, Altisource is highly profitable and has many job postings for Indian programmers/developers.

Business processes: Altisource is much better than its peers at working with delinquent mortgagers at restructuring loans.  I don’t know how easy/hard it is to duplicate this.

Overall, I don’t think that Altisource’s high margins are based on a single thing.  It is a combination of many things that they do well.  The Morningstar report referred to earlier “Operational Risk Assessment” provides a lot of insight into the many things that Altisource is doing.  Some of their practices seem to require hard-won experience.  Altisource takes many steps to prevent payment processing employees from stealing (e.g. video surveillance, no drawers in the room, etc.).

Scale:  I believe that scale gives a minor cost advantage.  Ocwen/Altisource is not the largest mortgage servicer however.  This Reuters article states that big banks such as BAC, Wells, Ally, JPM, and C are the leading mortgage servicers.  All five of these banks paid settlements over robo-signing… this suggests that they are not very good at mortgage servicing.  All these banks let ex-homeowners squat in their own homes without paying their mortgages for years during the subprime housing era (including Wells Fargo, a Warren Buffett favorite).  I think that Altisource is well-positioned against these larger mortgage servicers.  Ocwen has bought Ally’s Rescap unit and Goldman Sach’s Litton Loans.

Relationship with Ocwen:  Altisource’s relationship with Ocwen has been hugely beneficial for Altisource since Ocwen is a captive customer.  Better yet, Ocwen has been continually issuing equity and increasing its assets.  Altisource has been growing without having to spend advertising/marketing money to get more business from Ocwen.  However, Altisource would still do extremely well without Ocwen.  Ocwen’s share of Altisource’s mortgage services revenues has been declining as organic growth from non-Ocwen customers has exceeded Ocwen’s growth.  The 10-K provides relevant figures:

In 2010, related parties accounted for 73% of Altisource's mortgage services revenue.
In 2012, related parties accounted for 68% of Altisource's mortgage services revenue.


The Future of the Mortgage Servicing Industry

My guess is:

1. The major banks will get out of mortgage servicing and outsource.  They don’t seem to be very good at it (e.g. robo-signing)… engaging in illegal activities suggests incompetent management.

2. The trend towards outsourcing mortgage servicing will continue.  I think that this financial innovation does create value as companies that specialize in it have done a better job than the vertically-integrated operations of major banks.

3. The industry will consolidate into fewer players.  The cost of regulatory compliance will limit the number of new competitors.

4. My thinking is that Altisource has executed very well compared to industry peers such as Wells Fargo.  Altisource didn’t allow squatters to live rent-free for years.  It didn’t engage in robo-signing.  And it isn’t facing a litany of lawsuits for improper behaviour (simply go Google “Wells Fargo mortgage lawsuit“).  In one instance Wells Fargo, the judge characterized Wells Fargo’s behaviour as “highly reprehensible” and issued a $3.1M fine.

5. Out of the publicly-traded mortgage servicing-related stocks, I think that Altisource (ASPS) will do better than Ocwen (OCN), Walter (WAC), and Nationstar (NSM).  Its share price has certainly outperformed its peers.

Does Management Have Integrity?

Operationally, I think that the company is very ethical.  They have not done anything illegal such as robo-signing.  And they work hard to keep mortgagers in their homes.

As far as management goes, one could make some arguments against Mr. Erbey’s ethics.  Some articles in the press have commented negatively on the fact that Ocwen overpaid for Bill Erbey’s Atlanta multimillion dollar home.  (An 8-K filing shows that Ocwen paid $6.5M.)  However, people deserve to be fairly compensated when they have to relocate for employment.  Mr. Erbey can’t exactly enjoy his Atlanta home while working in the US Virgin Islands.  The 8-K states that he will be working on setting up Ocwen Mortgage Servicing, a new subsidiary.  AAMC is also headquartered in the Virgin Islands while Altisource is headquartered in Luxembourg.

As far as the ASPS/AAMC/RESI spinoff goes, the spinoff slightly enriches Mr. Erbey due to his restricted stock grants at AAMC.  It’s kind of sneaky that Altisource is funneling profits into NewSource, of which AAMC will likely be the greatest beneficiary.  A small amount of wealth may be transferred from Altisource to AAMC.  Erbey will own more AAMC than Altisource.  Overall however, Mr. Erbey compares favorably to John Malone.  Malone’s spinoffs are far more complicated and craftier.  Malone takes steps to goad institutional investors into making mistakes; Erbey has not done that.

As far as insider compensation goes, it is reasonable.  According to the SEC filings, the directors range in compensation from $52,900 to $162,990 (Mr. Erbey is the highest-paid director).  William Shepro, the CEO, has had his compensation range from $1.4M to $4.4M.  His Altisource shares are worth about $30M ($96.16 X 311.327 shares) so he has plenty of skin in the game.  The level of compensation paid to insiders doesn’t seem that out of line compared to other public companies.  I believe that the value management has created far exceeds their compensation.


Accounting Tidbits

The depreciation method used by Altisource is fairly reasonable if not on the overly conservative side.  Most of Altisource’s fixed assets consist of computer hardware and software.  These are depreciated over 2-3 years.  It is highly likely that Altisource continues to use computer hardware and software that is over 2-3 years old.  These assets would be carried at a value of 0 yet have a market value slightly above that.  Altisource’s accounting looks very reasonable to me and I do not see any signs of overly aggressive accounting.  Unlike other companies, Altisource does not capitalize any internal software development costs.  (Capitalizing software costs will increase reported profits.)


Hidden Assets

The relationship with Ocwen is arguably very beneficial to Altisource.  In the short term, Altisource is guaranteed to grow as Ocwen has significantly increased its loan base.  Altisource owns Hubzu.com (formerly GoHoming), which is an online real estate portal.  The site is being opened up to third-party listings.  In theory, this property can provide serious competition to the traditional real estate model and their MLS (multiple listing service) systems.  This could potentially turn into a business with very high returns of equity if it becomes more popular.  Hubzu has many competitors in this space including RedFin.  Management may try to IPO Hubzu given that other Internet companies have been fetching high valuations in the past few years.


Hidden Liabilities

As discussed before, the deal with NewSource funnels some value out of Altisource.


Other Deals Between Altisource and Ocwen

Altisource has used $200M of debt (maybe around 2 years worth of earnings) to buy servicing businesses from Ocwen.  Ocwen acquired those businesses when it made its large loan portfolio acquisitions.

Considering that Mr. Erbey owns a greater percentage of Altisource than Ocwen, this deal will likely be fair to Altisource shareholders.


Capital Allocation

Altisource has stated their share repurchase policy in their 10-K:

"We seek to deploy excess cash generated in a disciplined manner. Principally, we will continue to reinvest excess cash in developing compelling services that we believe will generate high margins. In addition, we may seek to acquire a limited number of complementary companies that fit our strategic objectives. Finally, given the tax inefficiency of dividends, the low returns earned on cash held and our current belief to pursue a limited number of acquisitions, we believe one of the best ways to return value to shareholders is through a share repurchase program."

For the most part, they have done what they said they would do.  Altisource has been buying back its shares at prices lower than the current market price.  However, the part about “the tax inefficiency of dividends” doesn’t entirely make sense.  The ASPS/RESI/AAMC spinoff can be seen as a ‘tax inefficient dividend’ and caused shareholders to pay taxes right away.  It was not structured in a way that deferred taxes.  On the other hand, the spinoff should work out fine.  RESI was able to raise a very large amount of capital, driving new business to Altisource.  This will likely compensate for the tax inefficiency of the spinoff.


The Big Picture

Warren Buffett wrote in his 1989 letter to Berkshire shareholders:

"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.  Charlie understood this early; I was a slow learner.  But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements."

I think that Altisource satisfies both criteria of a first-class business and a first-class management. It should be a business that will be able to compound capital at high rates for a very long period of time.

I believe that the mortgage servicing industry has good economics.  It does not have the boom/bust cycles of commodity industries.  And it does not face the risk of a technological shift that makes the industry obsolete (think phone book directories, bricks and mortar stores that compete directly with Amazon, etc.).  On the other hand, mortgage servicing is a very tough field considering that the major banks have done a bad job at it and had to pay settlements.  They may be trying to sell their mortgage servicing businesses because they are losing money at it.

Altisource’s management is excellent.  However, if management were to leave, I’m not sure if the company will continue to do as well.

Overall, I see Altisource as a very attractive growth business with low risk and a reasonable valuation.


Other Considerations

ASPS Versus AAMC

In theory, AAMC is ‘better’ than ASPS because ASPS is structured to drive title insurance business towards AAMC (in the same way that OCN drives business towards ASPS).  However, AAMC’s current valuation is ridiculous.

AAMC’s main assets are:

1. 10% of NewSource’s profits.
2. An agreement that entitles it to management fees from RESI.

At $270/share, AAMC’s market cap is a $632M.
At $17.55/share, RESI’s market cap is $400M (22.8M shares after the secondary offering).
At $96.16/share, ASPS’s market cap is $2,228M.

For $400M, you can buy RESI outright.  So #2 can’t be worth more than $400M.  This implies a valuation of >$232M for #1.  If 10% of NewSource’s profits is worth >$232M, then NewSource in its entirety would be worth >$2,320M.  >$2,320M is more than Altisource’s entire market cap.


Erbey's Insider Trading

Looking at Erbey’s trades, he has made small sales of ASPS and OCN while he has been making small purchases of HLSS.  I am not going to read too much into these sales and purchases.  Erbey had legitimate reasons to sell stock as he needed to pay taxes on the ASPS/AAMC/RESI spinoff as the spinoff was not structured in a tax-efficient manner.  Erbey also needed money to startup HLSS as he invested $10M in the HLSS IPO.  Underwriters like to see that company insiders have some skin in the game as it aligns their incentives closer to that of shareholders.  (Of course if investors were smarter they would probably just buy ASPS instead.)  Erbey’s open market purchases of HLSS helps to promote the stock and helps HLSS in raising capital.

Overall, I think that Erbey’s ownership of ASPS and AAMC will increase over time while his ownership of RESI, OCN, and HLSS will decrease over time

*Disclosure:  Long ASPS.  Not long AAMC, RESI, HLSS, OCN at time of write-up.


Thanks again to Glenn Chann for the write-up.  He is based in Toronto and is currently looking for a position as a junior analyst.  He can be contacted at: glennchan [at] gmail [dot] com

Berkshire Hathaway Buys More DaVita (DVA)

Warren Buffett's Berkshire Hathaway filed a form 4 with the SEC regarding their position in DaVita (DVA).  Per the filing, Berkshire has disclosed that they purchased 639,200 shares on July 2nd and 3rd at weighted average prices ranging from $112.35 to $116.41.  After all purchases, Berkshire now owns over 15.6 million shares of DVA.

DaVita shares have recently been hit on news that a proposal by the Centers for Medicare and Medicaid Services would decrease payments to dialysis facilities by $970 million in calendar year 2014 (more details here).

Berkshire has been slowly building a large stake in DVA and we've detailed their previous purchases.  This coincided with new portfolio manager Ted Weschler joining the Berkshire team (DVA was a top holding at his previous hedge fund).

Berkshire originally built their position in DaVita between $70-85 it looks like and they've slowly added to the stake each quarter, recently buying at around $110 and now again at the prices outlined above.

Per Google Finance, DaVita is "is a provider of dialysis services in the United States for patients suffering from chronic kidney failure, also known as end stage renal disease (ESRD)."

For more from this manager, we've also highlighted some other recent Berkshire Hathaway portfolio activity.

Strategist Jeff Saut Cautious, Says To Raise Cash Levels

Market strategist Jeff Saut is out with his latest commentary entitled "Rosebud" where he outlines his slightly cautious approach to the markets this month, expecting a pullback while citing impending Bernanke testimony and rhetoric about sequestration slowing the economy.

Saut also poignantly points out that,

"Reinforcing my cautionary view is a stock market axiom I learned from an old Wall Street wag in the 1970s that states, “When  they start running the ‘dogs,’ it’s time to begin looking over your shoulder.”"

He then goes on to cite that the 50 smallest stocks in the S&P 500 jumped almost 22% in the first half of the year while the 50 largest only gained 13.3%.

Saut's recommendation for the near-term is to raise cash levels.

Embedded below is Jeff Saut's weekly commentary, "Rosebud":




You can download a .pdf copy here.

If you missed his commentary last week, Saut sees a decline followed by a higher market by year-end.

Strategist Jeff Saut Sees Decline This Month But Higher Market By Year-End

This week market strategist Jeff Saut has penned his latest commentary on how many investors are "wired backwards" and love to buy when the market has headed higher and often dump stocks when the market has declined and offered compelling entry points.

Saut writes,

"The reality is that when you have a 'fell good' environment, the game is usually in the late innings.  As often stated, 'the equity markets do not care about the absolutes of good or bad, but rather are things getting better or worse.  An, things are definitely getting better.  However, in my speaking tour last week most investors don't believe it.  Nor do they believe the stock market has been rising because things are getting better.  Indeed, many of the folks I talked to believe the only thing buoying the stock market has been the Federal Reserve."

Saut actually thinks that the market could see its first meaningful decline of the year this month.  At the same time, he feels the S&P 500 will pass the high from late May by year-end.

Embedded below is Saut's weekly commentary:




You can download a .pdf copy here.


For more from this strategist, head to Saut on characteristics of market breakouts from big bases as well as Saut on the odds of a new secular bull market.

Third Point Offshore June Exposure Report

Dan Loeb's hedge fund Third Point Offshore returned -1.8% in June and is up 12.6% year-to-date according to their June performance report.

Exposure Levels

Third Point was 62.2% long and -14.7% short equities during the month, leaving them with 47.5% net long equity exposure.  Compared to May, they reduced gross exposure, but their net exposure remains the same.

In credit, Third Point is 37.8% long, -5.8% short, leaving them 32% net long.  This is largely the same as the month prior.

Geographically, they're net long the Americas by 61%, EMEA at 8% net long, and Asia at 14% net long.  The only changes here compared to May are a 1% increase in America exposure and a 1% decrease in Asia exposure.


No Longer Reporting Top Holdings

The big takeaway here is that Third Point is no longer disclosing its top 10 holdings and top winners/losers each month.  They used to report this information in their Offshore report, but are no longer doing so.

For the most recent info we have seen, head to Third Point's recent portfolio activity here and you can also check out Dan Loeb's latest letter to Sony.

George Soros on Why We Need to Rethink Economics (Video)

Today we're posting a short interview with legendary investor George Soros.  He's also the co-founder of the Institute for New Economic Thinking and he tackles the question of what's wrong with economics and what can we do to change it?

Embedded below is the video of George Soros on why we need to rethink economics:



While Soros is not involved in the day-to-day affairs, we've posted some of the recent portfolio activity from his family office, Soros Fund Management.

Google Reader Users: Last Chance To Find A New Way To Receive Market Folly's Posts; Instructions Below

After this weekend, Google Reader will no longer exist.  If you've been receiving Market Folly's free updates via RSS feed and use Google Reader, you need to find a replacement ASAP otherwise you'll miss our posts going forward!


How To Continue Receiving Market Folly's Free Updates


Option #1:  Sign up for our free emails.  All of our posts from the day are aggregated into 1 email and sent out in the afternoon for free. 

Click here to receive our free email updates.  Make sure you click the activation link you receive in your inbox to confirm, otherwise you won't receive our posts!


Option #2: Pick a new RSS reader to replace Google Reader 

Step 1: Here are some good options:

The Old Reader - very similar look and feel to Google Reader

Feedly - a popular new choice, but features a different layout

NewsBlur - web-based option

Netvibes - another web-based choice


Step 2:   After you've chosen a new RSS reader, make sure you click here to add Market Folly's feed to your RSS reader for free.



*** Sign up for our email updates or find a Google Reader replacement before this weekend, because if you don't you'll miss our future posts! ***


Market Folly now has over 17,800 subscribers with readers from practically every major hedge fund, investment bank, and tons of other money managers.  Thanks for reading!  Questions?  Don't hesitate to reach out: marketfolly (at) gmail (dot) com

Corvex Management Exercises Call Options on TW Telecom

Keith Meister's hedge fund firm Corvex Management has filed an amended 13D with the SEC on shares of TW Telecom (TWTC).  Per the filing, Corvex has revealed a 6.03% ownership stake in TWTC with 9,069,224 shares.

Corvex's filing indicates they've exercised all call options that we originally outlined when the hedge fund first filed a 13D on TWTC back in May. This latest filing was due to exercise of options on June 27th.  All of their put options expired/terminated as well.  You can view their options activity at the very bottom of this link.

We previously posted Keith Meister's presentation on TWTC from the Ira Sohn Conference where he outlined that it could be a possible takeover target, is a market share gainer, and has balance sheet optionality. 

Per Google Finance, TWTC is "a national provider of managed network services, specializing in business Ethernet, data networking, Converged, Internet protocol-based virtual private network (IP VPN), Internet access, voice, including voice over Internet Protocol (VoIP), and network security services to enterprise organizations, including public sector entities, and carriers throughout the United States, including their global locations."

What We're Reading ~ Hedge Fund Links 6/28/13

Glenview Capital explains grand gains [Hedge Fund Intelligence]

The 2013 hedge fund rising stars [Institutional Investor]

Kyle Bass: Next 18 months will redefine economic orthodoxy for the west [ZeroHedge]

Dalio's Bridgewater seen as a loser in market sell-off [Reuters]

For Third Point manager, it's not easy being short [CNBC]

John Paulson cashes in on CNO Financial bet [Indianapolis Business Journal]

DoubleLine's Jeff Gundlach bought agency MBS in recent days [WSJ]

Hedge fund managed accounts get serious attention [P&I]

A new crop of faces for the hedge fund hall of fame [II Alpha]

Another recent interview with Whitney Tilson [Motley Fool]

David Einhorn playing in the one drop poker tournament [Pokernews]

Marcato Capital Management Trims CyrusOne (CONE) Position

Mick McGuire's hedge fund Marcato Capital Management has filed a Form 4 with the SEC regarding shares of CyrusOne (CONE).

Per the filing, Marcato has sold 383,000 shares on June 26th at prices ranging between $18.95 and $19.10.  After the sales, the hedge fund still retains a position of just over 2.2 million CONE shares.

We previously posted about Marcato's CONE stake in April.

McGuire originally pitched CyrusOne as an idea as part of Cincinnati Bell (CBB).  CONE was spun-off from the company via an IPO.  He pitched CBB/CONE at the Great Investors' Best Ideas investment symposium in Dallas late last year. 

Per Google Finance, CyrusOne is "a owner, operator and developer of enterprise-class, carrier-neutral data center properties. The Company provides mission-critical data center facilities that protect operation of information technology (IT) infrastructure for approximately 500 customers. As of September 30, 2012, the Company’s property portfolio included 23 operating data centers in nine markets: Austin; Chicago; Cincinnati; Dallas; Houston; London; San Antonio; Singapore, and South Bend providing approximately 1,630,000 net rentable square feet (NRSF) and powered by approximately 125 megawatts of utility power."


To hear McGuire's latest investing ideas, register for the Value Investing Congress where he'll be speaking in September, along with other prominent hedge fund managers.  Market Folly readers receive a discount to the event here.

What We're Reading ~ Analytical Links 6/26/13

10 risks we face right now [TheStreet]

On the Sharpe ratio [Research Puzzle]

Value badly lagging glamour: value premium is now a discount [Greenbackd]

Taking a deeper look at Rosetta Stone (RST) [Investing 501]

On the Fed and interest rates [Aswath Damodaran]

Interview with Liberty Media's (LMCA) John Malone [Denver Business Journal]

If cable is dying, why is it still making so much money? [TheAtlantic]

Nook sales tumble 34%, Barnes & Noble rethinks strategy [CNN Money]

Owens Illinois (OI): Glass bottles lend pop to soda makers [WSJ]

Barron's midyear 2013 roundtable [Barrons]

Why boring stocks beat exciting ones [WSJ]

On the IRS' study of REITs [FT]

Government Accountability Office says airline merger reduces competition (duh) [NYTimes]

On art as an investment [NPR]

Inside story of fraud at Ranbaxy, Indian drug company [Fortune]

Larry Robbins Rare Interview on HMA, Tenet & What He Thinks About This Market

Larry Robbins' hedge fund Glenview Capital is having another big year.  This is on the heels of stellar 2012 performance as well.  Robbins made a rare media appearance on CNBC to talk about how he's looking to replace 8 board members at Health Management Associates (HMA).


Robbins on HMA

Given that Robbins has essentially gone activist here (he calls it "suggestivist"), it should come as no surprise that he's made such an appearance to drum up shareholder support for his plan.  After all, Glenview owns around 14% of the company.

While Robbins acknowledges that consolidation is a potential outcome for HMA, he notes that the company needs to line-up a better management team and become an excellent standalone company regardless.  He says,

"The companies that did well not only for our long-term portfolio, but for the long-term portfolio of all their owners, are the companies that not only took advantage of that consolidation transaction but drove their company forward with strong operations and strong use of cash flow in an opportunistic format.  The hospitals are no different, yes there were 7 large public hospital chains with yesterday's news that Tenet will buy Vanguard there are now 6, and there are absolutely key benefits not only strategic, but financial to consolidation between one or more large hospital operators.  We are absolutely open minded that that is one way to drive value, but that is not exclusive of the other way to drive value which is a very strong management team and a very strong path to independence, regardless if we (as HMA) become a division of a larger company or whether HMA goes forth on its own right."


Robbins on THC & the Stock Market Overall

In the interview, Robbins also touched on one of his other large hospital plays, Tenet Healthcare (THC).  He likes their deal for Vanguard and notes the company has made prudent decisions.

THC has been a big winner for Glenview over the past year but we highlighted how Glenview's trimmed their THC position recently.

The hedge fund manager also addressed his view on the market overall: "We are not taking risk-off, we believe this is still a very above average opportunity set for long-term investors and frankly as an industry, we all need to remind ourselves to think and act like owners."

Embedded below is the video of Robbins' CNBC appearance:




For more on this hedge fund, be sure to check out Glenview's presentation on HMA that was released today.

Glenview Capital's Presentation Revitalize HMA - The Case For Change

Earlier today we posted up a rare interview with Glenview Capital's Larry Robbins.  Today his hedge fund released a letter to HMA shareholders as well as a presentation entitled "Revitalize HMA - The Case For Change" as he attempts to replace 8 board members at Health Management Associates (HMA).


Glenview's Letter To HMA Shareholders

Embedded below:





Glenview's Presentation: Revitalize HMA

Embedded below:





Be sure to also watch Robbins' interview as he rarely appears in the media.

Scout Capital's Letter to Tim Hortons' Board

Adam Weiss and James Crichton's hedge fund Scout Capital today filed an amended 13D with the SEC regarding Tim Hortons (THI).  Per the filing, their position size in THI remains unchanged (we originally flagged Scout's activist position in THI here).

Scout has sent a letter to the board of directors outlining their issues with the company and we've embedded it below:




For more on this hedge fund, check out some of Scout's other portfolio activity here.

Mick McGuire's Hedge Fund Trims DineEquity Stake

Mick McGuire's hedge fund firm Marcato Capital Management just filed an amended 13D with the SEC regarding its position in DineEquity (DIN).  Per the filing, Marcato has revealed a 0.3% ownership stake in DIN with 66,916 shares.

This marks a decrease of 38% in their common stock position size as they've sold over 40,000 shares since the end of the first quarter.  As of June 22nd, Marcato ceased to be the beneficial owner of more than 5% of shares, which triggered the filing.  The hedge fund also had numerous stock option transactions which you can view here.

Mick McGuire is an activist investor and will be presenting his latest investment ideas at the upcoming Value Investing Congress.  Our readers can receive a discount to the event by clicking here and using discount code: N13MF2  

But hurry because this offer expires in two days!

Per Google Finance, DineEquity "owns, operates and franchises two restaurant concepts in the casual dining and family dining categories of the restaurant industry: Applebee's Neighborhood Grill and Bar and International House of Pancakes (IHOP). The Company operates in four segments: franchise operations, company restaurant operations, rental operations and financing operations."