An up-and-coming hedge fund manager who at one time worked for Stephen Mandel Jr.’s Lone Pine Capital has been taking a beating on a couple of stocks that have drawn widespread regulatory and investor scrutiny.
The manager, Matthew Iorio, is the founder of Greenwich, Connecticut-based White Elm Capital, whose White Elm Capital Partners fund lost 3.2 percent or so in the third quarter and is down roughly 12 percent for the first three quarters of 2014, depending on the share class. White Elm declined to comment for this story.
The fund’s biggest losses in the quarter came from its positions in controversial mortgage servicers Ocwen Financial Corp. and Altisource Portfolio Solutions, which combined to cost the fund more than 3 percentage points of performance, according to the hedge fund firm’s third-quarter letter, obtained by Alpha. Even so, Iorio tells clients he still owns the two stocks, stressing he still sees “significant upside.” At the end of the third quarter, Altisource was the fifth-largest holding.
The firm does not name the sixth- through tenth-largest holdings but does identify the industries the companies are in. Two of those stocks are “financials.”
Shares of Altisource are down 28 percent this month, while Ocwen is down 26 percent, even after rising about 2.3 percent on Tuesday. Late last year, Ocwen, a mortgage servicing giant headed by William Erbey, agreed to pay $2.1 billion to settle charges that it mistreated homeowners going through foreclosure.
Meanwhile, the New York State Department of Financial Services has been investigating the relationship between Ocwen and Luxembourg-based Altisource, one of a number of companies created by Erbey and spun off from Ocwen, and which does business with Ocwen. Benjamin Lawsky, the top banking regulator in New York State, claims that the two companies are engaging in questionable transactions that are a conflict of interest.
In August, Lawsky announced that he was reviewing “a troubling transaction” between the two companies “designed to funnel as much as $65 million in fees annually from already-distressed homeowners to Altisource for minimal work.”
He also said he was looking into the role that Erbey played in approving this arrangement, saying it “appears to be inconsistent with public statements Ocwen has made, as well as representations in company SEC filings.”
Last week, Lawsky announced he had “uncovered serious issues with Ocwen’s systems and processes, including Ocwen’s backdating of potentially hundreds of thousands of letters to borrowers,” adding that they caused “significant harm.” He also asserted that Ocwen did nothing to investigate or address the backdating issue.
Iorio is known as a Tiger Grandcub, having worked with Tiger Cub Mandel of Greenwich, Connecticut-based Lone Pine Capital for six years. Mandel, of course, previously worked for Julian Robertson Jr.’s Tiger Management Corp.
White Elm manages $1.33 billion. Since its September 1, 2007, inception, its funds have compounded at between 46 percent and 50 percent, depending on the share class. This far exceeds the MSCI World Index, which has risen about 32.5 percent during that period. But it lags the S&P 500, which has risen more than 56 percent in the period. One bright spot: AmTrust Financial Services, an insurance company that is White Elm’s largest long, is up 31 percent this month alone.
