A so-called Tiger Grandcub who once worked at Tiger Cub Stephen Mandel Jr.’s Lone Pine Capital is reopening his funds to new capital.
Greenwich, Connecticut-based White Elm Capital, headed by Matthew Iorio, tells clients in its third-quarter letter dated October 26 that it is hoping to raise up to $250 million in net new money. This would increase the size of the firm’s investment pot by roughly 20 percent since the end of 2014, when it managed $1.26 billion.
Iorio had soft-closed the funds to new investors in April 2014 “in order to remain disciplined and patiently manage our asset growth,” he states in the third-quarter letter, adding, “We have always focused on the quality of capital, rather than the quantity of capital.”
Iorio, who spent five years at Greenwich, Connecticut-based Lone Pine before launching White Elm in 2006, says additional capital will increase his “dry powder” and still enable him to invest in the kinds of small- and midcap companies he likes.
The capital raise is taking place as the firm has somewhat reversed its lousy results from last year, when the three different classes of its flagship White Elm Capital Partners fund lost nearly 13 percent. Until then, the fund was on a tear, way outperforming the Standard & Poor’s 500 stock index.
However, ill-fated bets on troubled mortgage-servicing company Ocwen Financial Corp. and two affiliated companies — Altisource Portfolio Solutions, which provides services and technologies to the mortgage market, and Altisource Asset Management Corp., which sells portfolio management services of real estate-related assets — accounted for 1,250 basis points, or 12.5 percentage points, of White Elm’s losses last year. That was nearly its entire drawdown, in other words, even though the firm had reduced the size of its positions in the stocks throughout the year.
Looking ahead to 2015, Iorio promised investors earlier this year that the fund was well-positioned for 2015 and beyond. Sure enough, Iorio is way outperforming the market again. Through the first three quarters, White Elm gained about 5 percent after losing less than half a percentage point in the third quarter, while the S&P 500 was off 5.3 percent for the first nine months.
Iorio can thanks his short positions, which are up 5.4 percent so far this year, compared with gains of just 0.75 percent for his long holdings. He blames the rising value of the dollar for affecting a number of his “highest conviction longs,” including three media and telecommunications giants: Liberty Interactive Corp. - QVC Group, SBA Communications Corp. and Liberty Global. “As these headwinds begin to dissipate going into 2016, we should see very attractive returns given the expected acceleration in reported growth and the ongoing steady compounding of these businesses,” Iorio asserts in the letter.
Earlier in the year he unloaded the toxic mortgage companies. And just two of his top five holdings at year-end remain in that elite group as of the end of September — media giants Charter Communications and the “C” share class of Liberty Global.
