market folly

Earlier we aggregated a compilation of notes from the Ira Sohn Investment Conference where some very prominent hedge fund managers detailed investment ideas. One of those managers was Steven Eisman of FrontPoint Partners (Morgan Stanley). You may be familiar with him as he was profiled as one of the successful subprime traders in Michael Lewis' book, The Big Short.

Eisman thinks he has identified the next 'subprime' so to speak and gave a presentation at the Ira Sohn Conference entitled, "Subprime Goes to College." This speech provided a negative thesis on the for-profit education plays. In particular, Eisman is bearish on Apollo Group (APOL), ITT Educational (ESI), Corinthian Colleges (COCO), and Education Management (EDMC). Lastly, he also dislikes Washington Post (WPO) due to their ownership of the Kaplan test preparation business. His general thesis focuses on two factors: Washington clamping down on the industry and a rise in employment (generating a decline in enrollment). He notes that a key to the problem here is the 'rating' these institutions receive from accreditation boards and he likens these boards to the ratings agencies who blessed subprime mortgages.

Embedded below is the Ira Sohn presentation from Steven Eisman & FrontPoint Partners entitled, 'Subprime Goes to College':



You can download a .pdf copy here.

As we've detailed numerous times, the for-profit education space is an investor battleground with a clear divergence of opinion. Stephen Mandel's hedge fund Lone Pine Capital has been bullish on education plays. In fact, at least year's Ira Sohn event, he gave a bullish presentation on Strayer Education (STRA). While he has since scaled back his position some, we saw he still owned it when we detailed Lone Pine's portfolio. We also recently saw Roberto Mignone's hedge fund Bridger Management buy shares of Princeton Review (REVU), another test preparation service.

That said, we've also noted that some of these managers have had a recent change of heart. David Stemerman's hedge fund Conatus Capital had been long and sold out of their education plays. Andreas Halvorsen's Viking Global also exited Apollo Group recently. Additionally, there are also numerous high profile detractors such as Jim Chanos who gave a negative presentation on for-profit education at last year's conference. And now, Eisman has joined the mix with his negative view too. We'll watch with great interest to see how this one plays out. For more great ideas from hedge fund managers, head to our aggregation of notes from the Ira Sohn Investment Conference and be sure to also check out our hedge fund portfolio tracking series.