Glaucus Research Group California LLC is Short Altisource Asset Management Corp (NYSE:AAMC) and Long Altisource Residential Corp (NYSE:RESI)
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SHORT: ALTISOURCE ASSET MANAGEMENT CORP (NYSE: AAMC)
LONG: ALTISOURCE RESIDENTIAL CORP (NYSE: RESI)
ALTISOURCE ASSET MANAGEMENT CORP (NYSE: AAMC) (“AAMC”), a recent spinoff from Bill Erbey’s empire of distressed real estate and mortgage interests, is the asset manager for ALTISOURCE RESIDENTIAL CORP (NYSE:RESI) (“RESI”), which owns a portfolio of non-performing mortgages (“NPLs”) and foreclosed single-family homes. We believe that AAMC’s asset management fee is at least four to seven times higher than the compensation received by similarly situated asset managers, and as such, is a sweetheart deal that will unjustly enrich insiders with a beneficial stake in AAMC at the expense of RESI’s shareholders.
As shareholders of RESI, we believe that RESI’s independent directors have a fiduciary duty to either terminate or substantially renegotiate its asset management agreement with AAMC. We expect to sue RESI’s independent directors for violating their fiduciary duty of loyalty to RESI’s shareholders unless they address the lopsided compensation deal given to AAMC.
The market believes that the NPV of AAMC’s Incentive Fee is a staggering $2.7 billion. We project that RESI’s share price will increase by 114% and its dividends will increase by $0.15 per quarter per share if it captures ¾ of these expected cash flows. We also estimate that AAMC’s share price will fall by up to 87% as its compensation is brought in line with market rates.