Fahmi Quadir, Chief Investment Officer and Founder of Safkhet Captial LP, speaks during the Context Leadership Summit in Las Vegas, Nevada, USA, on Wednesday, May 9, 2018.
Bridget Bennett | Bloomberg | Getty Images
WASHINGTON – Short seller Fahmi Quadir has found her new target: $2 billion market cap Adtalem Global Education, a publicly traded, for-profit education company that provides institutions such as online college Walden University, nursing school Chamberlain University and Ross University School of Medicine operates in Barbados.
In a new report exclusively obtained by CNBC, Quadir’s firm Safkhet Capital writes that Adtalem is “a toxic byproduct of an imperfect higher education system.”
Quadir told CNBC she has a short position on the stock, meaning she is betting the stock’s price will fall. Their report is expected to be published on Tuesday.
Quadir, 33, became a financial industry celebrity in 2018 after a prominent role in the Netflix documentary “Dirty Money.” The third episode of the series focused on the fate of the pharmaceutical company Valeant, which Quadir correctly predicted. Her track record of short-selling companies has earned her the nickname “The Assassin.”
“We believe that Adtalem is completely uninvestable. The number of existential risks that exist today should concern any investor looking at this company,” said Quadir.
She predicts the company is wasting federal tax dollars on ineffective programs and faces several significant financial threats. And she points out that more than 70% of Adtalem’s revenue comes from federal student aid.
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“It makes me angry, and I think everyone should be angry, that our money is being misused in such a careless way,” Quadir said. “So what are the leaders of these for-profit universities doing? Well, they pay themselves very well and also buy back a lot of their shares.”
She also believes the schools in Adtalem’s portfolio impose unsustainable debt burdens on many students.
“These are hard-working students – they worked hard to get their degrees,” she said. “They paid a lot for their degrees. But they tell me that even if they diligently make payments every month, sometimes on the order of thousands of dollars a month, they have no way of paying off their loans over the course of their lives.
Quadir’s report found that Walden has a graduation rate of just 29% and Chamberlain has a rate of 40%.
In a statement, an Adtalem spokesperson said: “As a leading healthcare educator and an organization with more than 300,000 alumni, Adtalem offers high-quality educational programs designed to prepare our students for employment and that represent a good return on investment for both ours.” Students and US taxpayers.
The spokesperson also noted that graduation rates include a population of full- and part-time students who earn their degrees while working full-time.
“These students may require more time to complete their degree than the 8-year scorecard limit. However, we are committed to ensuring that all students are prepared for the job market upon graduation,” the company said.
Adtalem’s stock price has risen over 75% in just seven months, from just over $33 per share at the end of June to over $60 per share at Monday’s open. The company’s shares are largely held by institutional investors, including Blackrock and Vanguard.
Quadir’s criticism focuses on several key areas of the company’s financials.
She says Adtalem did not disclose that its Walden University unit was the target of an Education Department investigation into its doctoral programs, citing a public record released in November by the company’s accreditation body, the Higher Learning Commission.
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That document states that the commission “has granted a federal investigative designation to Walden University in Minneapolis, Minnesota, based on an investigation initiated by the U.S. Department of Education related to the institution’s doctoral programs.”
Quadir points out that the company’s “Financial Responsibility Composite Score” was lowered to a value of 0.2 by the federal Department of Education in September, which she said could force the company to seek additional letters of credit to continue accepting federal students Loan Fund.
A spokesperson for the Department of Education did not respond to a CNBC query about its financial policies.
Quadir also points out that in July of this year, the Biden administration is reinstating the so-called “gainful employment rule,” which evaluates student outcomes based on income and debt load.
Safkhet Capital’s report predicts that many of the company’s programs will not meet the Education Ministry’s thresholds for preparing students for employment.
According to the department, programs that “fail to meet standards for the same metric twice in a three-year period are ineligible to participate in the department’s federal student aid programs.”
“Based on the data we have today for these programs, we expect them to fail,” Quadir said. “And there’s really little the company can do.”
Quadir also questions the company’s accounting for Walden University’s assets, particularly how it evaluates the school’s eligibility to receive federal student loans. According to Adtalem, Walden’s “Title IV eligibility and accreditations” is an “intangible asset” valued at $496 million as of September 30, 2023.
Quadir will elaborate on her short position on Tuesday in Miami at a conference organized by the Managed Funds Association.
An Adtalem spokesperson responded to each of the points raised by Quadir.
The company noted that the Department of Education’s investigation into Walden University’s doctoral programs “does not allege any wrongdoing” by Walden and the company is “fully complying with the department’s request for information.”
Adtalem also said it expects “the vast majority” of its programs to comply with the Biden administration’s gainful employment rule. “If a program cannot be fulfilled [gainful employment] Standards, we will have the ability to make adjustments to maintain Title IV eligibility.
On accounting for Walden’s intangible assets, the company said: “Because Walden University is an online educational institution, it has few physical locations. Therefore, a large portion of the purchase price is accounted for by intangible assets. We are confident in the accuracy of this attribution and as a listed company, Adtalem is audited by Pricewaterhouse Coopers.”
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2024-01-30 12:52:35
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