Richard Blum’s Latest 13F Shows Strong Focus on Services

Last Friday, Richard Blum’s Blum Capital Partners disclosed its long equity positions as of the end of the fourth quarter of 2013 with the U.S. Securities and Exchange Commission. We have come to realize that the most popular small cap stocks among hedge funds outperformed the market by 18 percentage points even though we started measuring the returns a couple of weeks after 13Fs have been made public. It can also be productive to treat individual 13Fs as free recommendations from fund managers- not necessarily to be followed, but to be considered briefly and then researched further if they seem appealing.


Richard Blum


Therefore, I would like to take a closer look at Blum's fourth quarter equity portfolio and the modifications that took place over the quarter. This fund has been around for almost 40 years, and its current equity portfolio is worth $640 million. Focused on small- to mid-cap companies in both the public and private markets, it seeks for fundamentally strong companies that are undervalued and usually intends to a seat on the boards of these firms.

Over Q4, the fund did not acquire any new stocks, nor did it increase its stakes in any of its six preexisting holdings. However, it did reduce its position in two of them: SEI Investments Company (NASDAQ:SEIC) and ITT Educational Services, Inc. (NYSE:ESI). Let's take a look at these transactions:

By the end of the fourth quarter of 2013, Blum declared owning 893,815 shares of SEI Investments Company (NASDAQ:SEIC), worth more than $30.5 million. This means that the fund sold 200,000 shares over the quarter. The sale could be motivated by several issues: a high dependency on capital markets, the decline of private banking (the firm’s most important segment), the broadening of its margins, and some transparency issues. As the stock trades very close to its Q4 prices, upside lost (or downside avoided) hasn’t been much, though.

The other company that saw Blum reduce its stake, ITT Educational Services, Inc. (NYSE:ESI), is a $746 million market cap postsecondary degree programs provider in the U.S. The fund cut its exposure to the firm by 23% during the fourth quarter, and now holds 2.30 million shares, worth approximately $72 million. Despite this strong cutback, the company remains the fund’s second largest holding, trailing CBRE Group Inc (NYSE:CBG), a $9 billion market cap commercial real estate services firm. ITT Educational Services, Inc. (NYSE:ESI) looks good, fundamentally, having retrieved industry leading margins and returns lately. However, its long-term EPS growth projections do not look at all good, which makes the sale understandable.

The fund´s largest position remained unchanged over Q4. Blum still owns more than 15 million shares of CBRE Group Inc (NYSE:CBG), same as in Q3. Its holdings are valued at more than $400 million and should continue to rise.  Just like most analysts, Blum´s fund seems to love this stock, mainly in account of its above-average growth prospects and returns on equity and assets that quadruple its industry’s mean values, global reach, geographical diversification, market position, and strong brand name.

Finally, I would like to briefly mention Blum’s remaining positions, which occupy the third, fourth and fifth spots in its portfolio in terms of market value. These are Avid Technology, Inc. (NASDAQ:AVID), Moneygram International Inc (NASDAQ:MGI), and Career Education Corp. (NASDAQ:CECO), respectively. All of them are small-cap companies, so the fund must be certainly betting on growth, since its fundamentals and valuations do not look very alluring.

Disclosure: Javier Hasse holds no position in any stocks mentioned

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