BEHIND THE NEWS: Steely-nerved investor double dips on ITT stock

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Richard Blum is a former mountain climber who once led an Everest expedition. In his day job as a professional investor, he’s almost as daring.

Twice in the last four years, his San Francisco-based money-management firm, Blum Capital Partners, has bet big on locally based ITT Educational Services at times other investors were terrified of the stock.

Blum, husband of Democratic U.S. Sen. Dianne Feinstein, began scooping up shares in the for-profit education company in February 2004-one day after federal investigators armed with a search warrant raided and seized documents from the company’s Carmel headquarters and 10 of its 77 U.S. campuses.

The probe focused on allegations that the company falsified records, including those related to student attendance, grades, academic progress and job placements. Most of Wall Street responded with a where-there’ssmoke-there’s-fire mindset. The day the news broke, ITT shares fell by nearly half.

Blum Capital over the next year scarfed up shares with abandon. It was an unequivocal bet that management would be found credible and the probe would amount to nothing-which is exactly what transpired.

The investment firm’s faith paid off in the form of hundreds of millions of dollars in profit, which it pocketed by cashing in shares.

This year, it’s enjoying a repeat performance. A securities filing shows that in January and February-when concerns were peaking that the credit crunch would keep students from getting the loans they needed to enroll-Blum Capital purchased another 3.3 million shares, some for as little as $56 apiece. The purchases gave it an ownership stake of 8.4 percent.

Great call, again. As William Blair & Co. analyst Brandon Dobell wrote in a new report, it is “our belief that the student financing situation for ITT [has] gone from dire to manageable.”

The stock has sprung back accordingly. Shares now fetch $78. While that’s a long way from their November 2007 peak of $130, it’s enough to give Blum Capital a paper profit on its 2008 purchases of $47 million.

Blum, 72, did not respond to requests for comment. But here’s some good news: The wealth he’s amassed from ITT and other investments isn’t just getting stashed in a bank account somewhere.

In his twilight years, Blum’s become a prominent philanthropist, doling out millions to social causes-including $15 million to establish the Center to Alleviate Poverty at the University of California at Berkeley.

But that doesn’t mean he’s about to lose the fire that made him so successful in the first place.

“When I’m 100 years old, I will still be a deal junkie!” he told a reporter two years ago.

Steve & Barry’s

unfortunate adventure

The bankruptcy filing this month by Steve & Barry’s, the discount retailer known for incredible bargains, casts a long shadow over two of Indianapolis’ struggling shopping malls-Washington Square Mall and Lafayette Square Mall, each of which has the store as an anchor tenant.

If the 276-store chain liquidates-a scenario analysts consider likely-the Indianapolis malls could have a tough time finding replacement tenants.

That’s because as part of Steve & Barry’s unique business model, it sought out less desirable locations where it could negotiate bargain-basement leases, with the landlord providing generous buildout allowances.

Mall owners agreed to onerous terms to generate traffic. In some cases, upfront payments provided to Steve & Barry’s exceeded the total the retailer paid over the life of the lease, The Wall Street Journal reported this month.

And sometimes the chain got a boost from government incentives, as well. When Steve & Barry’s opened at Washington Square in November 2006, for instance, it received a tax break from the city valued at $310,000 over seven years.

At least until the company’s recent cash crunch, the cheap space made it possible for the retailer to sell athletic shoes for only $10 and hoodie sweatshirts for $12.

But it wasn’t the kind of anchor that rose to the top of mall owners’ tenant wish list. The investment firm Friedman Billings Ramsey & Co. lists Steve & Barry’s and Burlington Coat Factory-another anchor at both Lafayette Square and Washington Square-“as retailers that tend to appear at malls whenever there are difficult-to-fill vacancies.”

“In fact, it is a poorly kept secret that … Burlington Coat Factory is known in mall circles as a grim reaper of death since its presence can signal a mall that is well into a period of decline,” Friedman Billings said in a report.

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