Blum Capital

In 1975, Richard Blum left a prestigious San Francisco brokerage to start his own firm with a simple idea: buy meaningful stakes in undervalued public companies and work with management to help them fix the business. No proxy fights. No poison pen letters. Just patient, constructive partnership.

Within a few years, the corporate raider era arrived in full force. Mike Milken's junk bond machine was printing war chests with his “highly confident letters”. Ron Perelman, Carl Icahn, Nelson Peltz, Saul Steinberg and the likes were launching hostile bids and stripping assets for parts. Greed wasn't just good - it became the dominant operating system of American finance. The 1980s rewarded aggression, and the corporate raiders who wielded it became celebrities.

Blum didn't lose his way and kept doing what he'd always done. He pioneered the category before anyone had a name for it. In 2006, the Boston Business Journal would call investors like him "anti-raiders." Today we call it constructive activism. Blum was doing it in 1975.

His firm, Blum Capital, was also something else ahead of its time: an early form of crossover investing, doing both public and private equity with the same fundamental, relationship-driven approach.

And then in 1995, he hired Jeff Ubben, who went on to found ValueAct Capital in San Francisco with two other investors, one of which whom a Blum Capital colleague. And it became one of the most influential activist funds of the next two decades.

This is the story of Richard Blum - the pioneer of constructive activism and cross-over investing.

Where Blum Came From

The Blum family had been in the clothing business for generations. His maternal great-grandfather opened a store to outfit silver miners in Colorado. When the mines dried up, the family moved to El Paso, Texas and opened a shoe and clothing company. His parents were regional sales reps for a clothing manufacturer.

Blum went to UC Berkeley, finished his MBA (at Berkeley) in a single year, and started on a PhD in economics before life redirected him. A family connection got him an interview at an international trading company - the kind of firm that helped large American companies sell goods abroad by navigating local markets.

The Managing Partner liked him and promised him a job. Then the Managing Partner came back from a business trip and told Blum he would do him a favor by not hiring him. The truth is trading companies were dying businesses - big American companies were starting to sell directly to foreign buyers as shipping and communications were improving.

It taught Blum a lesson: pick an industry on the way up, not the way down.

Falling Into Finance

Blum didn't know anything about stocks. But his Berkeley undergraduate investment club friends introduced him to top investment firms in San Francisco, and he heard of a broker making $30,000 a year - serious money at the time. Investment firms, unlike trading companies, were clearly on their way up. He wanted in.

He joined Sutro & Co. as a junior analyst and trainee. Sutro was the largest investment house west of the Mississippi for decades - risk-averse, led by only three senior partners over a full century. The partners were so cautious they rented every office where the firm had a presence rather than own.

On his first day, Blum was assigned to research. He walked into a single room with four other new hires and rows of filing cabinets stuffed with company reports. His first assignment: throw out enough outdated documents to make room for his desk.

He spent weeks reading annual reports on hundreds of companies. The research available at the time was low quality. He figured he could do better by talking directly to companies and doing original work.

More to come:

• Early wins and a hard lesson
• Blum's first one million
• Starting over at age 40
• Blum's investment philosophy
• Notable Blum Capital alumni who run funds