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The severely ailing Teachers' Retirement System of the State of Illinois has dropped two San Diego money managers. According to an announcement last Friday, the fund dropped Brandes Investment Partners, which was managing $655 million in international stocks, and Denali Advisors, which managed $140 million in domestic stocks.

Assets under management at Brandes have plunged from more than $100 billion in 2005 to $29.8 billion, as the Reader has steadily reported. I have heard of a recent top management shakeup, but haven't been able to confirm it; Brandes Investment has never responded to my queries since I began reporting on the stark decline. There were layoffs late last year. Charles Brandes, founder of the firm, and his young (third) wife Tanya are hot on the social circuit. He built a 54,000 square foot home on 30 Rancho Santa Fe acres, said to be worth as much as $60 million, a figure he disputes. He has gone through an ugly divorce from his second wife.

Denali Advisors says it is the largest Native American-owned asset management firm in the country. Co-founder Robert Snigaroff is an Alaskan Native of the Aleut Tribe. According to the publication Pensions & Investments, the Illinois teachers fund terminated Denali because the $140 million represented 20% of Denali's assets, and that made the Illinois fund uncomfortable. Michael Munson, co-founder of Denali, says the reports are true. Denali once managed as much as $250 million of the Illinois funds. He says when Denali lost other accounts, Illinois got to 20% of its assets. Denali now has $560 million under management.

The Illinois teachers' fund is only 42.1% funded. A recent report co-chaired by former Federal Reserve Chairman Paul Volcker concluded that Illinois's pensions are "destined for insolvency" unless the state changes politicized budget processes. Pension-wise, Illinois is in the worst shape of any state, the report's authors concluded.

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Comments

Visduh Oct. 29, 2012 @ 8:48 a.m.

$100 billion became about $30 billion? That's incredible! And why did it take them so long to react? Brandes and his operation are circling the drain. There was a time when he and his minions did well for clients, one must assume. He didn't get where he is by doing a lousy job, did he? (Or maybe other things factored into his popularity rather than actual strong performance.)

Illinois has always had its quirks and challenges, to put it mildly. But such underfunding may mean that those benefits that its employees have counted on may not be there for them upon retirement. If I were a state employee there, I'd be looking around for an exit.

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Don Bauder Oct. 29, 2012 @ 9:22 a.m.

Brandes is a disciple of the Graham/Dodd investment strategy, which essentially means buying stocks with undervalued assets, among other things. The strategy is a good, conservative one, and time-tested, but like any investment theory can go awry. At one time, Brandes had an excellent track record. However, performance has fallen sharply. Brandes took a licking in newspaper and financial stocks, including Countrywide. I don't know that I would blame Graham/Dodd so much. Former insiders have told me that the culture at Brandes deteriorated. In re Illinois: yes, the teachers' fund warned its members that if the general assembly does not provide the money mandated by state law, the fund could be insolvent as soon as 2030. Ah, Illinois -- my home state, incidentally. Best, Don Bauder

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Visduh Oct. 29, 2012 @ 9:03 p.m.

David Dreman was a proponent of something similar to Graham/Dodd, and got almost religious about "value investing." For a long time he had it so right. (If you were invested in his funds, you would have missed out on the value collapse in 2000 that is remembered as the dot-com bust and/or "tech wreck". He rode those out with only a small dip in value.) But since then, the Dreman approach hasn't worked all that well. Dreman was looking for stocks that were temporarily out-of-favor. He emphasized that undervalued stocks in out-of-favor industries were always around, and that many were strong businesses with solid balance sheets, and high profitability. He propounded on the methods he used to find such stocks, and which ones to buy. He also said that knowing when to sell them was as important as knowing how to find those stocks in the first place.

In the 90's Dreman bet heavily on Big Tobacco and looked like a genius. The companies had strong financials, and were selling a product much valued around the world. Was it a product to be proud of? Not unless you think the Marlboro Man was a real outdoorsman and cow puncher!

My conclusion is that their sort of investing didn't look at fundamentals within the big corporations to insure they were going businesses, public popularity on no. Brandes was bottom fishing and little else. The fundamentals for newspapers were and still are stinky. Just because a stock is 'way down doesn't mean it will come back. When they get down into the less-than-$5 range or into pennies they seldom come back. Brandes was looking for super bargains and missed the boat in many ways.

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Don Bauder Oct. 30, 2012 @ 1:39 p.m.

Personally, Visduh, I buy blue chips with dividends of at least 3.5%, and almost always above 4%. So I concentrate on utilities, oils, and pharmaceuticals with a few pipelines and oil royalty trusts thrown in. You could say that this is a quasi-Graham/Dodd approach. It has worked for me extremely well in the last 9 years, but sooner or later I will get my head chopped off, because investment styles change. Perhaps both Brandes and Dreman were unable to change their approach. That's the trouble with making an investment theory a religion. Certainly, if you go on the Brandes website, it is clear the firm still is a Graham/Dodd worshipper. Best, Don Bauder

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Burwell Oct. 29, 2012 @ 9:40 p.m.

The U-T reported in 2011 that Brandes takes $140 million per year in profits out of the company. This is disgusting and obscene. He appears to make most of his money off tax-deferred pension plans. If I ran Congress I would put Brandes and his ilk out of business fast. I would force all tax-deferred retirement plans, both public and private, to invest their funds solely in index funds and would permit the funds to charge an annual administration fee of only 1/10 of 1 percent of fund assets. The gravy train would end right there. Brandes is just profiting off the government's continuing efforts to bankrupt the country by jacking up the stock market with tax subsidies it can ill afford. Brandes is living proof that all wealth is created by the government.

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SurfPuppy619 Oct. 29, 2012 @ 10:34 p.m.

The problem with your plan is it is based on someone-you- not being bought and paid for. The Congress is controlled 100% by special interest money.

Today 60% of ALL PASSED legislation is WRITTEN by special interests, not the legislature's. Exhibit #1-The 2005 BK revisions (means tested) was written 100% by the financial industry. The SCOTUS Citizens United decision made the situation much worse. We need to start putting the right people on the SCOTUS instead of partisan hacks-and that is what we have up there right now-partisan hacks.

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Don Bauder Nov. 1, 2012 @ 5:34 a.m.

Agreed, SP: the special interests control the Congress and write much of the legislation. And the most critical aspect of the presidential election this month is that whoever wins may be naming people to the Supreme Court, which is completely out of balance, and sometimes out of its collective mind (Citizens United being an example.) Best, Don Bauder

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Don Bauder Oct. 30, 2012 @ 1:49 p.m.

Burwell, your idea of forcing tax-deferred retirement plans to put money solely in index funds is sound. You say you would effectuate this reform if you ran Congress. But look at it this way: one of the candidates for president is a multi-millionaire and perhaps a billionaire, because we don't know what he has stashed in secrecy-shrounded tax havens such as Switzerland and the Cayman Islands. We have no way of knowing how much money he has parked offshore because he won't release enough years of tax returns. We suspect he was one with money in kinky offshore tax deals who was given amnesty by the IRS, but won't know that, either. Yet the election is so close that he could be elected president. Wall Street owns Congress and Main Street doesn't care how much crooks stash offshore. So how can these reforms be passed into law? Best, Don Bauder

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Don Bauder Nov. 5, 2012 @ 10:24 p.m.

NOTE: BRANDES CHIEF EXECUTIVE OUT. I reported on this blog that I had heard rumors of a top management shakeup at Brandes Investment Partners but couldn't confirm it. The publication Pensions & Investments reports that longtime Brandes chief exeuctive Glenn Carlson will step down Feb. 1. This is the rumor I had heard but could not confirm. Carlson will be replaced by Brent Woods, who is now managing director, investments. It is not clear who will replace Woods. As I reported above, Brandes's money under management has plummeted from above $100 billion to below $30 billion in recent years. Best, Don Bauder

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Don Bauder Nov. 12, 2012 @ 3:04 p.m.

NOTE: MAGAZINE SAYS NEW BRANDES TOP EXECUTIVE FACES HARD JOB. The publication Pensions & Investments says that Brent Woods, the incoming chief executive of Brandes Investment Partners "has a challenging assignment." Brandes's assets under management have plunged from $111 billion in yearend 2007 to $29.8 billion Sept. 30 of this year. Brandes's international equity and global equity strategies constitute five-sixths of assets under management, but have underperformed benchmark indices over one, three, and five years. Best, Don Bauder

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valueinvestingisdead Jan. 18, 2013 @ 1:19 p.m.

Explanation on how they had huge performance early: Tons of new accounts all buying the same International illiquid stocks. Tons of money chases illiquid stocks creates those stocks to go way up in price. Performance looks wonderful UNTIL firm gets too large and they can no longer buy the same illiquid stocks. Those in late get crushed and lose 70%. Those in early made a bundle. It was a ponzi scheme in that driven up stock prices paid off those early while those late lost their shirt and thensome.

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