Transcript from Longleaf Partners Annual Investor Meeting
Introduction: Lee Harper
Welcome tonight to all our partners. We very much appreciate your taking the time to be with us. We especially thank those of you who came from out of town to be with us. It’s just incredible to have partners who make the effort to join us at our annual meetings and, and certainly to come back every year. We have many people in this room who have been our partners for more than a decade, into two decades even, and so those are the kind of partners who really embody the meaning that we think of as long-term partners when we think of the Longleaf Partners Funds, so thank you all for being here.
We have an agenda tonight and you’ll see that what we’re going to focus on is the partners at our investment companies. Mason is first going to highlight what can go well when you have great partners at the helm of the companies that you invest in. Staley is going to talk about a perspective when our partners disappoint us, what we do, and how we handle that, as well as contrast that with most of the CEOs that we invest with who are great partners. Ken and Scott are going to give some examples of partners that we have that are helping us compound overseas.
We’ll then spend time answering your questions. Because – and this is a side note – we do consider this a meeting of our partners, we do ask that if anyone is here from the media, that you consider this off the record. This is not intended to be for the public; this is intended to be for our investment partners in the Funds.
Since we meet annually, we thought we’d start with giving you an update on our returns, and we’re very happy to report good news. In 2012, you can see on this chart with the bright color, the bright color bars are the Funds, the gray are the indices, and the line across shows you inflation plus ten, our absolute annual return goal. You can see that in 2012, all three Funds exceeded both their indices and our inflation plus ten goal. The Partners Fund was up 16 and a half percent, the Small-Cap Fund was up 23 percent, and the International Fund was up 21.2 percent. Also, you’ll see now that we are off to a good start in 2013. The Funds are up again, well above our inflation plus ten goal. Through the first quarter, the Partners Fund was up 11.6 percent, Small-Cap had added 12.1 percent, and the International Fund had risen 7.2 percent.
Given the quality of our holdings, the strength of our management teams, the discounts in our stocks’ prices from their appraisals, and the value growth that we expect, we believe our portfolios, even after this strong performance, have attractive upside, especially if you have a three to five year time horizon from here.
Before I hand over the podium, we want to take a minute to recognize our partners who oversee the Longleaf Funds, the outside trustees. You can see from the list with the names and how long they’ve been in, in their role as a trustee, that all of them have been at work for Longleaf for over a decade. Collectively, they have 139 years of service to the Funds and the shareholders that, that they represent. And beyond their time commitment, they are personally invested in the Funds, completely aligned with the shareholders. They have over 21 million dollars invested in the Funds and are, believe me, watching out for all the interest ofshareholders with that money. I ask the trustees to stand for a moment so we can acknowledge their dedication and commitment.
And now I’m going to let Mason tell you more about the tangible benefits of having good corporate partners.
Importance of Good Partners: Mason Hawkins
It’s also my special privilege to welcome you to our 2013 Longleaf meeting. It’s special because this is the twenty-fifth consecutive annual gathering of our mutual fund partners and because of the progress our investments have made since we were last together. Lee noted the Funds’ good performance for 2012 and through the first quarter of this year. Equally if not more important, we made monumental progress improving the corporate governance and management of the few Longleaf companies that needed new leadership. We’ve added directors and put in place leaders who are good capital stewards and proven owner-operators. Critically, these talented individuals are clearly focused on prudently building intrinsic value per share. Additionally, we’re happy to report the value enhancing changes were made efficiently and effectively without litigation or proxy fights. We are confident these changes portend good things for Longleaf’s future returns.