Legendary investor Marty Whitman, 90, is holding court in his office, wearing a blue sweatshirt and khakis, with his feet up on the coffee table. When the discussion turns to a topic he likes—how his form of value investing differs from the classic style of Benjamin Graham and David Dodd, say—his eyes flash and his whole face lights up. But he’s known as a curmudgeon for a reason, and when the subject is something he’d rather not discuss, he practically growls.
There has been a lot to growl about lately. Third Avenue Management (Trades, Portfolio), the mutual-fund firm Whitman founded in 1986, has struggled with management turnover and poor performance. Assets have shrunk to $10.2 billion from a peak of $26 billion in 2006. The firm’s flagship fund, Third Avenue Value (TVFVX), which Whitman ran from its 1990 inception through 2012, now rates a meager two stars from Morningstar. It has just $2 billion in assets, and is on its second manager since his departure. Third Avenue International Value (TVIVX), which was already shrinking when longtime manager Amit Wadhwaney departed last year, lost more than 60% of its assets thereafter; it now has $269 million.
Third Avenue, which runs five funds and associated separate accounts, offers a look at how greatness can erode—and a study in how it might be reclaimed. All deep-value investors, including Third Avenue competitors Wintergreen (WGRNX) and s(TWEBX), have faced an uphill battle as money has flowed to zippier growth stocks. But Third Avenue’s portfolios are concentrated in just 30 to 65 stocks, leaving them particularly vulnerable to investment mistakes and client departures. Much more important, it may be impossible to transfer Whitman’s investment genius to the next generation.
That doesn’t have to mean Third Avenue’s days are numbered. But success—and longevity—could require the firm to operate differently in the future, becoming more of a collaborative, process-driven enterprise instead of the “cult of Marty.”
The job of transitioning Third Avenue has fallen, in large part, to Chip Rewey, 46, hired last June from value manager Cramer Rosenthal McGlynn to run Third Avenue’s Value strategy and re-energize the organization’s culture. He has concentrated on breaking down barriers among investment teams and managing portfolio risk. Rewey’s strategy seems like a sensible start, but has yet to bear fruit.
“Businesswise, we’re a very, very modest success,” Whitman says. “I don’t know if you could even call us a success after the 2008 redemptions. We never really came back. It’s been tough.”
WHITMAN SCOFFS at the idea of retirement. While he has stepped back from his roles as chief investment officer (in 2010) and manager of the Value fund (in 2012), and now says he spends most of his time managing his family money, he continues to take the subway to his Manhattan office almost every day. He’s an outsize presence at the firm’s Tuesday research meetings, and, as chairman of the board, continues to write the firm’s widely read quarterly letters. “My wife would rather shoot me than go to Florida,” he says.
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