Successor in Place, But Manager Stays

By Ari Levy
Bloomberg News
Sunday, December 11, 2005

Martin J. Whitman, manager of the Third Avenue Value Fund, hired Curtis R. Jensen in 1995 as a successor. A decade later, Whitman, 81, hasn't set a retirement date, and his mutual fund is outperforming the Standard & Poor's 500-stock index for the sixth consecutive year.

Investments in Brookfield Asset Management Inc., the owner of the World Financial Center in Manhattan, and Toyota Industries Corp., a builder of cars for Toyota Motor Corp., helped the fund climb 15 percent this year, more than triple the S&P 500's increase.

"The best years were ahead of him, as we found out," said Jensen, 43, co-head of investments at Third Avenue Management LLC and manager of the New York-based firm's small-cap value fund. "Marty has absolutely no plans to retire. It isn't in his DNA."

The $6.6 billion Third Avenue Value Fund ranks second of 92 funds tracked by Bloomberg that invest in stocks deemed cheap relative to corporate profits. The top performer is the Fidelity Value Discovery Fund, up 18 percent this year.

Whitman, an investment banker and turnaround specialist for bankrupt companies, joined Third Avenue in 1986 and started the value fund four years later. He has outlasted money managers including First Eagle Global Fund's Jean-Marie Eveillard, 65, and Mairs & Power Growth Fund's George A. Mairs III, 77. Both retired in the past 18 months.

Jensen, a former student of Whitman's at the Yale School of Management, said the topic of succession came up shortly after he was hired a decade ago. "It's been at the front of our mind for many years," he said. Jensen received a master's degree in business administration from Yale.

He then became Whitman's protege. "Our entire investment team does safe and cheap investing," Whitman said in an e-mailed statement. "Some of them do aspects of it better than I do."

In an interview Jensen said, "What we like to do all day is buy stuff at a big discount."

Brookfield is among the five largest holdings of Third Avenue's value and small-cap value funds. The Toronto-based company, known as Brascan Corp. until last month, doubled in value in the past two years. Third-quarter earnings from leasing properties such as the World Financial Center rose 15 percent as office rents in the United States increased.

Brookfield's chief executive, J. Bruce Flatt, was among the speakers at Third Avenue's annual conference last month in New York. Flatt said Brookfield, which has been shedding investments in resource companies, aims to more than double assets under management to $100 billion by 2010.

Credit Suisse First Boston analyst Dominique Barker last week raised her fourth-quarter earnings estimate for Brookfield to 97 cents a share from 70 cents, citing sales from the real estate division.

"What started out several years ago as a hodgepodge of assets in a bit of disarray has been turned into a pretty well-oiled machine," Jensen said.

Toyota Industries is the fund's biggest holding. Its share price has risen 66 percent this year.

"If I'm going to be in the auto industry, I'm so glad it's in Toyota rather than some American company going down the tubes," Whitman said at his firm's conference on Nov. 3.

Also speaking at the conference was Charles A. Ratner, chief executive of Forest City Enterprises Inc., a Cleveland-based developer of commercial and residential properties. Shares of Forest City, another of Whitman's top 10 holdings, are up 35 percent this year. The Third Avenue Value Fund has 15 percent of its assets in real estate companies.

Jensen's approach has been shaped by Whitman, who earned a master's degree in economics in 1958 from the New School for Social Research in New York. That should ease concern about succession, said Kerry O'Boyle, an analyst at Morningstar Inc., an industry research firm in Chicago.

"Jensen has been there long enough and embraced the philosophy [enough] for us to believe he can carry along," O'Boyle said. Succession is typically "handled better at small boutique shops as opposed to big fund shops where they bring in a new manager that does whatever he wants," he said.

O'Boyle compares Third Avenue with another fund he follows, the Minneapolis-based Mairs & Power Growth Fund. Mairs retired in June 2004 after a five-year annualized return of 11 percent, compared with the S&P 500's 2.2 percent decline. The $2.4 billion fund, now run by William B. Frels, 66, is up 4.3 percent this year, trailing the S&P 500 by 0.5 of a percentage point.

Eveillard's $8.6 billion First Eagle Global Fund rose at an average annual rate of 18 percent during the past five years. Co-manager Charles de Vaulx has achieved a return of 13 percent since Eveillard's retirement at the end of 2004.

"If a manager retires, I put a shorter leash on the fund," said Ronald A. Sugameli, who manages $350 million for New Century Portfolios in Wellesley, Mass., that he invests in about 60 mutual funds, including Whitman's. "As long as the performance continues to be positive relative to its peer group, we're pleased to hold the fund."

Third Avenue's succession plan was "solidified" in 2002 when Affiliated Managers Group Inc. bought 60 percent of the company, said David M. Barse, Third Avenue's chief executive. AMG, based in Beverly, Mass., owns stakes in about two dozen investment companies.

"We transferred majority ownership of the business to AMG, which contracted with the next generation for day-to-day operating control," said Barse, 43, who joined Whitman's firm in 1990 and has a law degree from Brooklyn Law School. Michael Winer of the Third Avenue Real Estate Value Fund and Amit Wadhwaney of the Third Avenue International Value Fund are part of the succession, Barse said.

Third Avenue Management employs 10 money managers and seven analysts. The staff has expanded each year, and Barse said a search is underway to find a "lieutenant" for Jensen.

"With each additional professional we brought to the organization, there's always a vision toward expanding the team and dealing with the succession question," Barse said.

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