Rockledge Partners LLC, a value equity shop in Bethesda, Md., headed by Wayne Shaner and Shawn Hendon, opened its doors in January 2004. The two men were managing directors at Lockheed Martin Investment Management Co., the in-house money management subsidiary of Lockheed Martin Corp., Bethesda. They were responsible for running about 10% of Lockheed Martin's approximately $21 billion in pension assets: $1.3 billion in equities, and the balance in fixed income. The partners have been working together for 25 years; they started together in 1979 with Martin Marietta Corp., which merged with Lockheed Aircraft Co. in 1995. They talked to reporter Vineeta Anand about value investing and leaving corporate America to set out on their own.
Broad View: Face to Face with Wayne Shaner and Shawn Hendon
Mr. Hendon: Rockledge was registered with the SEC on Sept. 5, 2003. It was incorporated in August 2003, but we didn't leave until the beginning of (2004).
Mr. Shaner: We practice the same value approach that we have for years, and we're proud of that because we have been through a lot of market environments. We started in the late 1970s, and we had a lot of inflation and oil price problems then, too. We actually started a (bond) portfolio Sept. 30, 1981, and if I recall, the long bond peaked within three days at 15.25%.
So, what was your average market capitalization during those 22 years?
Mr. Shaner: Shawn, would you take a shot? $3 billion to $5 billion?
Mr. Shaner: We want to focus on what we like the best and where we have a good record. Not that we didn't have a good record in bonds, but being small, we wanted to focus on what we really did well over the long term, and that was value equity. But it's important for our clients to know that our experience in fixed income is a nice add-on. A lot of equity people don't have that, and when you are a fundamental, bottom-up value person, you have to look at the balance sheet, and that leads you right to the bonds or what debt they have outstanding.
Did you have an understanding with Lockheed Martin to manage its pension money before you left?
Mr. Shaner: We told them we intended to leave and set up our own firm. There was absolutely no agreement ... They did an excellent job of looking at us as if they were looking at any outside manager — doubly so. We were people they knew very well, but believe me, it was at arm's length. We have a good relationship, and I give them credit for being entrepreneurial and supporting a new firm. At this point, they are our only client.
Given where we are in the economic cycle, do you think your portfolio is well-positioned?
Mr. Hendon: It's not like the spring of 2001. Most of the valuation disparities between value and growth are much smaller.
Mr. Shaner: In other words, a compression has occurred.
Mr. Hendon: We actually think the large-capitalization companies are good values in here. If you look at the valuations of those companies, as compared to the valuation of the smaller companies, it's as favorable as it has been in a long time. We think that area is attractive. We're bottom-up investors, we have a reasonable representation in most sectors, but we're typically quite small in technology; we don't have much in (telecommunications.)
Mr. Hendon: We think a company like General Electric (Co.) … fits a lot of the criteria that go with a great balance sheet, good cash flow, can participate in an improving industrial environment. We've got a relatively decent position there. …
Mr. Shaner: We have exposure in the materials area, not in base metals, but we certainly own a bit of … gold mining ...
Mr. Hendon: We also have a good offset with financials and consumer staples — non-bank financials for the most part (such as) Berkshire Hathaway (Inc.), Leucadia (National Corp.), White Mountains (Insurance Group Ltd.), names like that. …
Do you have anything in the pipeline from other pension funds?
Mr. Shaner: We don't have anything in the pipeline that we can talk about. We're … trying to identify those institutions that are interested in our approach, and we have made some progress in that regard. We don't have a full-time marketing person and we think that when you hire an investment manager, the guys managing money ought to be the guys who go out and talk to people. And that's what we do. You have to understand and like what we've done and have confidence in us. Those are the kinds of relationships we'd like to have. And that's the kind of relationship we've had with Lockheed so far.
Mr. Hendon: We're looking at the institutional market, not high net worth.
Mr. Shaner: A lot of the people we knew years ago are retired or out of the business, so you have to re-establish a lot of relationships. It's true, we know a few people.
Mr. Hendon: You have to show people you know how to run your own business, too.
Mr. Shaner: That's very important. We think if you're going to be a good money manager you ought to know how to run your own business.
Mr. Hendon: So there are a lot of people who want to see that first.
Mr. Hendon: We've had conversations with three consultants so far. We're probably in (three or) four databases — the Plan Sponsor Network, Wilshire (Associates), and a third one is eVestment Alliance, used by Hewitt. That's a web-based network, much like Plan Sponsor Network that is used by money mangers and consultants and sponsors.
Mr. Shaner: We use the Russell 3000 Value and we use the S&P 500. But we're really focused on delivering absolute returns. Returns relative to an index that is dropping is not something we cherish. We're above the Russell 3000 value and S&P for the past three to five years by at least one percentage point.
Mr. Hendon: We talk about everything that goes in the portfolio. We're the portfolio managers in the firm and we have to agree on the construction of the portfolios. Wayne and I have to agree on every name, and the changes to the portfolio. We're generalists, but as we build the firm we are going to make sure we have sector coverage, so we stay on top of opportunities. No one is going to be pigeon-holed into following something to the exclusion of everything else, but we think having a broad view about value keeps you from having tunnel vision about the importance of your particular sector.
Mr. Hendon: We'd like to double where we are in five years, and when we build our staff, we build with that in mind. We've managed that much money before, so we are very comfortable with that.
Mr. Shaner: $800 million to $1 billion. We can easily handle that much.