Episode 43: $4B Boutique Co-Founder Rodney Herenton of Channing Capital Management on Building a Platform of Specialists | Why Differentiation is the Future | “Meet the Boutique” Series
Subscribe to Billion Dollar Backstory on Apple Podcasts, Google Podcasts, Spotify, or wherever you listen to podcasts.
With a $70 million seed investment and a vision, Rodney Herenton and his co-founder Wendell Mackey launched Channing Capital Management.
This isn’t your typical startup story.
This episode is a masterclass on differentiation, defying the odds, and the power of effective collaboration.
Listen in as Rodney and Stacy discuss:
● The birth of Channing Capital Management: Two Harvard graduates team up and launch an investment firm
● How the demands of fatherhood pushed Rodney to innovate as a founder
● The unique strategy behind Channing’s 20-year success as specialists in small- and mid-cap investments
● Channing’s contrarian “best ideas” approach that delivers competitive, long-term results and high alpha
About Rodney Herenton
Founder, Co-Chief Executive Officer, Chief Business Development & Strategy Officer
Rodney co-founded Channing Capital Management in 2003 with Wendell E. Mackey, CFA. In the years leading up to this endeavor, he honed his wealth management skills as First Vice-President of the Private Fund Group at Morgan Keegan & Company, Inc. and in associate roles at Bear Stearns’ Investment Banking Department and Lehman Brothers’ Corporate Finance Department. Rodney received a B.A. in finance from Morehouse College (Phi Beta Kappa) and an M.B.A. from Harvard Business School.
TRANSCRIPT
Below is an AI-generated transcript and therefore it may contain errors.
[00:00:00] Rodney Herenton: We had to be unique and different, even titled this daring to be different. A me too strategy would not work, particularly starting off as an emerging firm, even how we launched. I mean, we didn't launch with zero under management. There was no way I was going to do that.
[00:00:17] Stacy Havener: Hey, my name is Stacey Havener. I'm obsessed with startups, stories, and sales.
[00:00:22] Stacy Havener: Storytelling has fueled my success as a female founder in the toughest boys club, Wall Street. I've raised over 8 billion that has led to 30 billion in follow on assets for investment boutiques. You could say against the odds. Yeah. Understatement. I share stories of the people behind the portfolios while teaching you how to use story to shape outcomes.
[00:00:47] Stacy Havener: It's real talk here. Money, authenticity, growth, setbacks, sales, and marketing are all topics we discuss. Think of this as the capital raising class you wish you had in college mixed with [00:01:00] happy hour, pull up a seat, grab your notebook and get ready to be inspired and challenged while you learn. This is the billion dollar backstory podcast.
[00:01:14] Stacy Havener: Today's conversation is a success story. And a story of startups at the same time. It's about an investment specialist. Yes. And also about building a platform of specialists. It's about unique ability teamwork between co founders, portfolio managers, back office, sales, and marketing. It's a glimpse into the ecosystem of boutique success and it's fantastic backstories.
[00:01:41] Stacy Havener: Meet Rodney Harrington, co founder of Channing Capital Management. Rodney and Wendell Mackey joined forces 20 years ago to build a value investment shop. With a 70 million seed investment and a vision, Channing now has 4 billion in AUM. They've also become the [00:02:00] home for some incredibly talented portfolio managers across various differentiated strategies.
[00:02:06] Stacy Havener: Channing is building a boutique for the future. This episode is part of our Meet the Boutique series. It's a slightly different format than my regular episodes. Channing is a client of Havener, and this episode is a glimpse into what we created together for a recent webinar. My conversation with Rodney was such an inspiring lesson on building a boutique, why it matters, how to do it successfully, that I knew I had to share it with you all.
[00:02:33] Stacy Havener: Hope you enjoy. Without further ado, meet my friend, Rodney. Now today is about legacy. How do you honor legacy? How do you build it? And how do you create legacy? authentically. What makes you different? What makes you special? This is a story of what happens when a bunch of specialists get together to [00:03:00] build something extra special.
[00:03:02] Stacy Havener: Today we get to talk stories, building, and legacy with Rodney Harrington, co founder of Channing Capital. Rodney, thanks for being with us.
[00:03:12] Rodney Herenton: Thank you for having me.
[00:03:13] Stacy Havener: Rodney, can we start with your story and just tell us about the journey to building Channing with your co founders.
[00:03:22] Rodney Herenton: I was actually in my hometown, Memphis, Tennessee.
[00:03:24] Rodney Herenton: I was working for a regional investment banking firm, Morgan Keegan. That was after 11 years in New York, working for various firms, Citicorp, Lehman Brothers, and Bear Stearns. So I kind of Said it was time to bet on myself. My father was ending his 1st term is the 1st African American mayor of Memphis elected and I wanted to experience that legacy and also kind of create my own identity.
[00:03:51] Rodney Herenton: The firms in New York were so large, it was kind of hard to create. Your own direction and identity of where my career was headed. So, [00:04:00] basically, I wanted to be a bigger fish in a smaller pond and Morgan Keegan at the time was a powerhouse regional firm doing, I would call today, micro cap type IPOs back when they were very fruitful and plentiful.
[00:04:13] Rodney Herenton: As, you know, the IPO markets changed over the last 20 years.
[00:04:17] Stacy Havener: So you go there and you're working on these deals, you're basically, you're evaluating businesses, so you're kind of getting the inside look at what makes a great business, what makes a great business valuable, et cetera. How do you kind of switch gears really a little bit more to the investment management side?
[00:04:36] Rodney Herenton: Lehman brothers was training ground rotated in various divisions. So that's a lot of structuring, writing a lot of memorandums and putting presentation decks together. Bear Stearns became a little more strategic. I'm in client meetings interfacing. We were doing a lot of work with Disney. They sold a lot of assets.
[00:04:54] Rodney Herenton: Back then, so I got a chance to see M& A working on a data room and actually [00:05:00] selling KCAL 9 that Disney spun off. When I parlayed to Memphis, it was dedicated purely to taking these smaller family owned businesses public. So I literally saw generational wealth creation and I really enjoyed working with the founders of these businesses that had second, some of them third that wanted to take the company public.
[00:05:21] Rodney Herenton: To exit, but to also continue their legacy of their family business. So we probably did 50 IPOs, 20 follow on offerings while I was there for three years.
[00:05:31] Stacy Havener: And then had now, because now there's some co founders that are going to come into the mix here. Did you already know Eric and Wendell at this time, or how did you all meet?
[00:05:42] Rodney Herenton: Alan Morgan, the founder of Morgan Keegan, actually sold Morgan Keegan and Regions Bank. And that's when the light bulb for me personally, he made. Quite a bit of money became the 2nd largest shareholder regions and that's what I knew. Okay. I've done well here. I've built a nice. Is [00:06:00] this coheading the consumer products group and investment banking, but I did not have that exit that my.
[00:06:06] Rodney Herenton: Boss head. So that's when I knew I needed to start my own firm, but obviously I was a banker, a transaction professional, not a investment portfolio manager. So that's when I began my journey to reach out, to find potential partners. And I got word that Eric McKissick had left Ariel. He's actually from Nashville.
[00:06:27] Rodney Herenton: I'm from Memphis. So our families knew each other. I initiated a call to him. We privately met. He had a 1 year non compete, so it was a great opportunity to get to know him personally. And then Eric knew Wendell investment world. They used to chat every year just to check in and Wendell was transitioning back to Chicago.
[00:06:49] Rodney Herenton: He had lost his father and it was an easy due diligence. Once Eric connected me with Wendell graduated Howard University. I'm a more house grad. A lot of people go from Memphis [00:07:00] to D. C. R. to Atlanta. So due diligence took 1 hour when we found the same people. So that's kind of the genesis of the talent pool and coming together with these distinct skills and experiences to ultimately form Channing capital.
[00:07:16] Stacy Havener: So cool. And I love the people part because it's easy for us to forget in this business when there's so much numbers and stats and all the things. It's easy for us to forget that at the end of the day, in every industry, even in ours, people do business with people. And that story you just told about the three of you is proof positive there.
[00:07:40] Rodney Herenton: Everything with us is about the culture and people, the investment, the talent. That's the given you have to be good. I spent months with Eric, just trying to understand his goals. If they were aligned with mine, then when Wendell came into picture, we clearly had to make sure we knew how we wanted to [00:08:00] position Channing.
[00:08:01] Rodney Herenton: Cause we had to be unique and different even titled this daring to be different. A me too strategy would not work, particularly starting off as an emerging firm, even how we launched. I mean, we didn't launch with zero under management. There was no way I was going to do that. I had small children at the time.
[00:08:19] Rodney Herenton: I knew we had to have a UM out the gate. So I got to reach Morgan Keegan to sponsor us. We launched at 70 million, 20 years ago, which back then that was unheard of. That was a lot.
[00:08:31] Stacy Havener: That's a great point. And I want to talk more about this as we get into the heart of the conversation. It's tough. It is tough to build a boutique.
[00:08:43] Stacy Havener: And it was tough then, and you could argue it's even more difficult now. So let's talk about that. So you gave us a little context on Kind of that seed investor that founding investor who again people do business with people was your former firm brilliant, right? That's founders network at play [00:09:00] So you've got that and what's the strategy because you talked about unique and different So what was the flagship strategy or strategies that you kind of launched with?
[00:09:09] Rodney Herenton: Back then, we knew we had to launch off of the success that Eric and Ariel running the mid cap strategy. So that's what attracted us to regions to take over a disappointing mutual fund that they had. So, I guess we couldn't do any worse than what they were doing. I don't know if that's good or bad, but at the time, the fund had about 110Million by the time.
[00:09:34] Rodney Herenton: We transferred the assets to our custodian to sub advise that mutual fund. It was around 70M. So we employed a mid cap discipline, but quickly got into small cap. And that's where a Wendell really came in with his. Background further diversification when Eric was investing in mid cap, there was an exclusion of energy utilities were little or none.
[00:09:59] Rodney Herenton: And there [00:10:00] was a heavy emphasis on consumer when Wendell paired with Eric, he brought the diversification to make the portfolio participate in down and up markets to navigate volatility better. So, that pairing of those 2 afforded us good performance in small camp out of the gate.
[00:10:20] Stacy Havener: Let's take a little walk down memory lane then so you kind of are catching this falling knife here with this bid cap mutual fund you're taking over 110 down to 70.
[00:10:30] Stacy Havener: You catch it. You've got the right team though. So performance gets into gear. So what were those first few years like? What type of investors did you partner with and how did the growth trajectory go?
[00:10:41] Rodney Herenton: Because it
[00:10:42] Stacy Havener: can take a long time.
[00:10:44] Rodney Herenton: The 70M launched the firm, then trust, which is exponents. Now we're our 1st manager manager partners.
[00:10:53] Rodney Herenton: So thank them for that. Without that support. It's hard to get that scale to half a 1B. [00:11:00] so those were our early clients regions. Morgan Keegan. Excellence and leading edge, and then we started to attract the other manager managers progress investments at the time addicts. My dear friend, Lespawn and, um, that's how it started.
[00:11:16] Rodney Herenton: We quickly embraced the emerging manager programs and being that we set up our headquarters in Chicago, Chicago was 1 of the earlier cities and states to yes, opening up those pension funds for. So we were in a good position coming off a tech run and value was a great time to be a value investor.
[00:11:40] Stacy Havener: What year was this around?
[00:11:42] Rodney Herenton: We were setting the firm up in 2003 and we launched on Martin Luther King's birthday in 2004. That's our annual anniversary on his birthday every year around that time. We just celebrated 20 years this year in business. [00:12:00]
[00:12:00] Stacy Havener: Congratulations. And so from 70 million, 20 years ago, what's the AUM today?
[00:12:06] Rodney Herenton: We are 4.
[00:12:07] Rodney Herenton: 3 billion and with our pipeline, we should be crossed. If the market holds up, we will cross 4. 5, hopefully in a quarter. So we are trying to get to that next level. We're in a high water. This is the highest state we've had in our history.
[00:12:24] Stacy Havener: Congratulations. It is, it's a tough road. The building part, I think is tough.
[00:12:30] Stacy Havener: And I want to talk a little bit about that. So you've got the three of you and you're doing the thing. You're specialized, it's different, you've targeted the early adopter market, you're growing. When and sort of why, how, all the things, did you decide what was next? Like, Where'd you go from there?
[00:12:50] Rodney Herenton: Again, the first step, we recognized mid cap was a tough category.
[00:12:55] Rodney Herenton: Wendell took that small cap and we divided. Uh, [00:13:00] he focused on that, getting it set up for institutional quality. Remember, we were very fortunate. We were sub advising a mutual fund out of the gate. So, that afforded us to sub advise two mutual funds for the Calvert group at the time, which was so small. Oh.
[00:13:16] Rodney Herenton: So, in our 1st year of launch, we subdivised 3 mutual funds. Eric was running the mid cap for Calvert. Wendell was running the small cap. So, we took that small cap and said, we need to build on that. And Wendell said, hey, I'll focus on this. Eric will continue mid. And that's literally the sea change of the business.
[00:13:37] Rodney Herenton: Capital Prospects was our first institutional account for small cap. So thank those ladies up in Connecticut for the vision to see that we could take that small cap to where it is today. So that's kind of the evolution of the adding product. It just kept going from there.
[00:13:58] Stacy Havener: Are you an investment boutique looking [00:14:00] to grow your business and need a little help?
[00:14:02] Stacy Havener: If you feel like you're fighting for the spotlight and well, still stuck in the shadows of the bigs, join us in the Boutique Investment Collective, Havener's new membership community dedicated to the specialist in the investment industry. In the collective, we'll guide you through the billion dollar blueprint we've used to help boutiques add over 30 billion in AUM.
[00:14:21] Stacy Havener: You'll refine your story, focus on your ideal target market, and practice your pitch. You'll rethink your marketing materials, rewrite your emails, and refresh your differentiators. We'll even help you step up your LinkedIn game and give your profile a makeover. You want to grow your biz? We've got your back.
[00:14:39] Stacy Havener: Learn more about the Collective, the curriculum, and the amazing coaches who will help you on your journey. Visit HavenerCapital. com slash Collective. High five! Hope to see you in a coaching session soon.
[00:14:58] Stacy Havener: At what point do you [00:15:00] decide maybe there are other specialists, other kind of founder fund manager type people that might be a good fit for us?
[00:15:10] Rodney Herenton: You have to plan out succession retirement, so I had to be aligned with when Eric wanted to retire. Eric is older than myself. He had an exit from Ariel. He was at a different point.
[00:15:26] Rodney Herenton: So, it started with our advisory board to make sure That we could have an orderly buyout and retirement for Eric. I think about it. Eric was the largest single shareholder Eric 47 percent of the business. So, most small emerging firms do not make it because they can't agree on how to transition equity and ownership.
[00:15:50] Rodney Herenton: So we spent 2 years. Mapping that out. And once we got that done, that freed up the [00:16:00] opportunity to move on to build out what is our platform today. So, small cap was at a point where we knew we had to manage capacity. We knew that we didn't want to be a 1 product firm. So, that's when I started talking to clients.
[00:16:17] Rodney Herenton: Industry friends who's out there. Man, I called exponents, Tina and Mac or have become personal friends of mine and they directed me to some talent that they felt could fit our culture. So I spent a year just talking to people and that's how I reacquainted. I was actually on a panel. Josephine Himenez and then I met Ron through an industry friend in Miami.
[00:16:44] Rodney Herenton: 'cause we used to go down there for the art weekend. And so Ronald Holt, I got to know over almost a two and a half, three year period. So these were vetting that took place over time. This was not a fire sale. Find someone block. Yeah. You know, a, a [00:17:00] non us. People drive these businesses Wendells like a brother.
[00:17:04] Rodney Herenton: I mean, we may fuss and fight, but it's like 5 minutes. We're back doing what we were doing before that debate or difference of opinion. So it's just that's how we operate it. I mean, the trust level is beyond what most firms have. So it was a logical involve your clients because those are the ones who could potentially find
[00:17:23] Stacy Havener: that
[00:17:24] Rodney Herenton: smart.
[00:17:26] Rodney Herenton: It's been exceeded our emerging market strategy. And my foundation seeded our internationally developed that Ron runs. So again, out of the gate, we launched Channing Global with AUM. We did not launch and hope. We had over 100 million committed when we launched the firm.
[00:17:45] Stacy Havener: This is like a masterclass of just building here, because I'm seeing the threads of your investment banking.
[00:17:53] Stacy Havener: Components, especially that it was these family owned businesses and thinking about legacy and [00:18:00] generations. I'm seeing the thread of your dad's unique ability as a politician of your ability to network and take your time and meet people and find the right people. It's awesome to see your back story really express itself in the business.
[00:18:17] Stacy Havener: So now you've got small cap. Mid cap em and global. Did you say
[00:18:22] Rodney Herenton: on the chaining capital side? It's micro cap small smid large and all cap value So five actively punished
[00:18:29] Stacy Havener: today Sorry, let me clarify but then it was kind of small mid. It was
[00:18:34] Rodney Herenton: small cap really small. Yeah Smid and large and all were kind of emerging, but when we start with the non U.
[00:18:43] Rodney Herenton: S. division, small cap was attracting a lot of and the fear of having that 1 large and just looking at the marketplace. I mean. You look at firms like victory artisan of the last 10, 15 years, they've evolved into [00:19:00] these platform type businesses, artisan under their brand victory under these multiple brands that put them in different channels and different products through acquisition.
[00:19:10] Rodney Herenton: We don't have the capital that a victory has, but we're certainly being thoughtful of how we bring in these talented people and fund these different organizations.
[00:19:19] Stacy Havener: Yeah, and they're differentiated. I mean, I think that's also going back to what you said at the beginning. It's really tough for a boutique to get a look, right?
[00:19:30] Stacy Havener: It's really tough.
[00:19:32] Rodney Herenton: Yeah.
[00:19:32] Stacy Havener: And so going into these inefficient asset classes where there really is the ability to generate alpha, if you have somebody talented at the helm, that was smart because it established you as a player in these niche asset classes. And that's kind of been a mantra for you, again, the daring to be different, that's kind of been the mantra for you as you've built the [00:20:00] platform.
[00:20:01] Rodney Herenton: I have to give just kudos and a lot of credit to my business part of Wendell. I mean, to take over that small cap and literally focus on it, uh, knowing that it's capacity constrained product, it could separate us from the crowd. Keep in mind, 20 years ago, most diverse firms were coming in fixed income, large.
[00:20:24] Rodney Herenton: A lot of that around, so we again, differentiated ourselves being at the lower end of the market cap spectrum where those firms were growing, closing, selling that laid the foundation for what you see today. Again, there's no 1. I and Channing. It took a concerted effort and vision for Wendell to say, I got this.
[00:20:49] Rodney Herenton: And for me, we got to add more to the platform, but that's not bank everything on. Channing capital, we need to initiate and kind of set up some new [00:21:00] affiliates because unfortunately, you miss the boat on performance. Whether Wendells, the PM and you have Josephine around, they're going to hold us all hostage.
[00:21:10] Rodney Herenton: It's unfortunate, but we're not Goldman or BlackRock. They have all 100 different strategies all working at different time. They can shut this down, open it. We can't do that. We got so that's why you see, if you go to our website, then your firm helped us evolve into this.
[00:21:28] Stacy Havener: Great. Yes.
[00:21:30] Rodney Herenton: You see Channing Capital, Channing Global, Channing Ops.
[00:21:34] Rodney Herenton: And all different distinct leadership, but neither one of those will rock the boat on performance. A. U. M. They can all stand on their own, but it's all under that Channing umbrella.
[00:21:46] Stacy Havener: Yeah, it's really a story of unique ability teamwork, isn't it? Because Wendell said, I got this. I love that phrase and you were like, cool.
[00:21:55] Stacy Havener: I got this. And of course, we're collaborating along the way, but it's just that's [00:22:00] awesome.
[00:22:00] Rodney Herenton: This is key. We seek advice in that boardroom when we were getting ready for a dear partner's, uh, retirement, Eric titles, roles, Wendell, we've been running the firm just lock and load. Yeah, my side, he stays on the side.
[00:22:16] Rodney Herenton: Trust. We brought up the titles. No egos. It was like, well, I'm CEO. I'm CEO. We're CEO. And most times that strategy does not work. You're right. Oh, low probability of success. Oh, look at the corporate companies that have tried it. Disastrous. Oh, you must do a straw vote in the operating grid. We didn't do any of that.
[00:22:39] Rodney Herenton: We don't have straw vote. We're co CEO. And we make joint decisions and we've not had one single argument on the difference of how we are going to direct the growth of the firm.
[00:22:51] Stacy Havener: Well, let's talk about that. I mean, it's good, by the way, to have healthy debate. I mean, that's really a sign of trust, right?
[00:22:58] Stacy Havener: Because if you can't [00:23:00] challenge each other, that's not healthy either. Why do you think that works? Because co CEO in any industry. It's tough.
[00:23:08] Rodney Herenton: You have to really be self confident. If you're insecure about titles or roles or who's making an impact, you're destined for some challenges. I'm very confident with what I've contributed to the firm.
[00:23:24] Rodney Herenton: I want to grow about how at the outset I wasn't the lead shareholder. I never go out and say, Oh, Rodney came up with, it's three of us came together. That's the story. And we all brought value to the table and at different points, people added different value along the way. It changes. So you have to be very comfortable that the value proposition is going to change over time.
[00:23:49] Rodney Herenton: And we're all in it together and we all. We'll benefit together. I never thought that I needed to be the controlling shareholder 100 million under management versus [00:24:00] I think I'm it. I don't know where I am 38 percent 4. nearly 4. 5 billion. I'll take the latter.
[00:24:07] Stacy Havener: It's really funny because as an industry that's so good at math, the math that you just did, a lot of fund managers struggle with this.
[00:24:16] Stacy Havener: He's like, they'll come to us and they're like, well, I want to charge, let's just pick an outrageous number. I want to charge 2 percent on my small cap. And it's like, okay, well, no one will buy it. Well, they should, because my net performance is really good. Even at 2%. And it's like, well, do you want 2 percent of nothing?
[00:24:32] Stacy Havener: Or do you want a lower percent of something? And that is somewhere embedded in the value system of the people, isn't it?
[00:24:40] Rodney Herenton: Yes. Now, I'm going to say something. I'll get a lot of hate. Oh, no. I'm not a portfolio manager, so I can say this. No, that's
[00:24:48] Stacy Havener: okay. Yeah.
[00:24:49] Rodney Herenton: A lot of portfolio managers aren't great business people.
[00:24:53] Rodney Herenton: It's true.
[00:24:54] Stacy Havener: But you know what? It is true. And the sign of a great partner [00:25:00] here is somebody who can own it. Because if you're a fund manager, and you've tried, I agree with you, by the way. And I love that you said it. And I think a fund manager who's tried to build their own boutique is going like nodding right now, right?
[00:25:16] Stacy Havener: Because what they realize is, it's not only that they're not great at it, they don't love it. They don't love it. You love it. You love to build a business. They love to invest. And what happens when you are a founder fund manager, slash, is you're both. And, You can't spend all your time on your passion if you're constantly worrying about compliance and this filing and the lights and the, you just can't.
[00:25:50] Rodney Herenton: Various reasons, sometimes businesses start at the wrong time, they couldn't scale, whatever reason, but our platform, we're affording these great investment [00:26:00] professionals to rid them of all of that distraction, the compliance. That's right. Right. Marketing client service. So that's unique within itself.
[00:26:08] Rodney Herenton: Channing Global, they're focused on investments. We're taking a lot of that. Distraction and things like that off the tape.
[00:26:16] Stacy Havener: So you bring in Josephine and Ron and what year was that around?
[00:26:20] Rodney Herenton: We launched in 2018. Forming the division, setting up SEC registration, all that was going on late 2017, but the official launch was in 18 with.
[00:26:36] Rodney Herenton: The funding that I mentioned earlier with those 2 rounds. We have 5 year track records for all of those strategies. And with Ron, Ron was running his firm. And so rather than stop his track record, we lifted that and bought that work with a great firm to do the performance. Audit and we link that so our [00:27:00] global value strategy is even longer.
[00:27:02] Rodney Herenton: I think it has a 7 or 8 year track record now. So that's a scale that and continue the great work that Ron's done.
[00:27:11] Stacy Havener: Love that. That was a great move. And again, these are things that like. That's part of how to build the business and finding the partners to help you do that. So that's great. Talk about the next evolution, the next category, the next people that you've added to the team.
[00:27:30] Rodney Herenton: We talked about Channing capital management. We're running that. We talked about Channing global Josephine and Ron. Well, we have 5 actively funded strategies. Global emerging markets, all cap emerging markets, long cap, large cap and small. Then you look at the marketplace private markets becomes the next way.
[00:27:54] Rodney Herenton: Private credit, private infrastructure,
[00:27:56] Stacy Havener: private, everything,
[00:27:57] Rodney Herenton: real estate, private, everything. [00:28:00] You look at our firm. Our DNA is not to be the 1st mover. We're not trying to be the trailblazer. Out there trying to create, we sit back, we watch, we observe, we analyze we're doing that even with capacity on small cap.
[00:28:15] Rodney Herenton: I mean, small cap. Now we have 3Billion. We've studied it. We know where we can comfortably. Manage that without jeopardizing performance. So you're looking at all this private credit, private equity, and we just, we've been patient. Our former chief compliance officer was Dana pointer, who's now the CEO, uh, preserver partners.
[00:28:38] Rodney Herenton: And when we launched 1st, Tennessee was a strategic partner in Channing capital. We've since bought them out, but Dana was kind of loaned to us to be our chief compliance officer, which is her background. So, when we were getting a new money in our small cab from a family office in Memphis, Dana came up to meet the family office and those gentlemen employed [00:29:00] Tyler.
[00:29:00] Rodney Herenton: Who was at Gerber Taylor at the time. That's when Dana met Floyd, and Floyd later started Preserver Partners in Memphis, Tennessee, my hometown. So I'm a little older than Floyd. We kind of all went to the same high school, Central High School, but I was older than Floyd. So that's when Dana met Floyd in my office in Chicago.
[00:29:18] Rodney Herenton: And lo and behold, Floyd taps Dana to join preserver partners some years later. So I kept in touch with them. I've watched Floyd built this great multi asset strategy business, and he was way ahead of the marketplace thinking about how can I. Generate alpha, but in a thoughtful way of preserving capital that people made or institutions have without trying to have all the volatility.
[00:29:43] Rodney Herenton: So lo and behold, they have a 14 year track record. They got to about 250 million in a UM, and unfortunately, Floyd passed away last February of last year. So. Dana and I spoke, she had a Wendell to find a new CIO, which [00:30:00] she now has brought in Caroline Lovelace, who has a hedge fund background out of New York.
[00:30:05] Rodney Herenton: So those 2 are leading preserver partners today. They preserved all the assets, the clients, 90 percent of them stayed, they're still over 200 million and doing well and we became a strategic partner with them. So, rather than go after private equity or private credit. We're getting a little bit of that through their portfolio.
[00:30:26] Rodney Herenton: What Preserver Partners does is they are investing in more esoteric spaces, real car leases, wholesale trade financing, law claim settlements, big business, and private credit. So they're putting together a multi assets approach to generating a yield for their clients. Their target yield is 8 to 11 percent.
[00:30:48] Rodney Herenton: And lock small foundations and down, it's high net worth individuals. We have a very diverse time base. So, what that does is offset the volatility that we have on our long only [00:31:00] public equity side. So, we're still participating in private markets, but in a thoughtful way that complements our DNA and gives us something very unique in the marketplace.
[00:31:10] Rodney Herenton: 1, 2 women running. Yes. One, they compliment each other's skills. Dana with a compliance background leading the firm. I do not sleep at night. I lose sleep at night with compliance and Caroline seeing every type of hedge fund approach and risk management to the table, being able to come right in and not change the stripes, but just tweak, modify and improve a little bit.
[00:31:34] Rodney Herenton: So we are in a unique position. To have this new division Channing alternatives that took a minority stake to be an affiliate partner, a preserver partners, and they used our distribution and marketing because they're not well known in the general marketplace. Floyd was a PhD, but kind of an introvert.
[00:31:54] Rodney Herenton: He liked to be on a portfolio. So now we're bringing some marketing and distribution [00:32:00] to them, helping them build that out. And I see. Big things for them in the future to go from where they are now to well over a billion if they choose to.
[00:32:10] Stacy Havener: My gosh, I mean, and this is the stuff. This is the juice, right?
[00:32:15] Stacy Havener: Because when you're in a meeting with an allocator and they're looking at numbers and fact sheets and things like the nuance and the stories, it's information that they can't get on their own. They need someone to tell them that legacy and how this is being built and. As we said at the onset, people do business with people.
[00:32:37] Stacy Havener: And I just love the backstory that you shared with us. I mean, Dana, like the connectivity.
[00:32:43] Rodney Herenton: Awesome leader, visionary. She works harder than anyone. She knows she's unique in the marketplace. Again, two women in a space that's very competitive. So again, just great people with high value [00:33:00] personalities. I mean, I just enjoy.
[00:33:02] Rodney Herenton: Working with all these partners. I really do.
[00:33:05] Stacy Havener: And as you said, one of the things I love that you said at the beginning, the talent, the fact that you're good at what you do is table stakes. It's table stakes and you don't have to keep pounding the table over and over again to prove it. So what makes you different?
[00:33:21] Stacy Havener: What makes you different? You're good at what you do. What makes you different? That's really different is better than better.
[00:33:28] Rodney Herenton: You have to get out of your own way. There's no way. I can do everything you're chanting. There's no Wendell can do more than truly continue to drive alpha and value for small and smid, which is his ultimate strength.
[00:33:48] Rodney Herenton: And then he's a great leader. With me, and everybody has to have their core focus and then you divide on the rest. So, I mean, we [00:34:00] have management committees, Channing global. We meet early for high level discussions, but we're not meddling in the portfolios. We're not telling people what they've done for 20 plus years.
[00:34:11] Rodney Herenton: And so. He goes out of the way trust collaboration is the only way a boutique firm can make it. And you've got to figure out how to scale your business away from just you and your original partners or else it's going to be tough and people look at like, they look at your organization say, oh, it's all about those 2 or it's all about him.
[00:34:35] Rodney Herenton: That's risk within itself.
[00:34:37] Stacy Havener: Absolutely. Absolutely it is. And I think I want to go back to something. Actually, now that we're talking about this, I want to go back to something you said earlier, because I think it's an important point. So one of the things you hear from fund managers, especially ones who have spun out and started their own thing, is kind of the push me pull you between [00:35:00] AUM and Alpha.
[00:35:01] Stacy Havener: If somebody's good at what they do, fund manager's good at what they do, they generate alpha assets and they're successful at distribution, the assets follow and then you have this like the business people want more money, more money, more money and the investment people are like time out. I can't execute my process if the capacity gets away from me and you mentioned that you and Wendell have those conversations and I don't like that dynamic because.
[00:35:30] Stacy Havener: A lot of fund managers that spin out, that's one of the main reasons. It's like it just got too big for me to be able to execute my process the way I want to. And so are those conversations, I would imagine that that's something that you're all talking about together.
[00:35:46] Rodney Herenton: It's amazing they know exactly what their capacity constraint is and how they can deliver.
[00:35:51] Rodney Herenton: I mean, that was part of our due diligence. I mean, Dana and Caroline quickly said, this is our number. Josephine and Ron know [00:36:00] exactly where they can add alpha and where they need to close out and same with Wendell. So it's amazing that they've just been in the industry. We've seen the horror stories.
[00:36:09] Rodney Herenton: Affirms is taking it too much and write it up and write it down. Um, so you don't have that debate of difference. We are all you're aligned. That's great. Emerging manager, manager programs, get you there. Then you have to start looking at channel mix, which we did. I mean, we have commingled funds. We have a mutual fund.
[00:36:30] Rodney Herenton: We have a collective investment trust. We had to do all of these things so you can better manage your fee offering because. That's another thing. If your capacity small cap is 4 billion, are you going to fill it up on platforms at 40 bps, 35 bps, or are you going to say, we got to go after the stickier business, family office, foundation endowment.
[00:36:56] Rodney Herenton: So you have to think about that stuff before you get there. And [00:37:00] we've done that. It's worked so far.
[00:37:03] Stacy Havener: So good. And as an investor, this matters, too, because you don't want to have your boutique, your specialist that you're allocating to get in a situation where one client leaves and they're toast. Business risk is very real for an allocator.
[00:37:19] Rodney Herenton: If you have the chance to talk about to Josephine, I mean, she'll tell you was well over a billion. I think 5 or 600 million of that was Russell.
[00:37:30] Stacy Havener: Oh, no,
[00:37:31] Rodney Herenton: I mean, out of our control, they did a
[00:37:33] Stacy Havener: rebalance
[00:37:34] Rodney Herenton: and talk about. Run on the bank, then the next client CalPERS is looking cross sided in the next line. So it can happen to the best.
[00:37:43] Rodney Herenton: It wasn't performance. It's the ugly word concentration risk. You have to think that that's why, you know, small gap 3Billion a day. Uh, we're headed to 4. 5, so there's a cushion there. And it's not what we want, but at least it's [00:38:00] heading in the right direction that if we were just 3 billion in small cap, yeah, with specialists, we'd have to stay on it.
[00:38:06] Rodney Herenton: But, you know, how this goes high quality. We have absolutely low quality. We have this rally concentrated more. Index driven the cycles and what we're trying to do is. Uh, smooth out cycles where we have 10 actively funded strategies and public equity. That can keep us relevant at all times. And then we have our private markets when that gets of size when equities out of favor and your orientation is important.
[00:38:35] Rodney Herenton: Our stability. We're not correlated
[00:38:37] Stacy Havener: again. It's that combination. It's the extra special of specialists, right? It's like when they're all together, right? Because if it's just one strategy that you're known for, you're going to live and die by the tailwinds or headwinds of that asset class too. It's not just how good are you, it's what's happening to the, uh, the sort of [00:39:00] top down macro stuff as well.
[00:39:03] Stacy Havener: And so I think it would take the pressure off. If I was a fund manager as part of your team, because I don't have to, if emerging markets is going through a tough time, I mean, it stinks if that's your specialty, but like, it's not going to kill your business.
[00:39:19] Rodney Herenton: People like to invest with winners, so they're looking.
[00:39:22] Rodney Herenton: Oh, well, Channing has survived the financial crisis, the pandemic, and small is now 3 billion. We get credit for it. I mean, we just got approved for platforms for Channing Global that most firms don't get until a long time. I mean, we're on some, we have more foundation accounts. Endowment and Foundation accounts with Channing Global than we did at the start of Channing, just because, again, all this stuff comes together when they're looking at due diligence.
[00:39:47] Rodney Herenton: Oh, is there any financial stability risk with Channing Global? No, the parent company is supporting it. They're not worried about our survivability or lack thereof. Because we address, you try to take all the [00:40:00] barriers you hear. We can't be more than 20%. Oh, you're not profitable. Oh, you're not over half a billion.
[00:40:05] Rodney Herenton: Okay, well. We're all affiliated. So why can't you give Channing Global credit if we got a 3. 5 billion dollar parent company? You have to challenge the traditional method of fund manager selection respectfully.
[00:40:22] Stacy Havener: Again, I agree with you and I think that's a great segue into some questions because I want to talk about just the challenges of a boutique now versus Then, so to speak, and I think a respectful challenge of the status quo or sort of pointing out a different way to think about something to allocators or platforms is also healthy, right?
[00:40:46] Stacy Havener: So I love that you're doing that. So I saw a couple questions come in. Somebody had a specific question about invest like small cap and performance. We're not going to do that today. Rodney, Steph, and I were in the green room, [00:41:00] we kind of came up with an idea that maybe we should do some webinars, a series of webinars with each of the boutiques, where we can dive more into the investment side and the specificity around a particular strategy.
[00:41:14] Stacy Havener: So those types of questions, we're going to have someone follow up with you from the Channing team to talk you through that. So keep them coming because we're capturing all of them. And it also lets us know who needs a phone call. Thank you.
[00:41:29] Stacy Havener: We're going to continue on what advice would you give your younger self or a young equity research associate just starting out?
[00:41:39] Rodney Herenton: Okay, if they're on the research side, I'll take it from two angles. If they're trying to move up to become a PM at that firm, and then if they're trying to get skills to one day launch that firm, you have to think like an owner.
[00:41:54] Rodney Herenton: We're not always looking at our talent pool that those who rise up and really become the [00:42:00] franchise players are those who think like an owner. They're beating on stocks that are not portfolio sharing information. It may not be a stock that they cover. They're thinking like an owner. It may be. I was out and saw something that could impact our portfolio, whether I was in the mall or saw something, I read something just sharing information as simple as that.
[00:42:23] Rodney Herenton: An analyst has to be curious. Intellectual curiosity, they have to be in tune with the lead portfolio manager, and it's not always. Oh, my stocks worked well, right? That's a common denominator. We want you to pick the stocks, but that doesn't mean you're going to be a great teammate. That doesn't mean you could attract other talent under you.
[00:42:44] Rodney Herenton: Could you be director research? 1 day? All those take certain skill sets a PM to me. The good ones can get on calls like this and impress people with their knowledge in a humble way and also engage. With [00:43:00] others to entice them to want to put money in the fund. It's a lot of qualitative skills that you have to have as a technical analyst that you're kind of required to have to get the job because that's a very analytical approach.
[00:43:12] Rodney Herenton: But I find the best talent is when people are developing skills that they may not have that are strong. I mean, take some speech classes. Go out and get some social skills in the smartest analysts on the team, but no one wants to travel with you. Good luck moving up. So that's the best advice on moving up.
[00:43:33] Rodney Herenton: If you're trying to get skills to start your own firm, you need to see a lot. There's debates on specialists versus generalists. Mm. I would the generalist route, so you can see a lot and think like a portfolio manager, you could have two or three sectors that outperform the others don't. And that makes your year.
[00:43:52] Rodney Herenton: So if you're just siloed in tech and tech's been a little out of favor. You may not be able to see the full [00:44:00] picture of these market cycles and gyrations to be effective. P. M. 1 day. That's a debate not to say there's a right or wrong, but you need to know your own D. N. A. If you're trying to ultimately run money, you're going to have to know how to construct a portfolio and manage risk.
[00:44:15] Rodney Herenton: You can be a great stock picker. And I'm sorry when you get 40, 50 stocks and you only pick 10 that are great and the rest are sub performance. Good luck.
[00:44:27] Stacy Havener: I love the advice on the qualitative side. What a way to differentiate yourself because I think you're right. This is such a technical skill. Investing and it's so quantitative and people think, Oh, well, that's where I have to really, you know, have the chops.
[00:44:45] Stacy Havener: And yes, you do. But so everyone else has the chops, too. So what makes you different? And remember, these are all businesses that we're building. So getting capital is critically important. If you can show your [00:45:00] dynamic in a meeting, you've taken presentation classes or speech classes, you've lived a life where you've been social.
[00:45:07] Stacy Havener: Like these, that was fantastic.
[00:45:09] Rodney Herenton: Well, that's what a PM or his team makes to step in. If, Hey, I got to go take this client meeting, John, I need you to step in this meeting and I have confidence. One, you won't over talk, take credit, all those things that can be in a business. Yes.
[00:45:27] Stacy Havener: The other question you kind of answered, which was any advice for aspiring future founders.
[00:45:32] Stacy Havener: This person is currently completing their master's degree.
[00:45:36] Rodney Herenton: I think I was 33 when I began the thought process of wanting to launch a firm. And then by the time we launched that, I was probably 35. So I consider that young in the investment field. And then. Leaving out to launch a firm again, I did not know all those business skills were going to come together, but they were definitely [00:46:00] beneficial to my role within the startup.
[00:46:02] Rodney Herenton: I would say you have to start reading on good business leadership skills again, the investments. And the marketing are given, you have to put up good numbers and you have to know how to market the numbers in a thoughtful way to attract capital. Those 2 are given. It's the other things that can make or break you.
[00:46:24] Rodney Herenton: And you got to develop those skills, or if you don't have them, you got to be smart enough to know how to attract them. So reading up on bestseller books on leadership qualities, effective leadership management skills. That's probably your best bet. That's easy. That won't cost a lot. And then mentors. I had great mentor.
[00:46:42] Rodney Herenton: I cannot tell you their names because I'm keeping them private, but I've had great, I stand on the shoulders of many great. Right. Mentors that have allowed me to see what they did and allow me to kind of take some of those tools and apply to Channing. [00:47:00]
[00:47:01] Stacy Havener: Powerful. How about a book? Is there a book that you could recommend?
[00:47:05] Stacy Havener: You mentioned leadership books. Is there one that jumped out
[00:47:08] Rodney Herenton: to you? I moved away from book recommendations. I got in trouble with books. So last one, I was like, yeah, somebody said I hated that book. So, okay. Well, and then what I do, I stay away from books that are in the investment deal, because that's all I do.
[00:47:23] Stacy Havener: I
[00:47:24] Rodney Herenton: like history. I read up a lot of history. Obviously I attended Morehouse college, so African American history is important to me. So my reading is different. I would say read up things that can help you develop skills to plug your kind of deficiencies, things you need to self improve on. But my reading is more personalized.
[00:47:46] Rodney Herenton: I read up on a lot of history. I try to learn from history to not repeat it. And, uh, I collect photography. So there's a lot around that, that I read up just on photography, but I Nothing that [00:48:00] I could share recommendation is just read what is interesting to you that can help. That's right. Better improve yourself.
[00:48:09] Stacy Havener: Totally. And when you're reading something that lights you up like photography or history, you see threads. Sometimes you get real inspiration from. Outside of the business that you say, Oh, you know, that's super interesting. And that makes me think of this with what I'm doing. So I think that's a great recommendation
[00:48:29] Rodney Herenton: as investors.
[00:48:30] Rodney Herenton: We have to read so much. I mean, the investment team, they're reading all the time, the stocks, the streets. So, uh, for those who are on that side of the wall, I'm sure you're probably burned out of reading, but again, it's all about self improvement, self awareness or the investment professional side.
[00:48:46] Stacy Havener: This has been fantastic.
[00:48:49] Stacy Havener: Well, listen, thank you, Rodney, so much for being with us. all. This has been a pleasure to really see the people behind Channing and get a sense of the legacy, but also the [00:49:00] vision of what you're building. Is there anything else you want to share with us about that vision? Congrats on the 20 years, amazing success.
[00:49:09] Stacy Havener: Anything you want to share about the vision from here in that next chapter?
[00:49:13] Rodney Herenton: Well, you all titled this great daring to be different, just be unique, be authentic, but craft and define your own road to success. Don't feel the pressure that there's one way to get there. We've defied that model. I believe Channing and its platform is unique to the marketplace, given our size, our makeup of the diversity amongst men, women, people of color.
[00:49:39] Rodney Herenton: Backgrounds. We are truly trying to differentiate ourselves. Not that we'll get it all right, but I can tell you, we're in for the win. We're in to separate ourselves from traditional crowds and just be yourself. And it's okay to make mistakes. I've made many personally. Professionally, and [00:50:00] I'll make many more, but center yourself around people who can catch you help build you back up so you can continue to run your race because life is a decision tree and every move you make will have probability to those choices and the outcome.
[00:50:16] Rodney Herenton: We'll determine if you made good choices at the outset.
[00:50:20] Stacy Havener: Fantastic way to end the call. That right there is authentic leadership. My friends. This podcast is for informational purposes only and should not be relied upon as a basis for investment decisions. The information is not an offer solicitation or recommendation of any of the funds services or products or to adopt any investment strategy.
[00:50:41] Stacy Havener: Investment values may fluctuate, and past performance is not a guide to future performance. All opinions expressed by guests on the show are solely their own opinion and do not necessarily reflect those at their firm. Manager's appearance on the show does not constitute an endorsement by Stacey Havener or Havener Capital Partners.
You May Also Like
Resources
