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It’s been ten years since I lost my dad and business partner, William Berkowitz, but he still inspires me both personally and professionally.

Here’s the tribute I wrote to him in my quarterly letter for Q3 2004. Every word of it rings true today.

william-berkowitz

 

WILLIAM BERKOWITZ: FOUNDER, FATHER, AND INSPIRATION

My dad William Berkowitz (“Bill” to most of you) died peacefully in his sleep at his home in Sarasota, FL, on Sunday, August 22, 2004, after a long battle with cancer.  As President of one of the nation’s first and largest retail money market mutual funds, Dreyfus Liquid Assets, he helped to transform the way Americans save.  As he told Forbes in 1980, “…the savings public is becoming more sophisticated.  It will not stand for this 5% rate on passbooks (savings accounts).” And so he fought against the regulation of the money market industry to ensure that the American saver could take advantage of prevailing high interest rates.  He also welcomed competition from banks by testifying in favor of lifting Regulation Q – which prevented banks from paying prevailing high interest rates on savings accounts, thereby competing with his own money market funds!

 

In 1964, a 23-year-old William Berkowitz went to work at The Dreyfus Corporation, the New York-based investment management firm.  By 1974, he had become an officer, and soon thereafter he created and became President of Dreyfus Liquid Assets, one of the first retail-oriented money market mutual funds.  Dreyfus’ money market services and assets grew to a top industry position under his leadership.  By 1981, most of Dreyfus’ $12.4 billion of assets under management were in short-term money in over 300,000 accounts.

 

My dad later became President of the Reich & Tang, L.P. Mutual Funds Group and Executive Vice President and Director of Reich & Tang L.P. in 1982. The Mutual Funds Group grew rapidly under his leadership until 1994 when Reich & Tang, L.P. merged with the asset management division of the New England Companies, creating one of the largest investment management companies in the world.  He was also a Vice President and Board member of various third party mutual funds like Gabelli Asset Growth, Equitable Life’s money market mutual funds, and Speers, Benzak, Solomon, and Farrell Funds.

 

He was born September 20, 1941, in Bronx, NY.  Before receiving his Bachelor of Science in Finance from New York University in 1963, he attended Syracuse University and graduated from Stuyvesant High School in Manhattan in 1959.  He lived in Middletown, NJ, and commuted to New York City for 16 years before moving to Sarasota, FL, in 1982.  He retired from Reich and Tang, L.P. in 1994.

 

Inspiration for Rapidan Capital (Now Known as ValueAligned® Partners)

 

For as long as I can remember, I wanted to do what my dad did.  I am sure that none of my classmates or peers knew as much about mutual fund governance as I did – especially when I was 10.  But despite his success, Dad never promised that my professional life would be easy.  He often warned me that it would be very difficult for my generation to do as well as he had done, especially in the investment management business. Despite all his innovations and experiences, Dad attributed his success mostly to luck.  He was lucky to be in the right place at the right time.  But by the time he retired in 1994, he sensed that the traditional investment management industry was due for major changes, just as he had sensed 15 years earlier when Reg Q was lifted.

 

Dad suggested long before Elliot Spitzer became New York Attorney General that the growth in mutual fund assets led to sub-par performance for the average saver because fees and portfolio managers’ salaries were tied to marketing campaigns and not to the performance of clients’ accounts.  Fees went up as funds got bigger.  As funds got bigger, costs per account were supposed to go way down and returns up.  But the incentives were all screwed up, and as costs per account went up, returns went down instead.  No one noticed though, because we were in a bull market where returns were sometimes triple the historical trend.  Throughout it all, fund management companies were looking after themselves first and the mutual fund shareholder last.  Dad realized there was an opportunity coming for small- and medium-sized investment managers who kept expenses low and whose managers shared in the success of their clients, thereby creating alignment where there was very little before.  Even he was amazed, however, at the magnitude of the scandals and how the nonsense was rooted deeply in the culture of large financial institutions.

 

He reasoned that the long bull market in equities, a secular decline in interest rates and an increasing need for professionally managed investment products allowed firms to grow assets with relative ease.  New technology and a reversion toward more typical rates of return would drive a much more competitive environment which in turn would require the most significant changes in the investment management industry since the 1960s and 1970s.  And as the severe downturn in the stock market looked like it was coming to an end in 2002, despite people in the industry that thought he and I were crazy, my dad encouraged me to start Rapidan Capital (now known as ValueAligned® Partners) to take advantage of the coming trend.  He had given so much financial advice to friends and family over the years, he figured we might as well make a business of it and formally serve as advisors to those friends and family and others who will benefit from our new style of investment management.

 

During the final weeks of Dad’s life, we had long conversations about politics, religion, and economics.  When it came to investments, Dad was more of an expert in bonds and money market instruments than he was in stocks.  And even though he worked as an accountant for the aggressive growth stock investor, Jack Dreyfus, he really cut his teeth in the business during the economic malaise of the seventies with runaway inflation, record high interest rates, and recessions – all at the same time.   Dad was a fiscal conservative and believed, like many bond investors and traders do, that government budget deficits and high growth caused high interest rates.  Therefore, he was a skeptic about cutting taxes today and raising deficits in the short-term to provide for growth and lower deficits down the road.  He and I argued for years about the changes in the behavior of people and corporations that lead to low inflationary growth when you increase the incentive to produce.  I finally convinced him – or I should say the economy and the low interest rates in 2003 convinced him – which I considered a major achievement.

 

But that was how Dad’s brilliant mind worked.  It was calculating.  And it operated within a deeply held frame of reference, but it never prevented him from changing direction when the facts warranted it.

 

I read to him a quote from one of his heroes that he thought summed up his Golden Rule: Albert Einstein once said, “Try not to become a man of success but rather to become a man of value.”  Dad was a man of value, and as we succeed for our clients at Rapidan Capital (now known as ValueAligned® Partners), his idea of “adding value” and then allowing clients, employees and portfolio managers to share in the increased value will remain our guiding principle.

 

I miss his wise counsel and his daily support, but I go forward with confidence set by his example and his guidance through the too few years we had him with us.

 

Keeping the Legacy Alive

My dad and I started ValueAligned® Partners (then Rapidan Capital) in 2002 as a family-run business. Even after a decade without him, I still rely on his years of guidance and many words of wisdom as I continue his dream of helping American couples save enough to retire comfortably.

 

No matter where you are in your career, I encourage you to learn more about ValueAligned® Investing and how it can benefit your family.

 

Don’t hesitate to contact me at 732-800-2375 or david@www.valuealigned.com if you have any questions or would like assistance.