Patient Capital’s McLemore Outperforms Her Partner Bill Miller
(Bloomberg) -- Making a name for yourself on Wall Street isn’t easy when your partner is legendary investor Bill Miller, but Samantha McLemore is off to a good start.
Patient Capital, the institutional money manager that she started in July, returned 75% in the second half of last year, thanks in part to an August investment in Bitcoin. The Miller Opportunity Trust, which McLemore co-manages with him, rose 53%.
The two have worked together since 2002, when she graduated from Washington & Lee University and went to work for Miller as a junior analyst. At the time, he was guiding his flagship Legg Mason Value Trust to 15 straight years of outperforming the S&P 500, a record streak that captivated Wall Street and made him a household name.
Miller, 71, is discussing succession plans with McLemore, raising the possibility that she’ll one day run his flagship mutual fund. Meanwhile, it’s an opportune time for a woman to start her own investment advisory firm, McLemore said, given the attention that the #MeToo and Black Lives Matter movements have focused on providing a larger role for women and minorities in the workplace.
“There is a lot of interest now with growing enthusiasm for women and diverse managers and my background,” said McLemore, 41. “I know how important it is for younger women to see role models so they can believe there is a shot for them too.”
McLemore’s firm is managing less than $70 million, underscoring the struggles new managers face trying to raise money during a pandemic. Patient Capital has drawn funds from investors including Leon Cooperman and executives at some of the companies in which Miller and McLemore previously bought stakes. But because her firm is relatively unknown, some institutions are still evaluating, McLemore said.
“Dollars in the door have been a little slow,” she said, adding that there’s no rush to raise money because her firm shares the infrastructure at Miller’s firm, keeping costs low. “I am fine being patient.”
Miller, who owns 30% of Patient Capital, first met McLemore shortly after the 9/11 terrorist attacks while speaking at Washington & Lee, his alma mater. McLemore was part of an investment club at the school that was giving an investment presentation to Miller.
Her team “gave a very solid analysis,” Miller said in a phone interview.
In 2014, McLemore became a co-manager of the Miller Opportunity Trust, a $2.5 billion mutual fund that generated a net total return of 38% last year, more than double the 18% gain for the S&P 500. McLemore does a lot of the “heavy lifting” at the opportunity trust, Miller said, adding that there’s a lot of overlap between the fund’s investments and those of Patient Capital.
Like her partner and mentor, McLemore is oriented toward value investing, though their way of looking at value has always diverged from Benjamin Graham’s classic model. The duo often invests in growth stocks when they fall out of favor, including Amazon.com Inc., Restoration Hardware Inc., and more recently Farfetch Ltd. and Stitch Fix Inc., though they also hold stakes in classic value stocks, such as banks and airlines.
“Especially since the vaccine news came out, the value sorts of names have been massively outperforming,” McLemore said. “We have seen value outperform growth, and the portfolio is definitely positioned to benefit from that.”
This contrarian approach helped Miller’s Legg Mason Value Trust outperform the S&P 500 annually from 1991 through 2005. But after the fund plunged in 2008 and trailed the index for two of the three ensuing years, Miller stepped down as manager in 2012 and eventually left Legg Mason Inc. to go solo.
In 2014, he seeded a separate account managed by McLemore, helping her to establish a track record. After opening Patient Capital in July, McLemore invested more than 4% of its assets in Bitcoin the following month, swayed by the cryptocurrency’s evolving role as a digital form of gold.
“People can face large risks to preserving capital in their home currencies due to confiscation or inflation and gold can be used as a store of value,” McLemore said. “You can understand why a digital gold like Bitcoin would have a lot of appeal.”
Bitcoin, which now comprises about 6% of the firm’s assets, more than tripled in the second half of 2020, ending the year just shy of $29,000.
“She’s my only exposure to Bitcoin,” Cooperman said of McLemore in a phone interview.
Cooperman, a former hedge fund manager who knows Miller well, said part of the reason he invested $2 million in Patient Capital was because its fee structure is “reasonable.”
Patient Capital’s performance fee will only be applied to returns that exceed those of the benchmark, McLemore said. Her investment strategy had generated average annual gains of 24% in the five years through 2020, beating the 15% total return for the S&P 500.
McLemore, who grew up in Rutland, Vermont, attributes her value orientation to her parents. Her family, like most of her neighbors, had little money, and her mother held a series of sales jobs, ranging from real estate to new cars. McLemore said her mom’s financial situation worsened after her parents divorced.
“There were times she was worried about making the mortgage payment,” McLemore said. “I remember thinking ‘This will never be me. I will be financially secure.’”
McLemore had put some insurance proceeds she received from a dog bite into her college savings. Her father, a former construction worker, invested some of the money in Dell Inc. during the 1990s. The stock went from a split-adjusted price of 35 cents a share at the end of 1993 to $51 a share at the end of the decade. He also got her out of the stock before the tech bubble burst in 2001.
“I have always had that price-value gene,” she said.
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