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GoodHaven Realizes Its Vision

The firm is stepping out of Fairholme’s shadow, thanks to a big-time investor.

Kevin McDevitt, 01/31/2012

Life is rarely easy for startups, whether the business is managing money or creating the next social-networking app. Besides coming up with a compelling product or service, attracting capital is often the most difficult task. Fairholme FAIRX alums Larry Pitkowsky and Keith Trauner addressed that issue soon after they formed GoodHaven Capital Management, the advisor to GoodHaven GOODX, near the end of 2010.

But Pitkowsky and Trauner faced the additional challenge of distinguishing themselves from one of the most iconic managers of the past decade, Fairholme’s Bruce Berkowitz.

Launching a new firm is easier for some mutual fund companies than for others. The founders of Marsico, Causeway, Wintergreen, and DoubleLine all had track records at other shops before striking out on their own. That made it far easier to attract investor interest. DoubleLine, for example, has already collected about $14.6 billion in new money since April 2010, thanks to both manager Jeffrey Gundlach’s stellar 16-year career at TCW Total Return Bond TGLMX and to excellent short-term performance from flagship DoubleLine Total Return DBLTX.

Without a public record of their own, Pitkowsky and Trauner largely started from scratch. They certainly contributed to Fairholme’s success from its 1999 inception through October 2010 as analysts, comanagers, and, finally, as consultants. During that time, the fund had the large-value category’s best return, 13.6% annualized versus 3.6% for the category median.

Pitkowsky and Trauner say that they formed GoodHaven because they wanted the flexibility to invest anywhere, which Fairholme had enjoyed before assets swelled in 2009 and 2010. But there’s likely more to it than that.

Although Pitkowsky, Trauner, and Berkowitz won’t discuss the circumstances, disruptions to Fairholme’s investment team probably played a role in their departures, too. As related in an October article in Barron’s, a former Fairholme analyst claims that Berkowitz made Charlie Fernandez head of the investment team shortly after he joined the firm in late 2007, even though Fernandez did not have any prior investment management experience. Fernandez was then named a comanager on the fund in January 2008, with Pitkowsky and Trauner then removed as comanagers later that year. (Fernandez left Fairholme in October.) That experience could only fuel the duo’s desire to prove themselves on their own.

Fairholme’s performance hit a wall after Pitkowsky and Trauner cut their ties in late 2010, but it’s difficult to determine precisely how much they contributed to the fund’s prior success or how much their departure hurt. Pitkowsky, Trauner, and Berkowitz are reluctant to talk about who was responsible for what.

Trauner has said that in 2000 he recommended Barrick Gold ABX, a stock that has nearly tripled since then. But it was never more than a small position in the portfolio.

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