What's Going on at Diamond Hill?

In an already tumultuous year, typically steady boutique Diamond Hill has experienced a flurry of personnel departures and made some organizational changes in response. Enough uncertainty remains, however, to drop its Parent Pillar rating to Above Average from High, leaving with our top rating just eight United States-domiciled firms (American Funds, Dimensional, Dodge & Cox, FMI, Jensen, PRIMECAP, T. Rowe Price, and Vanguard).

The low number of firms with High Parent ratings highlights the difficulty of attaining and maintaining this accolade. It also illustrates some growing pains as Diamond Hill has tried to build its institutional business. It’s still a boutique with roughly $22 billion in assets under management, but several changes, including bringing on an outsider CEO, preceded its more recent instability.

The shakeup started in late 2019 but accelerated in 2020. A healthcare analyst departed the firm in December 2019, but a larger exodus followed in early 2020 when seven Diamond Hill employees left to join Diamond Hill founder and former CEO Ric Dillon at his new firm, Vela Investment Management. Dillon left the firm in March 2019 and subsequently founded Vela, which was up and running at the beginning of 2020.

Three of the seven people who left for Vela were investment team members, impacting research coverage in their areas and, as a result, several Diamond Hill strategies. Bobby Murphy had been a research analyst and portfolio manager on Diamond Hill’s analyst-run fund, Diamond Hill Research Opportunities DHROX. He was also responsible for the chemicals, paper, and packaging sectors. Jason Downey was a comanager on Diamond Hill Long-Short DIAMX and served as sector leader for the industrials, materials, energy, and transportation team. Finally, Jenny Hubbard was an assistant portfolio manager and likely successor on Diamond Hill Small-Mid Cap DHMAX and Diamond Hill Mid Cap DHPA. She also had consumer sector coverage responsibility.

The four noninvestment personnel who left Diamond Hill held a variety of roles. These included marketing, relationship management, and product, with former Diamond Hill COO Lisa Wesolek the most prominent member of this group.

Diamond Hill hasn’t yet replaced all the departed staff, but it has made important personnel moves, proposed lineup changes, and reshuffled responsibilities. In June 2020, the firm appointed as director of research Micah Martin, who stepped down from his assistant portfolio manager role on Diamond Hill Large Cap DHLAX and gave up his consumer sector coverage responsibility. Martin has been active in his new role. He plans to eliminate sector leads and to merge away the fund they oversaw, Diamond Hill Research Opportunities, into Diamond Hill Long-Short. He also plans to transition U.S. analysts’ coverage of all international companies to the four-person dedicated international team, though the firm’s 15 domestic analysts will still keep tabs on the international competitors of U.S. companies.

New CEO Heather Brilliant (a former CEO of Morningstar Australia and global head of equity and credit research for Morningstar) has sought to foster cultural change, too. Brilliant is Diamond Hill’s first dedicated CEO and was brought on in August 2019 to introduce a more formalized leadership team aimed at increasing accountability around decision-making at the firm. She hopes that Martin’s role as director of research can facilitate more conversations between analysts and portfolio managers and narrow the gap between them. She also hired Anna Corona (another former Morningstar employee) as chief people officer to clarify career progression among other initiatives.

Diamond Hill’s responses could return the firm to stability, but they also run the risk of reinforcing hierarchy rather than abolishing it. Career progression, for example, is much less of a concern at a startup firm like Vela, where everyone sinks or swims together, and a flatter organizational structure is therefore almost guaranteed.

While Diamond Hill’s struggles illustrate the challenges boutiques face as they grow, many of its strengths remain. The firm is centered on a mission-driven approach to value investing that has rewarded investors over multiple market cycles, and it’s still a trustworthy steward of capital.