This month, Reaves Asset Management celebrates its 60th anniversary, a long history for a firm in the asset management industry. And while much has changed on Wall Street since 1961, Reaves’ values have not. That’s the secret behind the firm’s staying power.
In an interview, current Reaves’ CEO, Jay Rhame, reflected on the firm’s rich history, its accomplishments, and the principles that have guided the firm since its founding. Excerpts from that interview follow:
As you look back at Reaves’ 60-year history, what are you most proud of?
I look at this from two perspectives. First, from a client perspective, I’m proud of the reliability we’ve provided. We’ve had a client relationship that extended nearly 40 years. That’s a really long partnership. A large part of that comes back to how we’ve performed for our clients when the rest of the market was struggling. If you look at the history of our Long Term Value ERISA Composite1, it outperformed in 125 of the 173 months during which the S&P 500 Index2 declined. We’ve been a source of stability in challenging markets. We are extremely proud to have preserved and grown our clients’1 principal during the most extended period of market stress in our history, which lasted 8 ½ years from September 2000 through February 2009.
I’m also proud of the culture we’ve created for our employees. From day one our founder, Bill Reaves, established a profit-sharing trust, and every year we’ve made the maximum contribution toward it. That has created a culture where employees feel stability in their future, and know they’ll be rewarded for providing the best service to our clients.
Which principles were instilled by your founder that you value most today?
Simply put, the value of acting honorably and acting in the client’s best interest. Throughout our 60-year history we have always conducted ourselves as true fiduciaries of our client’s capital.
We’ve also maintained a firm belief that it’s better to have a very high level of knowledge and expertise in a few areas, as opposed to being all things to all people. So much of Wall Street is focused on creating a product just because you can sell it. That’s not what we do. We’ve always focused only on industries that provide essential services to the modern economy. That was born out of Bill’s expertise in utilities when he founded the company, and that focus has never wavered.
In the past 60 years, what’s been the biggest change in financial markets, and how has Reaves navigated it?
In a word: speed. In 1961 information was distributed at a slower rate than it is today. As a result, it took longer to be analyzed and in turn priced into markets. Today, with information being disseminated immediately and equally, that time has been significantly reduced. With algorithmic trading and machine learning, you can have drawdowns in a matter of weeks, and compressed market cycles in a matter of months, as we saw in 2020. It really reinforces our investment philosophy that you need to have a deep understanding of the companies you own. Windows to buy or sell a company open and close quicker, so you need to have a lot of conviction in those companies to take advantage. You have to have done your work in advance so that when an opportunity presents itself you can move quickly and act in the best interest of our clients.
How have clients’ needs changed, and how is Reaves evolving to meet that?
In a low-yield world, we believe income has become a lot more important. Our closed-end fund, has helped clients meet that need. We launched it back in 2004. Rates were low then, and even lower now. Individual investors have become nervous because you can’t just hold Treasuries3 anymore … they’ve had to take on additional risk in order to obtain more income. We created what we believed was a low-risk product that could meet their needs. We’ve proven that over the last 17 years, with 11 increases in its rate of distribution. That’s unique for a closed-end fund.
Transitioning forward, what role will Reaves play in meeting clients’ future needs?
We believe as long as rates are low there will be a need for alternative sources of income, so products like our closed-end fund remain relevant. But there also continues to be a need for defensive equities, which is our strategies’ focus. As last year showed us, no one can predict what will happen in the markets. Drawdowns can happen fast and out of nowhere. Strategies that are more defensive are important in those environments.
I think defensive equity strategies are also important when you consider how the menu of investment options for clients has widened. To venture into any of those strategies with confidence, you’ll probably need other steady equity strategies in your portfolio … and that’s where Reaves comes in.
What should clients know about Reaves’ future?
Honestly, it’s that we’re not going to change much. We’re sticking to the same philosophy and process that got us this far. We apply the same formula that works, while trying to make it a little better each year.
Looking forward, we feel confident about the industries in which we invest. We’ve consistently done well when the industries we cover are going through big changes. We think that’s why our detailed industry knowledge puts us at an advantage. We’re seeing those big changes now. Whether it’s in cable companies transforming to broadband businesses, or utilities transitioning from coal to renewables, big changes are happening. It’s going to be invaluable to know companies and management teams well. Our ability to assess how those changes are managed at each company we invest in will be a big part of the value we provide to our clients in the future.