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What does a businessman do after a career that culminates as the chief executive officer of a major apparel manufacturer that launched a famous designer, got caught up in a bloody junk bond takeover battle and was the major men’s shirt player, which also happened to have its stock price multiply 24 times during his tenure?
Play golf, of course. But if you’re Laurence C. Leeds Jr., former chairman and ceo of Manhattan Industries, you also launch a new career.
Leeds was ousted from the top spot at Manhattan Industries 16 years ago following a hostile takeover of the company led by the then-junk bond king Michael Milken. Leeds then entered the investment industry by becoming an analyst at the Buckingham Research Group Inc., parent of Buckingham Capital Management Inc. Today he serves as chairman of Buckingham Capital, running one of the top-performing hedge funds in the nation, Buckingham’s RAF fund. RAF invests in retail, apparel and footwear stocks — hence its name.
“A dollar invested in Buckingham RAF when we began 11 years ago is now worth between $17 and $18,” Leeds said over a steak tartar lunch at Patroon, which is near Buckingham’s Midtown offices and one of his favorite lunch spots. “That’s a pretty good return for those people who were willing to give me a chance as an aging rookie in the world of hedge fund managers.”
Leeds was investing in the retail and fashion sector long before it became au courant to do so. He is considered a trailblazer in the sector, taking large stakes in retail firms and holding them for the long haul. Leeds now has plenty of company with other funds such as Turner Investment Partners, Invesco plc and State Street Corp. jostling for positions in the industry’s top public stocks as well as big, private equity companies such as KKR and TPG making stakes as well.
Leeds’ top picks in the fund include Polo Ralph Lauren Corp., Coach Inc., Abercrombie & Fitch Co., American Eagle Outfitters Inc., Gildan Activewear Inc., Kohl’s Corp., Urban Outfitters Inc. and Phillips Van Heusen Corp., among others.
Leeds’ Buckingham RAF is held in high regard by investors as well as industry peers, and he’s considered a top stock picker. One investment banker of a large, New York-based firm said he rolled a “lot of personal money” into Leeds’ $1.5 billion fund. The banker’s faith in the fund is based on its robust performance: a compound return rate of slightly less than 30 percent through the end of last year.
“Leeds has an exceptional gift for this work,” the banker, who requested anonymity, said recently. “The fund is tops.”
At the Patroon lunch, Leeds makes a good listener. A dapper dresser who can don everything from a double-breasted suit to a navy blazer with blue jeans and French cuff shirt, Leeds pauses strategically for effect, and waits for opportunities to interject his insight and opinions into the conversation. Leeds isn’t a name-dropper, but industry notables somehow make their way into the conversation, such as Allen Questrom, Terry Lundgren and Peter J. Solomon.
Asked about how he spends a typical day, Leeds shrugs and quickly changes the topic, which circles back to what he loves most: retailing and the apparel industry. It becomes clear his deep knowledge of those industries, their leaders and the sometimes subtle differences that lead one to perform better than another is the cornerstone of Buckingham RAF’s success.
“The retail and apparel industry is a crucible of training. The competition is enormous. Survival and success are even tougher to come by than they are on Wall Street,” he said.
Leeds, 78, began his first career in 1955 when he joined the Manhattan Shirt Co., which was founded by his great-grandfather in 1857. He chose to make shirts instead of joining the Wall Street firm Spear, Leeds & Kellogg, an investment bank founded by his father, Laurence. SLK was sold several years ago to Goldman Sachs for $5.4 billion. Leeds never worked at his father’s firm, and received none of the proceeds of the sale.
“I chose to go into the shirt business instead, and it cost me $5.4 billion,” he joked.
He must have thought a lot about the wisdom of his career choice after he became ceo, president and chairman of Manhattan Shirt, which later became Manhattan Industries, in 1974. On a Thursday in October, the board relieved Leeds’ cousin, Robert Leeds, of the post and gave it to him. The company was in dire straits — its shares were trading at 62 cents, losses were mounting and the banks were making threatening sounds.
So Leeds spent that weekend in “emergency sessions” with the firm’s senior-level executives. In the end, a plan was drawn up. Expenses would be cut drastically and 300 employees ended up losing their jobs.
“During the next few weeks, all of Manhattan’s financial arrangements with its bank and other lenders had to be adjusted,” Leeds recalled, adding the company worked out new financial arrangements, which included factoring its receivables. The ship was righted, and “bankruptcy was averted.”
Leeds would steer the company for the next 14 years, accomplishing profit and sales growth along with market share expansion. One of Leeds’ notable success stories was the Perry Ellis brand. The late Perry Ellis was discovered by Frank Rockman, who served as president of the Vera Sportswear company, a division of Manhattan Industries where Ellis worked as a designer. Leeds realized Ellis’ talent, and threw his support behind him.
“I remember so well calling up the major fashion press and asking them to see the little show we were putting on by this new young designer, Perry Ellis,” Leeds said. “It cost $5,000 and took place in the Vera showroom. They all fell in love with Perry and his clothes.” Ellis became one of America’s preeminent designers in the Eighties, and his brand ranked with those by Calvin Klein and Ralph Lauren. But Ellis’ life would end tragically with his premature death from AIDS in 1986.
Today, at Buckingham, Leeds extensively leverages his decades of industry knowledge. “The same principles apply,” Leeds explained. “A number of years ago I realized that what I was building here at Buckingham was too large for just one person, and I was fortunate to find Daniel Schwarzwalder, who is today my partner and co-manager of our fund. He is enormously knowledgeable, and both of us have a huge corporate advantage having been in the industry; we can understand the businesses, know what makes sense, separate reality from fantasy and have hundreds of personal relationships with executives both of manufacturers and retailers around the country. We work very hard at this business. We attend myriad industry functions; we spend many hours in the malls. We have Rolodexes encompassing hundreds of store managers around the country to keep abreast of what’s happening in retail. This is no simple game. It is highly competitive. But winning is enormously invigorating and exciting.”
Last year, Lee Backus, another well-known industry figure who years ago founded Merona Sport and became one of Wall Street’s top analysts at Buckingham Research, joined RAF and is now part of the team managing the fund.
Leeds said managing a successful hedge fund is “enormously financially lucrative, where if one is successful one makes a multiple of what a ceo is paid in industry.” He acknowledged that working as a ceo for a manufacturer and managing a fund are “extraordinarily challenging intellectually.
“However, there is something wonderfully appealing about being the ceo of a major corporation,” Leeds admitted. “One really affects the lives and destinies of many people, and one’s quality of leadership really can make a difference in developing a team spirit and esprit de corps throughout a corporation. There’s something magical about the leadership and the responsibility of charting the destiny of a large public corporation that you don’t find in the money-management business.”
So what are Leeds’ criteria for picking investments? It’s a bit complicated, and requires a lot of work.
Leeds and his partners spend time hunting for information, talking with company executives, attending conferences. It’s all about keeping an ear to the ground and an eye on the market. “It’s a constant gathering of information,” Leeds explained. “A constant honing and deciding of which companies are the long-term strategic ones because we are long-term strategic players. We ask, ‘Who is creating a dominant position in the market? Who has a reason for long-term existence?’ And of course, we look at management.”
When Polo Ralph Lauren went public, for example, Wall Street compared the company to Liz Claiborne and Jones Apparel Group. “But we realized it was something completely different,” Leeds said. “We understood that it was a unique, world-class brand that stood for more than just apparel and whose image made it far superior to just a normal apparel company. We sensed intuitively that over the years it would greatly outperform these other companies that the analysts were comparing it to. This is our edge.”
Many hedge funds “just look at the numbers,” he pointed out. “They don’t understand the inner essence of a company.”
Leeds said the term “hedge fund” is used as such a “broad generic descriptive that it is wrong to address the category using sweeping generalizations.
“There are hedge funds that really mean what the name implies and, being hedged, are a thoroughly conservative investment vehicle, and there are others that are wildly speculative,” Leeds said. “There are some that are pure vanilla and simply go long and short equities. Some are market-neutral, some are horrendously leveraged. It is like the term ‘female': She can be one month old or a great-grandmother, slender or buxom, attractive or unattractive. It is the same with hedge funds — they come in all shapes and sizes.”
Leeds said as a broad generalization, most hedge funds are run by “extraordinarily intelligent people. I think there are undoubtedly a few too many who are not sufficiently risk-averse. I imagine that the growth of hedge funds has added some degree of volatility to our equity markets. Here at Buckingham, we tend to be perhaps more of the pure vanilla conservative type.”
But hedge funds often don’t understand what makes a company succeed, he added. “A lot of hedge funds are also glued to monthly same-store sales results.”
Leeds scoffs at their misguided obsession. “Comps are the most overrated investment metric,” he said. “Over the long term, one could argue their significance. But what happens in any one month period is less important.”
Instead, Leeds and his team keep a close eye on product assortment, pricing and gross margin rates. They also try to estimate full-price sell-through, and the amount of clearance activity.
Leeds, despite spending so much time overseeing the fund, still manages a full family life. Last year, he celebrated his 50th wedding anniversary with a party in a massive tent on Park Avenue at the Four Seasons Restaurant. The event was attended by many longtime industry social and political friends, including Paul and Daisy Soros, Ann and Andrew Tisch and Nicole Miller. He and his wife, Dalia, have two married daughters and six grandchildren. Their son Cary passed away four years ago.
“I was really blessed to, at age 59, find such an exciting and rewarding second career,” Leeds said. “I owe a great deal to David Keidan, my dear friend and the ceo of Buckingham Research Group, for plucking me from the ranks of the unemployed and giving me a shot at a new career. It has been a ball, I still find it stimulating and exciting, and hope to be able to keep doing it for a good while longer. Winning keeps you young, and it’s a lot of fun.”