Roger B. Palley, president and chief investment officer of Newport Beach-based Palley-Needelman Asset Management Inc., will leave the company he co-founded next month to become national head of the value investment committee at Wells Fargo & Co.’s private asset management arm.
Palley, who will oversee some $15 billion in funds and a team of four value committee members, will work out of Wells’ Newport Beach regional office. The value committee members will not be based in Newport Beach, but elsewhere in the U.S.
“That was part of the deal, that I will be working from Orange County,” Palley said.
Besides heading the value investment team, Palley will continue to personally manage money for his clients. He specializes in investing in large capitalization value stocks.
“We think that he brings leadership to this organization in the large-cap value segment,” said Scott Benner, senior vice president of private asset management services at Wells Fargo.
Wells Fargo has more than $57 billion in assets under its private client group and nearly $120 billion of total investment assets under management. Almost 40% of equity funds that Wells Fargo manages are invested in value stocks while 60% is in growth stocks.
John Evans, senior vice president of the private client group at Wells Fargo in Newport Beach, said that there was no real vacancy in the value team, but they decided to bring Palley on board because they did not want to lose talent in Orange County to some other company.
“It wasn’t that the system was broken. But if there are ways to make it better than before, that’s what we are all about,” Evans said.
“I am very happy with my move. I will have a very high-level position with them (Wells Fargo)” said Palley, who joked that a year or so ago he couldn’t show himself in restaurants in Newport Beach because he didn’t deal in tech stocks.
“I don’t think there were lot of people who were interested in value managers a year and a half ago,” said Palley.
But last year’s tech meltdown, which is continuing this year, has put experienced value-oriented money managers like Palley back in demand.
“For their clients and my clients, obviously I will bring some wisdom to the table in value investing and general strategy,” said Palley.
The regional office at Newport Beach is among the 11 offices in the state that offer private client services. Evans is the regional manager of the Newport Beach office, which has 25 financial consultants and more than $2 billion in assets under management. Besides heading the value team nationally, Palley also will assist Evans in growing the Newport Beach office. He said that if required by his clients, he would tap into different hedge fund strategies at Wells Fargo and also look into wealth management and financial planning for his clients.
Prior to his appointment at Wells Fargo, Palley had worked for almost 10 years as a sub advisor to one of Wells Fargo’s bank and for most of 2000 acted as an outside consultant to Wells Fargo’s private client group advising them on value investing.
Wells Fargo has ambitious plans in the investment advisory and trust business. Its profits from these businesses now account for almost 12% of its earnings overall, and the goal is to have earnings from this division be 25% of net income in the next three to five years.
Palley said that his role in the firm would go beyond stock picking and money management for clients. “Part of my function is to execute vision of the firm to be run more like an investment management firm with my background and experience,” he said.
He has been in the investment advisory business since 1965.
Palley co-founded Palley-Needelman in 1985 with Chet Needelman to manage money using the value investing approach or investing in stocks with low price-to-earnings and price-to-book ratios and strong balance sheets. At its peak a few years back, Palley-Needelman managed close to $5 billion and was the largest independent money manager in Orange County.
But things started going sour for Palley-Needelman and other value managers in 1998 and 1999. Investors no longer were satisfied with 10% or 15% returns. They wanted 50% and 60% appreciation.
“Growth and technology stocks were in favor, and clients started to leave our firm on the advice of brokers, consultants and neighbors,” Palley said. “We had a lot of money go out of the firm over a year and half’s time, and there was a massive shift from value to growth.”
Palley said he had two choices: buy another firm and introduce new products in the market to gain back his clients or join a larger firm.
“We just could not find the right match,” he said, so he decided to take the Wells Fargo position.
Palley is taking many of his clients with him, and says Palley-Needelman will continue as a smaller firm.
Meanwhile, in the second half of 2000, “we started having this big shift out of growth and technology to value. I was getting more popular every day.” No longer are Palley or other value managers on the verge of being consigned in the history books. “I now go to restaurants in Newport Beach,” he said with a smile. n
