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    Rodney Herenton’s Proven Tactics for Financial Prosperity

    Rodney B. Herenton grew up in a family that emphasized entrepreneurialism and education, but it wasn’t until someone else gave him a glimpse of what was possible that he caught a vision for his future.

    Having great mentors in your life can change the direction of your life.

    Rodney Herenton

    Today, the leader of one of the country’s most successful Black-owned investment management companies is always ready to try to help young people make their way in the financial world because he knows from personal experience that “having great mentors in your life can change the direction of your life.”

    Herenton is a founder and co-CEO of Channing Capital Management LLC, marking its 20th anniversary year, with assets under management (AUM) of over $4.3 billion and a goal to take them to over $5 billion. The company manages portfolios for large institutions, city and state municipalities, foundations, endowments, families and high-net-worth individuals.

    Channing Capital Management in Chicago handles all the company’s equity securities; Channing Global Services in Miami is responsible for its non-U.S. global equities; and Preserver Partners in Memphis looks after its multi-asset manager hedge fund.

    “The best thing about my job is my clients, or helping their beneficiaries retire comfortably, wisely and in a fiduciary manner,” Herenton tells WayMaker Journal. “So, when I’m managing money for Cook County [Illinois], all those employees that ultimately retire, it feels good that I am one piece of that puzzle helping them unlock their retirement.”

    Channing Capital Management is part of a small financial community in that there are only three other—and longer-established—Black firms offering the same public equity-based services: Earnest Partners, headquartered in Atlanta; Ariel Investments, headquartered in Chicago; and Brown Capital Management, headquartered in Baltimore, Maryland.

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     “We’re the new kids on the block,” says Herenton, “so it’s a privilege and honor to be in that club, and we have a lot of work to do because we don’t get second chances. We only have one chance to prove ourselves. So, it’s an honor and a privilege to be in the space where you look at any municipality and city, the makeup of that pension fund is going to be highly driven by Black and brown retirees.”

    Born and raised in Memphis, Herenton grew up seeing discipline, diligence and community involvement being modeled. His grandfather developed and managed two grocery stores and then became a real estate developer. “I saw him raise his five children, who are my aunts and uncles, and send all five of them to college, and they went on to do great things,” Herenton says. Watching that from the age of 11 on through college, “it was in my DNA to see how entrepreneurism could create wealth and change a family’s trajectory, particularly in the Black neighborhood.”  

    True Wealth

    Both Herenton’s parents were educators, with his father rising to become the first Black superintendent of the Memphis school system for 13 years before being elected the city’s first Black mayor in 1991 and going on to serve five terms. “You couldn’t not be focused on academics in the household,”  says Herenton. “So that gave me that foundation to focus on doing well academically.” He didn’t know exactly what he wanted to do, “but I knew the value of an education.”

    Encouraged by his parents to go to an HBCU—they had both attended LaMoyne-Owen College in Memphis—Herenton chose Morehouse College, where he found his direction.

    Herenton’s father connected him with Robert Fayne (see sidebar), a Harvard Business School graduate who was working on Wall Street; it was an introduction that would “turn the trajectory of my life.” Herenton took Fayne up on an invitation to visit him in New York City. “I did not know what was going on in that building,” Herenton recalls, “but when I saw the trading floor, all the activity, the plush oak wood in the offices, I told him specifically, ‘Whatever you’re doing here, I want to do as a career.’” Guided by Fayne, Herenton went back to Morehouse for his sophomore year and enrolled in finance and business classes “and that’s when my journey in finance started.”

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    After graduating from Morehouse with a degree in finance and adding an MBA from Harvard Business School, Herenton embarked on a successful career with some of the biggest names in the money world. Positions at Lehman Brothers and Bear Stearns followed a college internship with Merrill Lynch.

    Feeling a tug to be part of his father’s mayoral legacy, Herenton returned to Memphis from the West Coast, taking a job at Morgan Keegan & Co. He co-headed the consumer products group, handling around 50 IPOs (initial public offerings) over the next several years. When the owner then sold the company, making more than $300 million and becoming the second-largest shareholder, “the light bulb went off that is the key to true wealth,” says Herenton. “And I decided that I wanted to embark upon my own company.”

    He founded Channing Capital (“The Wisdom of Experienced Investing”) with Wendell Mackey, a Howard University graduate and then senior managing director at Valenzuela Capital Partners LLC, based in Pasadena, California. The new business was entrusted with a $70 million portfolio “out of the gate… before DEI, ESG, all of that,” from Herenton’s former boss. “I found a few good people in the business world to sponsor us,” he says.

    Take A Bet

    In light of the inequalities in the financial world, Herenton recognizes Channing Capital was fortunate to be able to start out so strongly. “But if you think about a Black or brown talent that comes out of a Wall Street firm and they have zero money under management when they launch their firm, the biggest first obstacle is who’s going to be your first institutional client?” he says.

     “Who’s going to take a bet on you? Who’s going to invest in you to allow your dream to come true, to start your journey as an investment firm? That’s the first hurdle. We achieved that hurdle by having a sponsor and being seeded out of the gate. But most firms are not able to have that type of launch.”

    The challenges don’t end with securing a first client, however. The next prospective client may say they don’t want to account for more than 20% of AUMs. “So, then you face the hurdle or the challenge of who’s going to be that client to give you diversification with your assets?” After that, the third challenge is size and scale: “You need to get to about $1 billion to be able to handle a $200 million allocation if it’s up to 20%. So those are the three initial hurdles that a Black or brown investment management firm must overcome.”

    Even with a strong start, Channing Capital’s journey hasn’t been without a few bumps in the road. While the company was still young, it faced the 2007-2008 financial crisis. “We survived that, but it was challenging,” Herenton recalls: being fully invested in public equity markets, “there was nowhere for an investment management firm to run.” With AUMs close to $1 billion when the market dropped, they had fallen by the time the crisis was over, but they avoided layoffs.

    Being responsible for others’ investments is demanding work. Mackey, Channing Capital’s chief investment officer and lead portfolio manager, and his team of five are all certified financial analysts. “So, these individuals are trained in investments and handling different market cycles,” says Herenton. “With our team, we’re able to navigate those storms.

     “Because we have to be fully invested, we are always selecting securities that can give us that downside protection when markets crash but also give us upside when markets are taking off. The art of it is constructing a balanced portfolio where your portfolio should do well in these extreme market inflection points.”

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    Rooted and Disciplined

    Does Herenton have different approaches to handling clients’ money and his own? “That’s an excellent question,” he says. “If you’re rooted and disciplined in financial investments for your clients, it should be in your personal DNA.”

    For Channing Capital, that means modeling the style of renowned businessman and investor Warren Buffett. “We try to find high-quality investment opportunities in the public markets and buy them at what’s called a discount to intrinsic value, a discount to what we think it’s truly worth,” says Herenton. “And so I apply that same discipline in my personal financial life, whether I’m trying to buy a car, whether I’m trying to buy a house, whether I’m investing my own money in the markets—I try to be disciplined and find a balanced portfolio of good stocks that can perform through up and down markets so I can get an overall return over a full market cycle.”

    The lifestyle you have today will impact the retirement you have in the future.

    Rodney Herenton

    It is essential to look at your personal financial situation through a long-term lens, he says. For example, determine your retirement target date and work backward from there. “The lifestyle you have today will impact the retirement you have in the future.” If you want to have $1 million saved for retirement so you can live off 10% of that a year for the rest of your life, you need to calculate how to accumulate that much.

     “And that will solve the problem of the wants, the desires and the needs,” says Herenton. “Because if your formula says you need to save $30,000 a year after tax and you have $100,000 after tax a year, then that leaves you $70,000 to govern your household, to govern your lifestyle.”

    That should encourage some “discipline” so you don’t spend the $30,000 that needs to be invested on things “that won’t create value for you and your portfolio longterm. You have to balance it.”

    Think of money like insurance, he says. “You better have an insurance policy, and money affords you an insurance policy for your well-being to provide for yourself, your family and, ultimately, your retirement.”

    Looking back on his career, Herenton offers some advice for young people looking to make their way in the financial world. With so much more information readily available than when he was starting out, through the internet, “it’s much more competitive,” he observes. “These students are brighter now because they are learning about Wall Street much younger than I did.”

    Two keys to getting ahead, he says, are finding mentors early on and securing internships. “Most of the jobs you will get in my field will be through networking amongst people like me,” he points out. Channing Capital offers three internships a year to Black and brown students, “and that is an opportunity for them to get access that I didn’t have. And I encourage these young students to find mentors early.” Networking is important because it can help you “learn the mistakes that I made early so that you don’t make those mistakes.”

    He invites anyone interested to reach out to him. “I turn no one down,” he says. “I can’t help everyone, but I can help a few and change their projectory.” It is also important to be prepared, he adds—get your resume together early and seek out internships early, “even if you have to work for free, because it’s hard to get internships in this field. It’s highly selective.”

    With two decades of Channing Capital behind him, what is the best thing about being an entrepreneur? “It starts even with this interview,” he responds. “I can take time out of my day anytime and spend time with [you]. I can create my own week’s schedule around the profession that I love. I am my own boss. I’m motivated to work as hard as I want to achieve. There’s no limit to what I can do because I’m in the driver’s seat—and when I say I, I mean me, my business partner and the people that influence the direction of my business.

     “What a great thrill. What a great feeling to wake up every day to be able to create my day. I can make as much as I want by how much energy and thought I put behind my day.”

    MY WAYMAKER

    My father [Willie Herenton] has definitely been the waymaker. He was a successful boxer (five times Golden Gloves) and lettered in basketball at LeMoyne-Owen College in Memphis. So, I had a strong Black figure in my household: I used to sit there and watch him watch Meet the Press on Sundays, how he was studying how to debate, how to deal with communications. I didn’t know what he was doing, but I just would cling to him and see that. It influenced me big-time. Then, on my journey to start Channing Capital, my dad opened doors for me.

    [Other waymakers have been] Paul Tudor Jones II, one of the renowned hedge fund investors, who helped me fund Channing Capital; Ralph Horn, the former chairman and CEO of First Tennessee Bank; Robert Fayne, who went on out of the inner city of Memphis to become a successful investment banker and then went on to become a successful sports agent.

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