article 04-16-2015

Charlie Dreifus Honors Mentor Abe Briloff at Baruch College Ethics Week

"Abe's contention was that companies should always report their results as closely as possible to the economic reality rather than some fiction that made them look prettier, but didn't actually represent the real picture."

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Nearly 20 years ago, Portfolio Manager Charlie Dreifus launched a program at Baruch College that endeavored to encourage debate regarding ethical conduct in professional life. These early efforts were in large part exercised to honor the legacy of his late accounting teacher and mentor Abraham J. Briloff, who was Emanuel Saxe Distinguished Professor of Accountancy Emeritus.

"I first encountered Abe after my undergraduate studies at Baruch College, when I was enrolled in the PhD program," said Charlie.

"In contrast to what I learned in my undergraduate accounting classes, which was how to construct financial statements, Abe taught me the importance of deconstruction: the interpretation and understanding of the alternative ways in which a company could have portrayed its results and how that ultimately affects the outcomes. I owe much of my career to the lessons of Abe Briloff, and I hope that, through my work, his legacy will live on."

The program Charlie created later manifested into a week-long series of lectures and events now called Ethics Week, an annual springtime tradition that began in 2003 with the faculty seminar "Ethics Across and Beyond the Curriculum."

"Abe's contention was that companies should always report their results as closely as possible to the economic reality rather than some fiction that made them look prettier, but didn't actually represent the real picture," said Charlie.

"But Abe really was a renaissance individual—his interests went way beyond the ethics of business and accounting. He was a person who sought to address wrongdoings and, until his death, defended the idea that anyone who is a ‘professional,' whether an accountant or investment advisor or a teacher, etc., is obligated to work truthfully, responsibly. And that's why I decided the best way to pay tribute to Abe was by putting together a program that would touch upon ethical topics from all walks of life," he added.

To conclude each Ethics Week, a committee of professors—which includes one faculty member from the Zicklin School of Business, the Weissman School of Arts and Science, and the School of Public Affairs—awards the Abraham J. Briloff Prizes in Ethics to two students, one graduate and one undergraduate, and one faculty member. The award recognizes writings on current ethical issues across disciplines, including essays, op-ed pieces, and websites.

Winners of the 2014 Briloff prize were honored on March 27, 2015 in the Rosalyn and Irwin Engelman Reading Room, on the second floor of The William and Anita Newman Library. Among those in attendance were Charlie, who gave a speech in Briloff's honor, Portfolio Manager Steven McBoyle, and members of Briloff's family. A small exhibit, which showcased Abe's writings, lectures, awards, Congressional testimonies, and more, was also on display for the evening.

Charlie describes his investment approach as a combination of Ben Graham's margin of safety, Warren Buffett's economic moats, and Abe Briloff's accounting veracity: a disciplined and rigorous process that Charlie continues to apply today. In October 2014, Steven McBoyle began to serve as assistant portfolio manager for Charlie's two Special Equity portfolios, a role that was previously unoccupied.

"In Steven McBoyle I saw someone who had the same quest for companies with more pristine financials," said Charlie. "While many people at the firm are attentive to accounting, Steve, by virtue of his auditing background and the way he himself has gone about running his other portfolios, brings that additional deep-dive element. Like me, he doesn't find it a chore to dig through financial documents, and he shares my passion for reading these documents to hopefully gain further insight into companies. So while Steve never met Abe, he really embraces what Abe stood for and thought about, so it was appropriate that he join me."

"Charlie's investment process is unique—the secret sauce being his accounting cynicism, a scrutinous approach we recognized we both shared early on," said Steven. "As a former accountant and auditor for many years, I was indoctrinated to treat each discrepancy seriously, no matter how seemingly insignificant, because, as is often the case, incongruities in aggregate speak to larger, material issues. Reading Abe's work, one can fully appreciate how much his philosophy lives on in Charlie's process. I look forward to working with Charlie on this unique process."

Together, Charlie and Steven hope that they have taken the reins of Briloff's cause of more truthful and factual accounting by holding each company they evaluate to Briloff's ethical standards. Through their continued support of Ethics Week and the Briloff prize, they also hope to inspire others to follow Briloff's example.

Charlie Dreifus has 46 years of investment experience, 17 of which at Royce. He manages the firm's Special Equity mutual funds, Royce Special Equity Fund and Royce Special Equity Multi-Cap Fund, which attempt to combine classic value analysis, the identification of good businesses, and accounting cynicism. In 2008, Charlie was named Morningstar's "Domestic-Stock Fund Manager of the Year."

Steven McBoyle has 24 years of investment experience and joined the firm in 2007. In addition to serving as assistant portfolio manager for Special Equity and Special Equity Multi-Cap, Steven assists on Royce Premier Fund, serves as a portfolio manager of Royce Global Value Fund, and is lead portfolio manager of Royce Heritage Fund.

Read more about the ceremony

Important Disclosure Information

For Morningstar's 2008 "Domestic-Stock Fund Manager of the Year" award, Morningstar awarded managers based on their fund's 2008 performance, long-term performance through year-end 2008, fund assets, and investment strategy consistency. Morningstar also looked for managers who "are great stewards of shareholders' interests and who stay with their proven strategies rather than follow investing trends." For Morningstar's "Domestic-Stock Fund Manager of the Decade" award, Morningstar nominated managers based on their fund's long-term performance for the decade-to-date period ended September 30, 2009, fund assets, and investment strategy consistency. Morningstar also looked for managers who "are great stewards of shareholders' interests and who stay with their proven strategies rather than follow investing trends."

The thoughts and opinions expressed in this piece are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements.

This material is not authorized for distribution unless preceded or accompanied by a current prospectus. Please read the prospectus carefully before investing or sending money.Royce Special Equity Fund invests primarily in small-cap stocks, which may involve considerably more risk than investing in larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) Royce Special Equity Multi-Cap Fund invests primarily in mid-cap and large-cap stocks. The Fund's mid-cap stock investments may involve considerably more risk than larger-cap stocks. (Please see "Primary Risks for Fund Investors" in the prospectus.) As of 3/31/15, the Funds invested a significant portion of their assets in a limited number of stocks, which may involve considerably more risk than a more broadly diversified portfolio because a decline in the value of any of these stocks would cause the Funds' overall value to decline to a greater degree. Royce Special Equity Multi-Cap Fund may invest up to 25% of its net assets in foreign securities (measured at the time of investment), which may involve political, economic, currency, and other risks not encountered in U.S. investments. (Please see "Investing in Foreign Securities" in the prospectus.)

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