From Bloomberg Businessweek | by Justin Doom and Jody Shenn
Michael A.J. Farrell, who built Annaly Capital Management Inc. (NLY) into the world’s largest mortgage real estate investment trust, has died after being diagnosed with cancer earlier this year. He was 61.
His death was confirmed yesterday in a statement by the New York-based company, which didn’t provide additional details.
Farrell, who graduated high school at 16 with plans to become a commercial artist, instead turned to Wall Street, beginning at E.F. Hutton & Co. in 1971. After stints at Morgan Stanley and Merrill Lynch & Co., he started Annaly in 1997 and increased assets to about $128.3 billion at the end of June, turning the firm into one of the largest buyers of home loan debt backed by the U.S. He branched out with separate companies that buy non-agency bonds and commercial real estate securities.
“Mike will be missed not only for his stature in the business, but as one of the class guys in our industry,” said Shawn Matthews, chief executive officer of Cantor Fitzgerald & Co., the brokerage arm of Cantor Fitzgerald LP. “He hired me into this business and I have always considered him a mentor, great leader and true gentleman.”
Farrell, Annaly’s chairman and CEO, was receiving chemotherapy for cancer that “was caught early” and was considered treatable, according to a company statement in January. In May, the firm disclosed it was in remission, while this month, it said Wellington Denahan-Norris, Annaly’s co- founder, was appointed joint CEO to allow Farrell to focus on his “ongoing treatment.”
Annaly has returned more than 600 percent to shareholders since its initial public offering, outpacing the 94 percent gain for the Standard & Poor’s 500 index. Shareholders almost doubled their money in the past five years as Farrell and Denahan- Norris, 48, navigated the financial crisis and then forecast how Federal Reserve efforts to boost housing and the economy would impact bond markets.
The two executives each earned $35 million in 2011, making them among the world’s highest-paid financial-services executives.
“He was a fantastic leader and friend and will be greatly missed,” Annaly said in the statement. “Our hearts go out to his family and all those who were fortunate enough to know him.”
Farrell was born on April 10, 1951 in Brooklyn, New York. He graduated high school at 16, according to an article published last year in Wake Forest Magazine. He and his wife, Mary Flynn, neither of whom completed college, committed $10 million to the school in “the largest cash commitment by a living individual in the university’s history.”
His son, Michael Edward Farrell, studied finance and economics at Winston-Salem, North Carolina-based Wake Forest University, graduating in 2010. Farrell also is survived by his children Caitlin, a 2008 graduate of College of the Holy Cross, and Taylor, as well as his wife.
Farrell’s parents, Michael John and Vera, left Europe for the U.S. after World War II, during which the elder Farrell served as a member of the Irish Guards, nearly dying in the Operation Market Garden attack in September 1944. Once in Manhattan, he waterproofed skyscrapers, painted subway cars and worked as a janitor at an elementary school before dying in 1986 at age 66, according to the magazine.
Farrell told the publication he wanted to be a rock star after giving up on becoming an artist. Instead he ended up trading bonds, specializing in mortgages. In 1991, while head of fixed income at Wertheim Schroder & Co., where he also hired Cantor Fitzgerald’s Matthews, he met Denahan-Norris, with whom he founded Annaly six years later.
Farrell had concluded that REITs and mortgage bonds were a “perfect marriage between asset class and vehicle structure,” in part because they can be “buy-and-hold” investors, he said in Bloomberg story in April. (APR) Unlike hedge funds or many mutual funds, REIT shareholders can’t withdraw money from the firms. Instead they buy and sell shares in the companies.
Farrell stood out for his colorful conference calls and shareholder letters that discussed broader themes through historical allusions and literature such as Christopher Marlowe’s “Doctor Faustus” and the 1970 book “Future Shock” by Alvin Toffler.
In November, Michael Diana, at the time an analyst with Cantor Fitzgerald, in a research report called Farrell a “Master of the Mortgage Market” who would “pontificate about anything and everything except what Annaly actually did during the quarter,” the Wall Street Journal reported.
While Annaly has benefited as the Fed held short-term interest rates near zero to bolster the economy, its shares have declined 6.1 percent since the central bank said Sept. 13 it would purchase an additional $40 billion of mortgage securities a month.
That’s pushed down bond yields, narrowed spreads and reduced homeowner borrowing costs — squeezing earnings and dividends for mortgage REITs. Annaly said Oct. 16 it may repurchase up to $1.5 billion of shares over a year.
The firm’s name refers to Farrell’s ancestors in Ireland who were the reigning clan of Longford and ruled from Annaly Castle, which is incorporated in the crest of the REIT’s logo, Wake Forest Magazine reported.
Mike and Mary Farrell made the history in 2010 with their $10 million pledge to Wake Forest University toward the construction of a new building for the Schools of Business, the largest cash commitment ever by living individuals to the University and the largest commitment to the Schools of Business to date.
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