Making It Pay

To Sell Or Not To Sell
The company’s huge accumulation of assets has meant big fish circling around it. Up until five years ago, the two founders owned about two-thirds of the firm, and according to Scott Rodes, who joined in 2001, the matter came to a head.

“Over five years ago, when Bill and Vere did own the majority of the shares, there was that issue of how we were going to transition the ownership,” says Rodes. “There were a couple of other financial institutions that were looking to purchase Bahl & Gaynor. And we had to sit down and discuss those at the time. They were time consuming and not really productive.” The bottom line was that nobody thought a sale would help the clients. The culture of the firm and its dividend philosophy would likely be polluted.

The two founders finally made an offer to transition a large percentage of their ownership to the other managers over a period. The firm has hired four new portfolio managers this year; managers are generally offered ownership stakes after a year with the firm. The two founders’ stake is now down to about 38%.

Bahl and Gaynor still run the ship, though, and not every decision is popular. Bahl says five years ago, the firm thought of launching its own mutual fund. Bahl says he was in the weeds working through the assumptions and numbers, going down that road to a launch. But the expenses, the regulatory scrutiny and the need for committed capital were working against them.

“Vere came to me late in the game and said, ‘We have no business being in the mutual funds business. The distraction of our people as well as the dollars you need to commit. So we elected then to make a pretty painful decision not to go into mutual funds and it was one that was not popular here in the firm among the money managers. But it was one of those things when he came in, 20 seconds into the conversation I said, ‘You’re right.’” (The firm eventually went on to subadvise two mutual funds instead.)

Losing A Friend
Rodes says that breaking down the doors at the distribution platforms has helped transform the firm from a regional heavyweight into a national brand. The financial crisis actually helped the firm, whose relative performance made it stand out in the truly awful year of 2008.

“Relative performance does sell on the institutional market, so that helped kind of drive [sales] in 2009 and 2010,” he says. The boutique aspect of the firm made it a better pitch to platform partners like Merrill and Northern Trust. “After the first one, a logjam kind of opened up; others fell in line.”

To the extent the firm was a national brand though, it was helped along by a familiar face in the media: Matthew McCormick, a Bahl & Gaynor portfolio manager and pundit who often appeared on Bloomberg and CNBC. McCormick helped the firm get on the national platforms, and he was a hard-charging, outspoken mouthpiece for the firm who could articulate its vision in the media.

In early September, while the other partners were sitting down at a meeting, Gaynor got the call that McCormick had died of a heart attack shortly after a jog. “Matt had a level of intensity uniquely suited to the institutional marketplace,” says Gaynor. “He was an Irishman and lived life the way Irishman do. He was full of life, full of fun, intense and loved people.”

Rodes says he sat next to McCormick for 10 years and went to basketball games with him. “The only two words that weren’t in his lexicon were ‘no comment,’” Rodes says. “He had an opinion on everything.”

The bench at the firm is deep, however, and a new portfolio manager recently joined to look after McCormick’s bailiwick, which was banking.

The Slow Lane
Bahl says that Cincinnati offers life in the slow lane—an ability to get home from a football game in 30 minutes, not an hour, and for similar reasons, the town has not suffered the same vicissitudes that the rest of the economy has over the past 15 years.

“Being in the Midwest, we don’t get hit with the big swings,” says Bahl. “So, for example, while housing prices went down in Cincinnati, they didn’t go down nearly as much as they did in Florida or other hot real estate markets. So your highs and lows tend to be much more moderated here.”

And whether Mark Twain’s quote is true or not, the city is similar to what it was in commerce 25 years ago, Bahl says. “It’s a remarkably stable town. It’s also interestingly a town where kids move away to go away to school and their first jobs, but they tend to come back. Both Vere and I are experiencing that with friends of our kids.”