It might not sound good on paper. Leave a really good job at a bank and start your own boutique investment firm when you’ve got kids in school. Come up with an investment philosophy that depends on income growth during years when bond income is shrinking and dividends are falling out of favor. Start your firm just before Saddam Hussein invades Kuwait and the market plunges.

Such was the forge Bahl & Gaynor was made in. William Bahl and Vere Gaynor, friendly rivals in the institutional asset market in the 1980s, had been talking about hanging out their own shingle for years when in 1990 they finally did. Bahl had been CIO at Northern Trust (before that at Fifth Third Bank) and Gaynor was a managing director at the Cincinnati office of Scudder, Stevens & Clark.

They had a lot in common. Both were children of doctors, but veered away from medicine. (One time in the emergency room intake, Gaynor saw a friend separated from his ear by a windshield, and that was enough for him.) Both wanted to live in Cincinnati, where Bahl grew up, an easy place to live with a conservative-mindedness about money, where several large financial companies are domiciled. An apocryphal Mark Twain quote suggests Cincinnati would be the best place to live during the end of the world, since everything happens there 20 years behind everything else.

But it was perfect for what they were trying to do. (Bahl says the first stock he ever bought was Cincinnati Financial; he purchased 100 shares for $1,800 of summer earnings. “It’s done great,” he says. “Probably the highest paid summer job I ever had.”)

Since the launch, they’ve built a firm with some $12 billion in assets under management or advisement, divided between high-net-worth families and institutional investors. Like everybody else, they suffered a poor revenue year in 2009 during the financial crisis, but at about the same time, they broke open doors on the distribution platforms at Northern Trust, Goldman Sachs, Merrill Lynch and UBS. Their $2.7 billion in assets under management in 2009 mushroomed into $7.4 billion by the end of October 2014, and some $5.3 billion in assets under advisement, says Scott Rodes, a firm principal and portfolio manager.

The firm now has 35 employees, 15 portfolio managers and over 300 client relationships with 2,500 accounts, charging fees on assets under management.

Dividends, Then And Now
The germ of the idea was born in 1983 or ’84, says Bahl, when the two future partners had a conversation. People had suggested they ought to work as a team, and they wondered if there was a void to be filled managing their wealthy families’ money more holistically than they’d been doing—a concept of long-term investing with personal service. They figured clients weren’t getting this from banks, where the investing wasn’t stressed, or from other investment management firms, where there was no service philosophy.

“We figured, if we can keep [clients’] income higher than their lifestyle, they’ll never go broke, and if we can grow income faster than their lifestyle, which is a challenge, they will never go broke.”

The two were able to build business with clients from their old firms, families with long-standing holdings in good companies that needed to be diversified. The first Gulf War came a month after they opened their doors, and it took a while to get their salaries up to where they were, but soon enough the market was up and running through the 1990s.

The two founders were similar, but also different in the right ways. Bahl was a hands-on managerial type, Gaynor was a vision guy. Together they worked on a dividend philosophy, says Bahl, one that depended on families having a certain amount of wealth already (their minimum is $600,000) and a much longer time horizon—something more akin to a foundation’s, perhaps. This philosophy eschews the consumption of principal.

“With yields on financial instruments today where they are, a million dollars doesn’t buy what it used to,” says Bahl. “Ten years ago, you could get $50,000 or $60,000 of income off a million-dollar bond portfolio. Now you might get $15,000 or $20,000.”

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