Neil Hennessy: Active managers can grow their assets with acquisitions

Make an acquisition the same way that you'd buy a stock

Jun 5, 2018 @ 2:02 pm

By John Waggoner

Neil Hennessy is founder and chief investment officer of Hennessey Advisors Inc., a $6.6 billion publicly traded investment management company that offers 14 mutual funds to the public. Mr. Hennessy, who started his career as a PaineWebber broker 1981, named the company after his father, Edward J. Hennessy, who had also been a stockbroker. Senior columnist John Waggoner spoke with Mr. Hennessy about the market for mutual funds — and the pressures on the industry as money flows out of actively managed funds and into passive funds.

John Waggoner: What's it like for a small fund company that believes in active management?

Neil Hennessy: Everyone is going toward passive. If you look at small companies like ourselves, we're still seeing net redemptions. If you're going to grow, the way to do it is through acquisitions. We've made nine acquisitions since 2000.

JW: What are some of the obstacles to buying other fund companies?

NH: A lot of funds have waived fees for two years — they are either trying to keep existing shareholders or attract new ones. If you buy them, you have to keep that waiver. Actually, a 1.25% expense ratio all-in isn't expensive. People think that's what the manager is getting — typically, the management fee is between 0.40% and 0.90%.

JW: What do you look for in an acquisition?

NH: My criteria is for equity only, domestic or international. Buying into the fixed-income market now would be crazy because rates are going up. On the equity side, I'm interested if the market looks good and it has a high-quality subadviser. And you have three options when you buy: You can merge them into existing funds, acquire the assets and keep the current management as subadvisers, or acquire the assets and create another strategy on the sidelines. I usually tell the managers not to worry about beating the indexes. I don't want them overreaching. I want them to make money for shareholders.

JW: Any other criteria?

NH: Returns are one part, but there has to be a story behind what you're doing. It's no different than buying individual stocks. I bought two financial funds, and while banks were under the thumb of the Federal Reserve, they couldn't make money. Now interest spreads are getting better. People wanted to know why we bought the Gas Utility Fund (GASFX), which invests in just the pipeline stocks. But natural gas is the cleanest fuel we have, and we have an abundance of it.

JW: What about Hennessy Advisors? Might that be for sale?

NH: You have to look at shareholders first, and in this marketplace, you can either be a buyer or a seller. We haven't been approached. If someone comes in with an offer, we'd have to look at what's best for our shareholders. If a bid came in, I'd have to take it to the board. I want people to make money. It would have to be accretive for everybody.

(More: Loomis Sayles' star bond manager talks about rising rates and trade wars)

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Behind the scenes at Pershing Insite 2018

What goes on behind the scenes at one of the industry's biggest conferences? Join us for an all-access sneak peek!

Latest news & opinion

Mutual funds feel the pinch of platform fees

No-transaction-fee options are a big hit with investors, but funds wind up paying the costs — and passing them on.

Divorce reduces retirement readiness

The new tax law could increase financial challenges for divorced people, but planning opportunities abound.

Merrill Lynch fined $42 million for misleading customers

In addition to the practice of 'masking' trades, the wirehouse went to extremes to cover up the wrongdoing.

Advisers with billions in AUM leaving Wall Street

Merrill Lynch has seen two teams exit recently, each with more than $4 billion in client assets.

Wells Fargo weighs changes to wealth unit

The move would reflect the bank's effort to cut $4 billion in costs.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print