The unique way American Century Investments impacts lifesaving research

Some asset management companies offer investments guided by socially responsible/sustainable principles. Others make admirable philanthropic contributions. But no money manager is quite like American Century Investments, which supports some of the world’s most advanced biomedical research through its unique ownership structure. Recently, the InvestmentNews Content Strategy Studio sat down with Jonathan Thomas, President and CEO of American Century Investments, to discuss how the firm — and the investors in its funds — are creating breakthroughs that are saving people’s lives.

InvestmentNews Content Strategy Studio: In terms of its ownership structure and goals, American Century is probably one of the most unusual asset management firms in the country. Explain how it works and the connection to medical research.

Jonathan Thomas: Our late founder, Jim Stowers Jr., was a true visionary. He and his wife, Virginia, in an unparalleled act of generosity in 2000, transferred their equity stake in American Century to an endowment that supports the Stowers Institute 
for Medical Research (SIMR), a nonprofit, basic biomedical research organization in Kansas City, Mo., that the Stowerses created to focus on basic biomedical research. The Institute, which supports 20 independent research programs and employs a staff of 550, including 370 scientists, is dedicated to improving human health by studying the fundamental processes of life.

The Institute is the controlling owner of American Century, and over the years, more than 40% of our profits have been distributed to the Institute’s endowment in the form of dividends. Since 2000, dividend payments to the Institute have exceeded $1.1 billion. To be clear, this isn’t corporate philanthropy; it’s an ownership mechanism for distributing profits based on Jim and Virginia’s original philanthropic gift that is hardwired into our business model.

InvestmentNews CSS: The Institute is an independent entity and not part of a hospital or a university. Is there any other institution in the country like it?

JT: We don’t think so. Legally, it’s a Medical Research Organization. Three big things dis- tinguish SIMR from other research centers.

First, Stowers is supported about 90% through the endowment and about 10% from grants; the mix at the typical research institution is just the opposite. Without having to spend their time writing and submitting grant proposals, our researchers are able to pursue questions that have long- term payout.

Second, the Institute spends about one-third of its scientific budget on technology, which also is unusual, allowing researchers to use the latest equipment to its full extent to ad- dress important biomedical questions.

Third, breakthrough ideas from the Institute are turned over to a for-profit company that Jim and Virginia Stowers created called BioMed Valley Discoveries (BVD), which ventures into areas usually considered too early, too unconventional or too unprofitable for traditional biotech or pharmaceutical companies. BVD also receives funding from the endowment and returns any profits to the endowment.

InvestmentNews CSS: Have SIMR and BVD produced any biomedical breakthroughs thus far?

JT: There have been several, and two coming through the BVD pipeline are very exciting. One is something called C. novyi NT, which is an engineered bacteria injected into solid cancers that eats away at tumors from the inside with minimal damage to healthy tissue. In fact, once the bacterium runs out of cancer tissue to consume, it stops growing and becomes inactivated. The second drug, BVD-523, targets a specific genetic vulnerability frequently found in melanoma, pancreatic cancer and certain colon and lung cancers.

“Since 2000, dividend payments to the Institute have exceeded $1.1 billion.”

InvestmentNews CSS: The Institute is producing stunning achievements now, but what was the reaction when Mr. Stowers said he was going to create a world-class biomedical research center?

JT: People were surprised by a variety of things. From everything I’ve read and from everybody I’ve talked to, since I wasn’t here when he made the original gift, the most astonishing thing was that he did it in Kansas City. Setting up a world-class medical research organization in the Midwest was considered unachievable by many people in academia and science. But, Mr. Stowers was determined to do it in K.C. because his family roots extend back to the founding of the city 200 years ago. What has happened, of course, is that the Institute has been able to recruit top-notch scientists from leading institutions around the world.

Second, not only did he give a huge amount of money to the Institute — he gave almost all of his money. The percentage is never disclosed, but it’s safe to say that nearly all of his assets were put into this. And he decided to do it while he was alive so he could set everything in motion and watch the work being performed. Today, everyone in the scientific community is very familiar with the name.

InvestmentNews CSS: Since the Stowers Institute is doing such great work, why isn’t it better known among the public?

JT: The chief reason goes back to funding; one of the reasons other organizations
are more prominent is because they need the awareness in order to raise money for research. Because of our unique model, SIMR doesn’t have to do that. But the model is also part of the challenge. It’s so unusual that it doesn’t lend itself to a quick conversation; you can’t boil it down to an elevator speech. And if you do give a quick explanation, one of two things happen.

First, people make a broad generalization and equate you to something they already know, even though there is really nothing else like us. Or, second, they wonder
if there’s some kind of a catch. The whole thing sounds too good to be true. But there is no catch. It is literally just about Mr. Stowers wanting to do the right thing and a gift that set it all in motion many years ago.

InvestmentNews CSS: Why do you want ad- visors and their clients to know what you’re doing?

JT: We want to share the story of the Stowers because when people do business with American Century, they really are making a difference in the lives of their children, their children’s children and the world at large, which is the way we define impact investing.

There are thousands of choices in the asset management space and many great firms with well-performing investments. Who should you do business with? When performance is comparable, we often find that the impact dimension of who we are serves as a tiebreaker. People want to do business with us because they understand that our profit- ability results in dividends that are used in a unique and unusually good way.

InvestmentNews CSS: How committed is American Century to continue funding scientific research and the Institute?

JT: Your question implies that continuing funding for scientific research is discretionary, but, in fact, the support is an unalterable consequence of our ownership structure. The Institute is the controlling owner of American Century and receives dividends as a result. The Institute’s ownership and control ensure long-lasting support. Both organizations are in this for the long run.

Actually, all our constituents are in alignment in terms of their long-time horizons: the Institute, the investors who entrust us with their assets, and all of our portfolio managers, who are measured on a long- term basis. As a result, we don’t face the quarterly or annual pressures that a typical asset manager does. Running the business for the long term, we can invest and rein- vest in the best interests of our clients. Our unique business model and its funding of the Stowers Institute not only is working to make life better for everyone through research, we believe it also frees us to do a better job for our investors. And from management’s perspective, that’s a real gift.

InvestmentNews CSS: Where can people go to get more information about your unique business model?

JT:We have a special landing page at www.americancentury.com/purpose