Competing in a crowded, cost-focused market, 20-year-old Hennessy Funds is putting an emphasis on distribution.
The Novato, Calif.-based fund firm, which had $1.12 billion in assets as of June 4, has hired former Pioneer Investments executive Kevin Rowell as president. Founder Neil Hennessy will become the firm's chairman and remain as chief executive and portfolio manager.
"The reason we hired Kevin is that we have the intellectual capacity, but we didn't have the leadership to lead distribution and sales," Mr. Hennessy said. "We thought our returns spoke for themselves."
Mr. Rowell has more than 20 years' experience, most recently serving as president of Pioneer Funds Distributor, the distribution arm of Boston-based Pioneer.
Before Mr. Rowell's arrival, Hennessy lowered and capped the expense ratio at 0.98% for institutional shares on four of its six funds. Many advisers' screens exclude funds over 1%, Mr. Hennessy said.
On June 11, the firm announced a first-time agreement with Merrill Lynch & Co. Inc. of New York to make Hennessy funds available on the Merrill platform.
One of the first tasks for Mr. Rowell is the creation of a team made up largely of individuals who hold the chartered financial analyst certification. They will work with the gatekeepers at broker-dealers who choose funds.
"In the days of old, you had to be big, with 100 wholesalers," Mr. Rowell said. "That's not the majority of the business anymore; it's about partnering with these research groups [at the brokerage firms] and giving them the analytics."
Small firms can compete because platforms are seeking best-in-breed performance, Mr. Rowell said. But firms have to get the information to the decision makers.
"There are teams of people who analyze the risk and performance of the funds, and determine repeatability," Mr. Rowell said. "The broker-dealer is asking the asset manager to provide a high level of expertise and single point of contact. This newly created group will be able to inform them about how our funds would fit into their platform and asset allocation."
The firm is increasing its efforts with independent broker-dealers, wirehouses, major banks and registered investment advisers. A website dedicated for research analysts is planned.
For advisers, fund fees and expense ratios can be selection obstacles.
"For us, the funds have to be available at no cost, no transaction fee," said Chuck Gibson, president of Financial Perspectives Inc. of Newark, Calif., which has $50 million in assets under management. "Then it's all about performance, and everything else is secondary. I am looking for something that they do that's unique."
Expenses can rule out a fund if there is another competitive fund available, Mr. Gibson said.
A transaction fee wouldn't necessarily rule out a fund, said Diane Pearson, an adviser with Legend Financial Advisors Inc. of Pittsburgh, which has $380 million in assets under management. "When the fee is open and out on the table, then we know what the platform is getting paid," she said.
The performance of the manager is most important, Ms. Pearson said. "We feel you are not just buying a fund; you are buying a manager," she said. "Making that decision on the manager is more important than just buying the name.
"Smaller funds are more nimble, Ms. Pearson said.
Hennessy, which was founded in February 1989, launched its first mutual fund, the Hennessy Balanced fund (HBFBX) in 1996, followed by the Hennessy Total Return fund (HDOGX) in 1998.
In 2000, it acquired Greenwich, Conn.-based O'Shaughnessy Funds Inc., which had about $200 million in assets at the time, and created the Hennessy Cornerstone Growth fund (HFCGX) and the Cornerstone Value fund (HFCVX).
In 2002, the company went public. It acquired the Sym Select Growth Fund (SYM) of Warsaw, Ind. in 2003, which then had about $35 million in assets. Additional acquisitions included the $300 million Lindner Funds of Chicago in 2004 and the $300 million Henlopen Funds of Philadelphia in 2005.
"We are still looking for acquisitions," Mr. Hennessy said.
As of May 31, the fund group had a year-to-date return of -3.74%, a three-year trailing return of 5.39% and a five year return of 10.26%.
The Focus 30 Fund (HFTFX), for example, ranked first out of a total of 449 mid-blend funds in the Chicago-based Morningstar Inc. database as of that date.
"We manage the money with discipline," Mr. Hennessy said.
"We have removed emotion from the investment decision-making process. We re-balance every year. Each of the six no-load funds has a different formula for investing, and we adhere to that formula. We are trying to buy value at a reasonable price," he said.
E-mail Sue Asci at [email protected].
