From Wal-Mart Stores Inc. to Ford Motor Co., Wall Street is full of family businesses, and a surprising number of parent-offspring management teams can be found in the mutual fund world, as well.
For shareholders, family-run funds where lessons have been lovingly passed down from one generation to the next can offer unusual stability. The advantage of investing with this kind of company is that the managers are not only watching over your assets, but also their own family wealth and legacy, said Russ Kinnel, director of fund research at Morningstar Inc.
"There's bound to be a strong interest in protecting your principal and your reputation," Kinnel said. "However, I think it can be a mixed bag. On the one hand, you have some nice stability. . . . But at the same time, there can be issues. You have to ask, has this person really earned their spot? Obviously some will show experience beyond their years, for having grown up in it, and having fathers that can show them the ropes. That can be tremendously valuable."
Business is a family affair at the nation's largest fund complex, FMR Corp., the financial conglomerate known as Fidelity Investments, where Edward C. Johnson III succeeded his father in 1972. His daughter, Abigail, is the company's largest single shareholder. Despite her recent lateral move in management, many analysts say she is being groomed to take over the business, which includes about 340 funds.
Other notable family-run fund companies include Franklin Resources Inc., a San Mateo, Calif., firm founded by another family of Johnsons that manages more than 100 funds, and the Tucson-based Davis Selected Advisors LP, where Christopher Davis took over management from his father in 1997.
There's also a number of smaller firms run by father-and-son management teams, such as the Nicholas Co. in Milwaukee, a series of seven funds managed by Albert O. Nicholas and David O. Nicholas. Other well-regarded father-son shops include the James Advantage Funds, a series of four funds managed by Frank James and his sons, Barry and David, in the tiny town of Alpha, Ohio; Alpine Mutual Funds, based in Purchase, N.Y., where Stephen and Sam Lieber run seven funds specializing in asset allocation, real estate and bonds; and the Dallas-based Hodges Fund, managed by Don and Craig Hodges, who recently won an award from Lipper Inc. for posting the best performance in the multi-cap core category.
Frank James, 74, and his son Barry, 47, are both retired Air Force officers, and their company, based on 35 acres of prairie and forest land outside Dayton, Ohio, is very much a family business. David James, 37, is vice president of research, and a third son works as a consultant. The family matriarch, Iris, spent 21 years working for the company.
"When the company first got started, we were in my mom and dad's house, in 1973, and the office was in my bedroom," recalled David James, whose high school science fair project focused on trading theories. "My dad started teaching me about statistics when I was in fourth grade, things I wouldn't see in school until college. I've always found this stuff fascinating."
The opposite was true for Sam Lieber, 48, who decided to go into real estate after a dull summer studying materials handling as an intern for his father's firm in the 1970s. Then in 1985, when he started working with real estate investment trusts, he found he had more in common with his father's business than he thought. Soon he was running one of the first international real estate funds.
Stephen Lieber later sold his company, the Evergreen Funds, to a bank. Now 79, he and his son are co-chief executives of Alpine Woods Investments and co-managers of the Alpine Dynamic Balanced Fund, a five-star offering with one of the best three-year records of its category, according to Morningstar. The Liebers share an awareness of the need to be responsive to a changing environment, to take strategic advantage of trends and seek opinions that others on Wall Street might ignore. Of course, they don't always agree: Sam Lieber says the working relationship he now enjoys with his father was forged during his typically rebellious teenage years.
"I raced sailboats with my dad. . . . It's something we shared a real joy and enthusiasm for, because it's part nature, being out there with the waves and the wind, it's part chess for the strategic side of it, and part athletic endeavor," he said. "We argued a lot. He would say, 'Let's tack, let's go in this direction,' and I'd say, 'You're crazy, let's go the other direction.' And I finally realized that both of us were right at different times."
For any parent trying to work with a son or daughter, it's wise to occasionally take off your mentoring hat, said Don Hodges, 71. After 46 years in the business, he has a great deal of wisdom to offer, but said his son frequently contributes ideas he might never have considered. Craig, 41, worked as a broker before deciding to go into business with his dad in 1989; now the two co-manage the Hodges Fund.
"When you put your name on a fund, there's a certain element of pride, of not wanting to be embarrassed or neglectful. . . . It forces you to want to work just a little harder to be right," Don Hodges said.
"One of the things I've done is try to stay out of Craig's way and to give him an opportunity to test his own wings and learn by his own experiences. He's not operating under Dad's shadow, he's got his own ideas and opinions," he added. "I'd heartily recommend that to anyone considering being in business with members of their family. There's a strong inclination to carry the family relationship over into the business, so that Dad's word always rules. And I've tried to let Craig know that his opinions are just as important as mine."