“We’ve been very fortunate from the standpoint that we’ve never pursued new fads or gimmicks. We’ve always just stayed focused and bought value.” —Neil Hennessy
A teddy bear, a special basketball and family photos are just a few of the personal touches in Neil Hennessy’s spacious office near downtown Novato, with its view of Marin’s golden hills. It’s an environment that's a world away from Wall Street, and yet Hennessy Funds is a success story in finance circles, outranking better-known funds while embracing small-town values and showing that ethics still count in a profit-driven world.
The story begins in 1989, when Hennessy, a Marin County native who grew up in Kentfield and attended Redwood High School, opened Hennessy Advisors (a registered financial management firm) in a small office on Grant Avenue a few blocks from today’s hillside location. He didn’t cast an eye to the future; rather, he was simply looking from one day to the next. In retrospect, he marvels at the company’s longevity. “We’re still in business 26 years later,” he says.
In 1996, the company made its first foray into mutual funds with the launch of the Hennessy Balanced Fund. “We had one mutual fund and no assets. What we learned is that it’s easy to manage money and that we’d better become a student of the management company,” says Hennessy, observing that managing mutual funds for shareholders is increasingly difficult in today’s regulatory environment. The company, which became publicly traded in 2002, proved it was up to the challenge and, “Today, we manage approximately $6.3 billion is assets in 16 mutual funds under the brand name Hennessy Funds,” he reports.
When asked the secret to his success, Hennessy doesn’t hesitate. “I’ve been fortunate to hire people much smarter than myself. It makes my job really easy,” he says. “Everyone’s been here a long time. Terry [Teresa Nilsen, director, executive vice president, CFO and secretary of Hennessy Advisors, Inc., and executive vice president and treasurer of Hennessy Funds] has been with me for 25 years; Dan, 16 [Daniel Steadman, director and executive vice president of Hennessy Advisors, Inc., and executive vice president and secretary of Hennessy Funds]. I’ll match anyone I work with here against any Wall Street firm,” he says. “Surround yourself with successful people, and you become successful.”
Getting to today’s success wasn’t all smooth sailing, however, because the company had to ride out the recession—even though it didn’t have holdings in the housing, auto or finance industries, three of the areas most affected. It saw its assets drop in March 2009 because people started to withdraw money when the market was falling. “It wasn’t catastrophic because we could see what was happening. The stock market sold off because it was the only place you could get quick cash,” Hennessy explains, adding that the company lost $195,000 (or $0.03 per share) in 2009, but it also had an opportunity to expand its network and implement new strategies.
Growth by design
“When you’re small, it’s important to distinguish yourself,” he says. So Hennessy Funds made a surprising move. “In March 2009, when everyone was running scared, we acquired two mutual funds. In September 2009, we acquired two Japan funds. As if the U.S. markets weren’t in enough trouble, I wanted to move into Japan,” he says, revealing that people thought he was crazy. But it was a tactic that worked: “The Japan market has really taken off and has done extremely well for our shareholders,” he reports.
Revenues and assets increased substantially after Hennessy acquired FBR Funds (based in Arlington, Va. in 2012, bringing in about $2 billion and increasing total assets to $3.1 billion by the end of that year—and they continued to grow. “We’ve made seven acquisitions since 2000. Our business strategy is to grow through both acquisition and organically,” Hennessy reports.
In another big change, the company’s stock listing moved from OTC BB to NASDAQ in 2014, giving it more visibility and making it available to more investors. Hennessy observes that a lot of companies aren’t allowed to buy OTC stock but are able to buy stock listed on NASDAQ, which gives shareholders more liquidity.
“It’s worked well to get stock into a lot of different people’s hands” he says, and reports that Mutual Fund Observer’s rankings earlier this year placed Hennessy Funds in the top fund families, putting it significantly ahead of very large, better-known companies such as Dreyfus, Morgan Stanley and Goldman Sachs.
Part of the reason is a specific focus and concern for each investor’s bottom line. Hennessy Funds focus primarily on equity investing—no fixed income funds, either domestic or international. “We’re not going to get into the bond market, the fixed income markets. I don’t see how you can make your shareholder money moving forward,” says Hennessy. “We’ve been very fortunate from the standpoint that we’ve never pursued fads or gimmicks. We’ve always just stayed focused and bought value,” he says.
He reports that Hennessy Funds has nearly 325,000 shareholders nationwide. Registered investment advisors make up a large part of Hennessy’s client base. These financial professionals make investment decisions for their clients based on Hennessy Funds’ record and decide an appropriate amount for their clients to put into the funds. “Investors can chase growth by paying up-front for something that might—or might not—happen,” he explains, “and so our goal is to give shareholders value at a reasonable price.” The minimum is $2,500 to get into one of Hennessy’s funds, but that can be waived. For IRAs, the minimum is $250.
Seven of the firm’s 16 funds are quantitative, and information is in the company’s prospectus and on its website. So, says Hennessy, “If you invest, you’d know exactly where the money is going.” Two financial funds are managed in-house, and “They’ve done well,” he says, adding that the numbers and how well an investment does for the end user are the real measures of success.
A personal approach
As the world becomes more impersonal, Hennessy believes it’s important to pay attention to details and add the personal touches that let people know they count, so customer service is a priority. “If you’re a shareholder or a new advisor working with us, we notice and send you a personal thank-you note,” he says. “We try to distinguish ourselves versus others in different ways,” he says. Like taking phone calls. “When you call here, you get a real person,” he says, expressing his dislike for voicemail, and adding that calls are usually picked up within two rings.
“It’s the way we care for our shareholders that sets us apart, just that personal level of service,” adds Tania Kelley, vice president of marketing for Hennessy Funds.
The same people-first philosophy is evident in the working environment, with its airy spaces and art-filled walls. “We have 14,000 square feet here in Novato,” says Hennessy, whose staff totals 19. “All my people multitask; having larger offices facilitates that,” he adds, explaining that a bigger space is conducive to discussion, but conference rooms are counter-productive because they require scheduling and limit time. Instead, he opts for roomy offices so staff members can visit each other, talk about ideas, make decisions and move forward. He credits his staff with thinking creatively, conceptually coming up with ideas and following through with them.
Outreach to the community, both in volunteer time and financial support, is also an integral part of the company’s ethic, and Hennessy Funds gives cash and in-kind services to more than 150 different charities each year. “We’ve been fortunate, so why not give back some of it? We want to support the community,” says Hennessy. The focus is on youth and education. Among the recipients are schools, sports, community and civic organizations in Novato, as well as local chapters of national charities. “We’re very proud of the good reputation the firm has in the community,” he says.
It’s a principle that makes working for the Hennessy companies meaningful as well. Employees get flexible work hours and time off to engage in volunteer activities. “To be able to live and work in my community, to be near my children and be involved in our schools, while pursuing a professional career, is a balance that you don’t often find,” says Kelley, who won recognition as Distinguished Volunteer at her children’s elementary school in 2013. In addition, Nilsen has served as volunteer at her children’s school and as a sports coach, and Hennessy and Steadman give time to Sonoma County Trailblazers, and Steadman also serves as president of the board at Halleck Creek Ranch, while other staff members are involved in a variety of pursuits.
Making a mark
The community takes notice. “Locally, Hennessy Advisors has been named one of the Best Places to Work [by North Bay Business Journal] in each of the last three years, Neil was honored last year by the Novato Community Hospital and, in 2011, we were named the Novato Chamber of Commerce Small Business of the Year,” says Kelley, who also cites national honors. “The MFEA [Mutual Fund Education Alliance] named Hennessy the Community Investment award recipient for 2013, and we’ve received 13 awards for our marketing materials over the past six years,” she says.
Marketing is an area where Hennessy Funds takes a novel approach. “We didn’t have money to hire salespeople, so, thinking outside the box, we hired a PR firm to ‘wholesale’ us to the media,” says Hennessy. If people write about the company, it’s like a third-party endorsement, he explains. As a result, the Hennessy name appears every two days in national TV, print and radio. “That brands us and makes Hennessy a recognizable name,” he says.
It’s clearly made a difference. “In 2014, we had 47 national TV appearances with either Neil or one of our portfolio managers interviewed,” says Kelley. “We’re a national company located in Novato.”
Looking forward, “We’ll continue to do what we promised our shareholders,” says Hennessy, pointing out that, in 2002, the company promised to grow organically, make high-quality acquisitions and perform in an ethical manner. His intent is to bring high-quality earnings to the bottom line in an honest and principled way. “It’s a good feeling to know that no one here would ever do anything that isn’t ethical,” he says.
Whatever the future brings, however, he emphasizes that it won’t be a result of setting goals. “I’ve never liked goals. I’ve never had goals and never will,” he says. “My motto is, ‘The harder you work, the luckier you get.’ Just work as hard as you possibly can, and whatever happens, happens. My team has worked very hard, and it’s paid off,” he says. “I couldn’t be more proud of our product lineup,” he adds.
Hennessy feels fortunate to have been able to start a company, oversee its growth and raise a family in Novato. He takes the most pride in his wife, five children, two grandchildren—and another one on the way—and is grateful for the success he’s achieved. He also appreciates the friends in Marin and Sonoma counties who backed him. “I feel fortunate to still have the backing and loyalty of many friends,” he says. “It’s fantastic.”
Much of Hennessy Funds’ charitable giving is to organizations that support the community’s young people. “Primarily, our charitable giving is centered around children,” says Neil Hennessy. Okizu, a Novato-based nonprofit that offers a camp and other opportunities for children and teens with cancer and their families, is by far the largest beneficiary, and SchoolsRule Marin, a collaboration of school foundations that works on behalf of every child in all of Marin’s public schools, also receives support.
“Neil has been helping us for as long as I can remember—at least 25 years,” says John Bell, chairman of Okizu’s board of directors. Hennessy Funds’ support started with the camp’s annual fund-raiser, which nets $300,000 to $400,000 per year for its programs. “Neil brings a couple of buses of people—70 to 100,” says Bell, who adds that Hennessy also contributes a Hennessy Funds certificate to the auction. Hennessy has also visited the camp several times. “He sits and has lunch with the kids—and just fits in with the whole thing,” says Bell.
He praises the entire Hennessy Funds staff and reports that anytime Okizu needs assistance, they will be part of it. He explains that the camp doesn’t ask families of kids with cancer for payment, because medical expenses are already a burden, so the support is extremely important. “Neil is our all-star backup,” he says.
Hennessy Funds was a table sponsor at SchoolsRule Marin’s third-annual fund-raiser, Enchanted Circus, and invited some special guests to join the party, which kicked off the Marin County Fair. “We’re pleased that Hennessy Funds has chosen to partner with SchoolsRule, which supports every child in every public school in every district in Marin,” says Board President Trisha Garlock. “Through Hennessy’s generosity, 12 deserving teachers and PTA leaders were able to attend the Enchanted Circus event on June 30 and share in the celebration of public education in our county.”
Hennessy Advisors, Inc., is the publicly traded investment manager of Hennessy Funds. Daniel Libarle, owner and president of Lace House Linen Supply in Petaluma and a founding director of the Bank of Petaluma, has served on its board since 2001. He credits much of the company’s success to its focus and the way it views investment. “We’re very precise about the way we look at investments,” he says.
“It has a lot do with structure and management,” he explains, observing that Neil Hennessy has some old-time ideals that came from his father, a successful stockbroker, and have stuck with him. The result: “More than anything, our customers trust us,” he says.
A plaque-lined wall tells the story of Hennessy Funds’ and Hennessy Advisors’ success. Among the company’s many awards are:
• Four Mutual Fund Education Alliance STAR awards for excellence in mutual fund marketing and communications in 2014 (that makes 13 in total since becoming an MFEA member six years ago)
• Recognition as Kiplinger’s Annual Mutual Fund Winnersfor the performance of several funds in 2014
• Lipper Fund Award winner in each of the past four years
• MFEA Community Investment Award for outstanding community service in 2013
• Novato Chamber of Commerce Small Business of the Year in 2011
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