STEWARDSHIP: THE FOUNDATION
FOR THE SUSTAINABLE FIRM
WHITE PAPER
by Dave Mertens, Managing Director
A Series of Reports on Quality Growth Investing
Introduction
“Sustainable” and “sustainability”, particularly in the realm of investment
management, have become overused terms. But building a business that is
jenseninvestment.com
“protecting clients and employees by
giving certainty around the firm’s direction
beyond the founding owners.”1
sustainable (in other words, accomplishing goals in a repeatable, consistent manner
Second, sustainable firms embrace
for perpetuity) has been our focus at Jensen since its founding in 1988.
learning and innovation as a core part
Stewardship plays a critical role in building a sustainable asset management
business; one that continually improves its service to both clients and employees
alike. At Jensen, we know that the marketplace abounds with sustainable
businesses and diligent stewards, so our interest in them is twofold: study and
emulate them in our business practices, while analyzing and investing in their stocks
on behalf of our clients.
of the corporate culture. Ray Dalio,
founder of investment firm Bridgewater,
emphasizes that businesses must
“create a culture in which it is OK to
make mistakes, but unacceptable not to
identify, analyze and learn from them.”2
Learning takes many forms, including
internal training, continuing education,
Sustainable Firms
What qualities make a firm “sustainable?”
First, sustainable firms have a vision. The firms which endure were likely set on their
course by a visionary founder. Part of that vision must include a path for transitioning
ownership and establishing business practices which uphold the values of the
creating and empowering best practices
committees, and online idea sharing.
Consider that technology firm Cognizant
Technology Solutions provided 22.9 million
hours of training to its employees in 2014,
alone!3
organization, the service it delivers to its clients and the opportunity it offers its
Third, sustainable firms focus on the
professionals over the long-term.
long-term. Organizations that prioritize
Matt Cooper of Beacon Pointe Wealth Advisors describes this as the transition from
a “successful firm” to a “significant” one. The potential resulting benefit is a legacy
long-term, whether it be in their business
performance, relationships with clients
Cooper, Matt. 2014. White Paper: From Success to Significance, p. 6.
Ray Dalio, “Principles,” Bridgewater Associates, 2011, p. 43., www.bwater.com/Uploads/FileManager/Principles/Bridgewater-Associates-Ray-Dalio-Principles.pdf
3”Employee Development & Well-Being,” Cognizant, www.cognizant.com/company-overview/sustainability/employee-development
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Stewardship: The Foundation for the Sustainable Firm
and employees, or meaningful service to the communities in
investment excellence is a telling sign of the culture: proper
which they operate, make qualitatively different decisions
stewardship should mean that doing right by the client comes
than those focused on the next quarter’s results. Or the next
first and financial rewards will, in time, follow.
hire. Or the next pitch.
Manager incentives should include direct or deferred
Taking the long view deeply influences how decisions
compensation, as well as ownership in the business. Also
are made with regard to compensation and ownership
critical is the level of ownership by the firm’s investment
structures, product pricing, investment in human capital, and
professionals in the funds they manage, i.e.: do they “eat
performance measurement. The common theme running
their own cooking.” A compensation scheme that rewards
through each of these decisions is: how will the sustainability
short-term performance or asset gathering does not signal the
of the firm be affected?
Stewardship
Fundamental to creating and
sustaining a significant asset
management business is the fiduciary
alignment of a firm’s interest with
“...proper stewardship
should mean that doing right
by the client comes first,
and financial rewards will,
in time, follow.”
duty we have as stewards of our
long-term stewardship of investors’
wealth. On the other hand,
programs that reward results of the
professionals over the long-term
and through full market cycles do
indicate such an alliance.
Important to a firm’s stewardship and
clients’ capital. Investment research firm Morningstar offers
its culture is its commitment to compliance and oversight that
a helpful framework for measuring the strength of a mutual
it embodies. Professionals within the firm who bear the front-
fund firm’s stewardship. Their analysis assesses 1). the
line responsibility for compliance are only part of the firm’s
alignment of interests between the fund’s managers and the
commitment. A demonstrated commitment to compliance
investors they serve; 2). examines the fund firm’s corporate
should pervade every level of the organization.
culture; 3). the alignment of a manager’s incentives and the
fund’s fees; 4). the manager’s regulatory history, and 5). the
quality of the fund’s board.4
Few would argue that a robust, healthy corporate culture is
Finally, a mutual fund’s board should also be scrutinized to
ensure they have relevant experience, and that their actions
reflect their obligation to safeguard the interests of the fund’s
investors.
among the most important characteristics of a successful
organization. Companies with a strong organizational culture
share similar qualities, including long-tenured employees, a
focus on the customer experience, and a drive to continuosly
improve investment and business processes.
Whether a mutual fund company prioritizes asset growth or
Jensen’s Philosophy
Jensen Investment Management was founded to be a
sustainable, employee-owned firm that seeks to successfully
move from one generation of leaders to the next. The vision
Morningstar Stewardship Grade for Mutual Funds,” Morningstar, Inc., 2011, p. 5., corporate.morningstar.com/us/documents/MethodologyDocuments/MethodologyPapers/
StewardshipGradeMutualFundFirmsMethodology.pdf
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Stewardship: The Foundation for the Sustainable Firm
of firm founder Val Jensen and his early partners laid the
foundation for these future transitions. Their vision included
a willingness to share both ownership and decision–making
control.
The process enabling such change has continually been
improved over the history of the firm, offering accessibility to
key employees and protections to the business and its clients.
Today, we are proud to note that nearly 50% of Jensen’s active
employees are owners of our business.
Why did Jensen choose to build the firm for perpetuity?
There are several reasons:
“...we at Jensen have built a firm to
last from generation to generation
because of our strong belief in the
culture that has been established.”
demonstrably repeatable investment philosophies
and processes reassure our clients that investment
professionals can transition in and out of the firm
without detriment to the quality of the investment
products and client service that we deliver.
4. To maintain a team approach to managing the
1. To continue Jensen’s unwavering commitment to
firm and client assets. There are no “stars” within
clients. Families, foundations and endowments are
the organization at Jensen. We have institutionalized
a significant portion of our client base. In serving
our client relationships and the way we manage
these types of clients, we understand that multiple
our business. We work as members of a team,
generations are affected by our relationship. Jensen’s
complementing each other’s skills and supporting each
belief is that a full commitment to these investors
other in meeting our goals.
requires us to remain independent in ownership,
thinking and decision making.
5. To remain steadfast in our firm’s values and culture.
Finally, we at Jensen have built a firm to last from
2. To offer an independent, stable culture for our
generation to generation because of our strong belief
employees with the proper incentive structures. In an
in the culture that has been established. This culture
employee-owned environment, we can focus our energy
encompasses the directives of placing clients first,
on improving our investment process and service to
showing loyalty to our team members, and building
our clients. Affording employees the opportunity to
client wealth through the long-term investment in
be owner/operators puts incentives into the hands of
quality businesses.
people who will make the enterprise more innovative.
3. To preserve continuity of investment disciplines.
Independence affords Jensen the freedom to make
investment, product and pricing decisions with client
needs in mind rather than the financial goals of a
corporate parent. Commitment to clearly-stated and
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Stewardship: The Foundation for the Sustainable Firm
Outcomes and the Seeds for Potential Future Success
Jensen Investment Management’s belief is that positive results are a function of managing our firm for perpetuity. We choose to
be selective in the types of clients we pursue, always mindful that we do not wish to diminish the quality of service we offer or
commoditize our products in any way.
As such, Jensen believes its investment process to be one of the firm’s strongest competitive advantages, and thus, we have put
processes in place to maintain the integrity of its investment discipline, as well as high-quality client service.
Importantly, none of these processes stifle team members’ creativity and commitment to innovation, nor do they interfere with
the firm’s commitment to analyze, learn, and incorporate improvements to its fundamental investment activities and operations.
Jensen is ever-mindful of the pricing of our products and the governance of our funds. In fact, Morningstar notes that the
majority of assets in Jensen’s mutual funds are in share classes ranked “below average” in fee levels. The board of the Jensen
Quality Growth Fund is chaired by an independent director and 80% of its directors are independent, a structure that is consistent
with industry best practice.5 And finally, in addition to their significant ownership stakes in Jensen, itself, the firm’s professionals
commit a significant portion of their personal investments alongside fund shareholders in the Jensen Quality Growth and Quality
Value Funds.
One of the most positive outcomes of managing a firm for perpetuity is the stability that such an environment offers to clients
and employees. Morningstar notes that “strong corporate cultures are able to both attract and nurture investment talent and
foster an environment that’s supportive of portfolio-management careers.”6 The average tenure of more than ten years among
our investment team and their stature as owners of Jensen indicates, in our view, a corporate culture that is sound and wellprepared to serve the needs of future generations of individual and institutional investors.
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”Practical Guidance for Mutual Fund Directors,” Mutual Fund Directors Forum, 2013, p. 3., www.mfdf.org/images/uploads/newsroom/MFDF_Practical_Guidance_Oct2013_(web).pdf
Morningstar U.S. Mutual Fund Industry Stewardship Survey, 2015, p. 4.
All factual information contained in this paper is derived from sources which Jensen believes are reliable, but Jensen cannot guarantee
complete accuracy.
Any charts, graphics, or formulas contained in this piece are only for the purpose of illustration. The views of Jensen Investment Management expressed herein are not intended to be a forecast of future events, a guarantee of future results, nor investment advice. Past
performance does not guarantee future results.
As of July 31, 2015, the Jensen Quality Growth Fund and the Jensen Quality Value Fund owns 2.36% and 0%, respectively, of Cognizant
Technology Solutions.
Mutual fund investing involves risks; loss of principal is possible.
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The Fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The prospectus contains this and other important information about the investment company, and it may be obtained by
calling 1.800.992.4144, or by visiting jenseninvestment.com. Read it carefully
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