Two Fund Shops Go Above and Beyond to Support Charity

Fund managers are red-blooded capitalists through and through. They focus intensely on their net worth and their investment results. But they also can be generous.

Many donate to charities on their own. One of the most prominent was Templeton Funds founder Sir John Templeton who established the Templeton Foundation in 1987, which donates $60 million a year.

There are two standout examples where, thanks to their founders, two fund companies are remarkably generous. If you invest with American Century or Bridgeway funds, it's likely that a chunk of the fees you pay will make their way to charity.

In 1994, American Century founder James Stowers created the Stowers Institute for Medical Research in Kansas City with $50 million. In 2000, Stowers and his wife Virginia gave the Institute their entire holdings of shares in American Century--about 42% of the company. The foundation now has an endowment of more than $2 billion and it collects the dividends on its stake in American Century. Stowers retained the voting rights, but the institute receives the dividends--about $700 million to date.  J.P. Morgan Chase (JPM) owns about 42% and American Century employees hold the rest.

James and Virginia Stowers are cancer survivors and they crafted the Institute to do basic research to get at root causes of cancer and gene-based diseases. The Institute says it employs more than 400 scientists.

In addition, as part of its Livestrong target-date funds, American Century has given $3.5 million to the Lance Armstrong Foundation, which provides tools and information for people with cancer, supports cancer research, promotes prevention, and aims to improve the quality of life for cancer survivors.

Houston-based Bridgeway is a lot smaller than American Century, but founder John Montgomery has been quite generous, too. When he launched the firm in 1993, he set up a provision to give half of the firm's aftertax profits to charity. "We had a house and felt like we were living the American dream, so I thought why not give away half of our profits each year rather than wait until I'm old," Montgomery told me. "This way is much more fun."

He hadn't expected it would also help the investment side of the business. "What surprised me is how powerful this was for the business-side. The kind of people we attract is extraordinary. If other businesses knew how powerful this was they'd all give 10% or 20% of their profits to charity." In fact, a number of businesses have contacted Bridgeway to find out how they can set up something similar and to hear about the benefits of having a set portion of profits going to charity."

At Bridgeway, everyone on the asset management side is also involved in the charitable side. "You have to make sure that the charity side doesn't distract from the investment side, but we find it adds to the investment side. People are excited to come to work and that applies to both sides of what we do."

Bridgeway created the Bridgeway Foundation in 2000, in part to smooth out the peaks and valleys of donations. The foundation's first priorities are three ambitious goals: peace and reconciliation, human rights, and eliminating genocide. Those are ambitious goals, but they've found some interesting ways to further them.

For example, they gave some money to Human Rights Watch to support an observer in Uganda. But more often they give to smaller, younger charities like Genocide Intervention Network and Invisible Children, which have small budgets. Montgomery said they were the first foundation to give to Genocide Intervention Network, because, like its founders, he attended Swarthmore and called around the university to establish that they were really committed to the effort. As is the case in asset management, organizations like to see that other organizations have given to a charity, so early contributions are particularly valuable.

The foundation also has four additional giving committees that support early education, higher education, the Houston community, and international humanitarian aid and relief.

Montgomery won't say how much Bridgeway has given to charity over the years but he did say that they annually give in the millions.

At American Century, the line between the charitable side and asset management is more clearly drawn. American Century CEO Jonathan Thomas said his side focuses on performance knowing that that is the best way to serve clients and the Stowers Institute alike. He did agree with Montgomery's point that the link to charity helps to attract better employees and argues that it "inspires the workforce." Thomas calls it "profits with a purpose."

For Thomas, profits with a purpose is one of the four pillars of the firm's principles along with performance, pure play (meaning the firm isn't owned by an insurance company or other conglomerate), and private (meaning the firm isn't publicly traded.)

Does this strong commitment to charity lead to stronger performance? Obviously it's not the most important factor. But for what it's worth, American Century ranked sixth out of the 25 largest fund companies for weighted three-year performance through end of June in a study I ran in the July issue of Morningstar FundInvestor. The firm has, however, experienced manager turnover that's in line with that of the rest of the industry, so I wouldn't want to imply too much about its power to attract and retain top talent.

Bridgeway was too small to be included in that study. Its star ratings are pretty average because its quantitative models have gotten swamped by last year's financial debacle like many other quantitative models. However, most of its funds have produced strong performance since their inception.

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