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Fund family ties that bind
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December 6, 1999: 7:05 a.m. ET
Brothers, sisters and parents are working together in the fund business
By Staff Writer Martine Costello
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NEW YORK (CNNfn) - Papp Mutual Funds has been a family affair for more than 20 years, but fund manager Rose Papp knew it was in the blood when her 12-year-old daughter, Stephanie, started paying attention to market news.
It is not hard to understand what triggered Stephanie’s interest in stocks, considering her mom, her dad, her grandpa and her aunt all work for the Arizona-based fund group.
"Maybe it comes back to what you grow up with,” Rose Papp said. "It’s something you learn to love and it’s something you want to do.”
Like Papp funds, there are dozens of cases of family ties in the industry. Founding fathers are bringing their sons and daughters on board, while husbands and wives are working side by side and siblings are competing against each other.
"Certainly, the fact that the fund industry has gone from a smallish, clubbish world to a major industry contributes to (family ties),” said Russ Kinnel, an analyst at fund-tracker Morningstar. "There are a lot of connections.”
Consider a few of the many examples of family ties:
- Edward C. Johnson III, chairman of fund giant Fidelity Investments, works with his daughter, Abigail, associate director and senior vice president of Fidelity Management & Research Co. The company was founded in 1946 by Edward Johnson’s father, Edward C. Johnson II.
- At Franklin Resources (BEN), the founder and chairman is Charles B. Johnson, while his son, Greg, is president of Franklin Templeton USA and son, Charles E., is president of Franklin Templeton International.
- Famous Wall Street stock picker Mario Gabelli, founder of Gabelli Asset Management (GBL), hired his son, Marc, as a manager.
- At Capital Research and Management Co., which oversees American Funds, J.B. Lovelace Jr., son of founder Jonathan Bell Lovelace, has been at the company since 1952. And, a third generation, Robert and his brother, James, are both managers and officers.
- American Century Funds also has a father and son working together. James Stowers Jr., who founded the company in 1958, is chairman, while James III manages funds and is chief executive.
- And, Chris Davis, in his mid-30s, is the third generation in his family picking financial stocks at Davis Mutual Funds, Kinnel said. While Davis is only in his mid-30s, he has probably received great training, and has strong ties to the company that will keep him there for years, Kinnel said.
"You have confidence that 10 years down the line Chris is still going to be there,” Kinnel said.
There are other types of familial ties. Bob Stansky, manager of the closely watched Fidelity Magellan Fund, is a brother of Brian Stansky, manager of T. Rowe Price Media & Telecommunications Fund and the Health Sciences Fund. Helen Young Hayes, co-manager of Janus Overseas Fund, and Claire Young, manager of Janus Olympus Fund, are sisters.
(Photos from Janus Funds Web site).
(In all of these examples, family members declined comment or were unavailable for comment).
Bob Kern, who co-founded the small-cap shop Kern Capital Management with his son, David, thinks it could be something in the genes that inspired the father-son team.
"Small-cap investing is something you love or you say ‘That’s not for me,’" Bob Kern said. "There’s a passion that develops. Maybe that’s something that relations to the genes.”
There was plenty of talk around the Kern dinner table when David was growing up about small-cap stocks, the father recalled. Then David went off to Lehigh University.
"David was a sophomore when we had a father-son discussion,” Bob Kern said. "I said, ‘what do you really want to do?’ He said, ‘Dad, I’ve been thinking about the investment business.’"
David had a few internships and held jobs at three investment firms when he wound up competing against his father. The son managed the Founders Discovery Fund and the father was heading Fremont U.S. Micro-cap Fund.
"Being competitors in small caps, that’s when the light went on,” Bob Kern said. They founded the company in 1997.
Too close for comfort?
Kinnel said he is unable point to a case where investors have been hurt by owning funds with family connections. But, he said it is something that could potentially be a problem.
"Clearly when you have sons and daughters and brothers the standards are a little different for them,” Kinnel said.
Then again, the fund industry is a more of a meritocracy where managers have to prove their worth based on performance, Kinnel said.
Rose Papp said her father-in-law was so eager to avoid the appearance of favoritism that he insisted that she and her husband - who both have MBAs -- get certified as chartered financial analysts. And when the company moved offices recently, all of the partners, whether or not they are related to Roy Papp, were included in the decision-making.
As far as what happens around the Papp dinner table, Rose Papp said she and her husband occasionally talk shop. But, she did not realize how much it had sunk in with her two daughters until recently.
The family watches market news on television in the morning, as they are getting ready to start their day. One day, there was an item on TV about American Power Conversion (APCC), a stock that Rose Papp had been buying. "That’s APCC,” 12-year-old Stephanie said, using the ticker symbol.
"It was fascinating,” Rose Papp said. "She remembered the stock from us talking about it around the dinner table. I think it’s osmosis.” 
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