An Introduction to Kennon-Green & Co.
Eight Things That Make Us Different
Thank you for your interest in becoming a private client of Kennon-Green & Co. We are delighted to meet you and to introduce ourselves. Along with this message, we have included several documents and disclosures, such as our Form ADV and our Credo, that will help you discover who we are, what we believe, and how we set about the task of seeking to preserve, protect, and grow wealth.
As part of our conversation with you, we would like to briefly highlight eight things that we feel make us different from many asset management companies. Although each is notable by itself, we think the effect of all of them working together transforms us into something truly special. In fact, as you read through them, you might get the impression we are from a by-gone era. Perhaps that is appropriate because we believe that certain values are timeless.
Firstly, we are privately-held and family-owned. As such, we have the freedom to focus on the long-term without worrying about pressure from ever-changing managers or outside stockholders. Far from thinking about portfolios on day-by-day or even year-by-year basis, as seems to be common on Wall Street, we have the structure, temperament, resources, and discipline to think in spans of decades and generations. This is especially important given that many of our clients will look to us to prudently steward what is, for them, irreplaceable capital; money acquired as the result of a lifetime, or, in some cases, many lifetimes, of disciplined saving and wise decisions.
Secondly, we are independent. This means that we are not beholden to any financial institution and are free to offer investment advice based entirely on what we think is right for each client after taking into consideration that client’s unique needs, circumstances, and, when requested, moral and ethical values.
Thirdly, we are fiduciaries bound by a fiduciary duty. As a Registered Investment Advisor, we are required to act in the best interest of the client. This is a significantly higher standard of conduct than that which applies to much of the financial industry.
Fourthly, we operate on a fee-only basis. Our sole source of revenue comes from clear, transparent fees, almost always assessed as a percentage of assets under management. This arrangement aligns our goals with the client by removing many of the conflicts of interest we believe are endemic to other firms. For example, we are not compensated for selling financial products such as annuities or mutual funds with sales loads nor do we participate in or charge markups on commissions owed to executing brokers. This allows us to sit on the same side of the table as our clients because it means the more successful we are in helping a client accumulate wealth over time, the more we get paid as his or her account balance grows. It also means we suffer alongside clients as our fees decline in absolute dollars during periods such as 1973-1974 when investors saw the market value of even some of the best, strongest companies in the world collapse by more than 50%; an experience so brutal that it wasn’t unusual to see an entire enterprise trade for a fraction of what the company would have fetched in a negotiated private transaction with a rational acquirer. If, in the midst of such darkness, we tell a client that we like what he or she owns, and that we believe the best course of action is to continue holding, you know we mean it.
Fifthly, we invest alongside our clients. It is our belief that portfolio managers should be willing to walk in clients’ shoes whenever permitted and appropriate. Accordingly, concurrent with the launch of the firm, the Managing Directors, along with members of their family, set aside a portion of their collective liquid net worth to be invested in portfolios containing similar, and in many cases, identical, securities as those selected for clients; a commitment that we both hope and intend to increase materially in the coming years. Though this can’t guarantee results, we believe it is the right thing to do and something we would want to see if we were hiring an asset management company because it demonstrates, in a profound and tangible way that words alone cannot, that we treat our client’s money with the same care and prudence we use when handling our own.
Sixthly, we made our money the old-fashioned way by earning it ourselves. We are entrepreneurs and business owners, having established and run real operating companies that provided real products and services to real customers. It is our strong conviction this is a major point of differentiation in analyzing and evaluating potential investments, thinking about risk management, and being able to critically examine the performance of a management team. Knowing first-hand the challenges that come from overseeing a productive enterprise, we find ourselves much more skeptical when analysts and executives promise the moon. While hope is nice, it’s a margin of safety we desire.
Seventhly, we are value investors. We believe in building portfolios of securities from the ground-up by focusing on quantitative and qualitative measures of strength and paying a fair or attractive price relative to our approximation of conservatively-estimated intrinsic value. Whether a client desires an account run under a global high dividend strategy mandate or one managed on a largely passive basis with us selecting enterprises that we believe to be of higher quality than run-of-the-mill operations, we are always asking ourselves, “at what price and on what terms?”. All else equal, we generally eschew turnover and spend considerable time thinking about things such as tax efficiency and trading expenses. In some cases, there may be positions in certain wonderful businesses that we acquire on behalf of a client that, absent extraordinary circumstances or client-specific considerations, we expect the client to hold indefinitely, perhaps even passing the shares on to his or her children, grandchildren, other heirs, or charity; positions we defend as being core to an account’s long-term compounding power when impatient investors are tempted to discard them to chase after whatever fad or fashion is sweeping Wall Street or Main Street.
Eighthly, we are selective in choosing our clients. Kennon-Green & Co. follows a niche strategy. We are not all things to all people, nor do we aspire to be. Instead, we prefer to work with a select group of affluent and high net worth individuals, families, and institutions who share our values and time horizon; who understand what we are trying to do and how we are trying to do it. This means it is sometimes necessary for us to decline taking on a potential client who would otherwise qualify for our services if we believe he or she is not compatible with the firm. Conversely, it also means we sometimes make an exception and take on a client who otherwise would not meet our minimum required investment but whom we believe possesses excellent prospects and the right temperament. Money, in other words, is not enough to get in the door. We’re looking for a spirit of partnership as we and our family may be working with you and your family for the next fifty years or longer. We want to build something of permanent value. That means finding the right people.
As you read through the materials, if you have any questions, please feel free to contact us. We are always here to help you in whatever way we can.
After reviewing our service offerings, should you wish to become a private client, contact us. If we are a good match for each other, we will work with you hand-in-hand to bring you on board in a process that we endeavor to make simple and stress-free.
We appreciate your consideration and look forward to getting to know you.
Joshua Kennon and Aaron Green, Managing Directors