With Jonathan S. Thomas of American Century Investments

Long-time American Century Investments client Jonathan S. Thomas liked its mutual funds so much, he agreed to run the company.
March 1, he officially succeeded William Lyons as president and chief executive of the Kansas City, Mo.-based firm (InvestmentNews, Jan. 22).
The task won’t be easy, though. Mr. Thomas, 43, who was born in Chicago and grew up in Kansas City, is walking into the top job at a time when many investors — and some key staff members — have walked away from American Century.
Investors pulled $8.02 billion more out of American Century’s stock and bond funds than they put in last year, according to Financial Research Corp., a Boston-based financial services consulting firm. American Century’s long-term fund assets totaled $78.4 billion at yearend.
In addition to Mr. Lyons, who announced his retirement in January, American Century has lost other talent in the past year. Among the latest to depart were Harold Bradley, chief investment officer of U.S. growth equity for the mid- and small-cap sectors, and David Rose, a senior portfolio manager.
Mr. Rose was “definitely a rising star there,” said Christopher Davis, a fund analyst at Chicago-based Morningstar Inc. Finding and retaining good people will be a key challenge for Mr. Thomas, he added.
“Whether or not you can connect the dots or not to all these departures, the fact remains that there’s a really big experience drain going on there,” Mr. Davis said.
From a flows perspective, American Century Ultra Fund (TWCUX) is “clearly their biggest problem area,” he said.
Q. You have worked at Fidelity Investments of Boston and Morgan Stanley of New York. What drew you to American Century Investments as an executive?
A. It’s ironic. Despite the fact that I worked at those companies, I’ve been a real long-term investor in American Century, probably for 15 years or more. I just think its stellar reputation for doing the right thing is something that it’s really known for in the industry. [It] really gained a lot more importance and credibility during the regulatory scandals and the period of ethical lapses.
This is a pure-play investment manager, and it’s not conflicted or constrained by conglomerate interests, which really allows it to do the right thing at all times for its customers. The fact that it’s privately held was also a very important consideration for me. We’re not subject to the quarterly financial performance pressures of a publicly held firm.
Q. Do people still see American Century as just a growth shop?
A. We certainly started off as a growth shop, and we also started off as a direct shop, and I would say that the legacy image of the firm is growth and direct. But if you look behind the curtain a little bit, what you actually see is a very well-diversified product line, not only on the product level but also on the channel level.
Whereas in 1990, we had 93% growth, today growth is about 30% of assets and really a very even distribution across the other main spaces that we compete in, such as value at 22%, quantitative at 20%, fixed income at 19% and international at 8%.
Back in the ’90s, we were about 90% directly distributed. Today we’re over 50% third-party distributed in terms of where the purchases are coming from. So the company has really evolved.
Q. What needs to be done to fix Ultra, if anything?
A. The large-cap-growth space, as you probably know, has been out of favor. In terms of, is [Ultra] positioned to win when that section of the market comes back in favor? I think so. We’ve put in, I think, all of the right monitoring [and] surveillance tools. And part of this industry is about just sticking with your knitting and not trying to catch all the latest waves. So I do think when large-cap-growth comes back, Ultra will perform well.
Q. You have been an investor for quite a while in American Century Funds. Do you own Ultra? What funds do you own?
A. I held Ultra, I would guess, [it was] 14 or 15 years. All of my holdings I have moved into asset allocation products. I’ve switched it into our Livestrong Portfolios, which is part of our Lance Armstrong offerings — not just my retirement accounts, which is what most people do, but I’ve actually put my regular accounts into Livestrong Portfolios.
Q. So you were in Ultra until when? When did you go into the life cycle funds?
A. I went into Ultra probably somewhere in the early ’90s, I would guess. And then, as soon as the Livestrong [life cycle] funds came out, I moved [my investments] into that. The two biggest positions in the Livestrong Portfolios are the Large Company Value Fund, as well as our Equity Growth Fund.
Q. American Century is looking to acquire fund assets in the $500 million to $5 billion range. Are there any developments?
A. Just yesterday, I got a call from a shop out on the West Coast which is interested in a strategic consideration, but [it’s] nothing that I can share at this point.
Q. What are you doing to retain key people?
A. Retention is a key component in our business for success. But due to a variety of reasons, people also move on. When I look at retention, I kind of look at it through three or four different lenses. One of them is team management, and really, nearly all functional aspects of our business that we operate today, we do in a team environment. People collaborate instead of compete with one another, which leads to greater bench strength and really more optimal business results on a regular basis. That’s an important part of planning for retention.
Having documented and repeatable processes [is] important, as well, and this will drive consistent long-term performance. And then, third, is disciplined succession planning. You really have to have a rigorous and disciplined succession-planning process in place, which we do. And then, in terms of rewards, obviously, we will reward people and recognize people through those means, as well.
Q. Any plans to add to your sales force?
A. In our third-party channel, we are adding wholesalers to that team. As you know, that’s really where all the opportunity and the flows are in the industry. And we’re up to 40 of them today. Our real focus is in the third-party channel.
Q. Why is that? Do more clients want advice these days?
A. Absolutely. It seems to have all happened obviously with the market fallout in 2000. There was a fairly dramatic shift. There was a slow shift toward that before that [year] but a dramatic shift afterward in terms of people seeking professional advice. And we’ve really aligned ourselves with people who dispense that advice to deliver products and services that meet their needs and their customers’ needs.
Q. Is there a fund at American Century that you think doesn’t get the flows that it should?
A. The American Century Large Company Value Fund. It’s a [four-star] Morningstar large-value fund that really provides very pure style exposure for people’s portfolios. It’s a neat product. It focuses on stocks of companies that are both distinctly large as well as distinctly undervalued.