Mairs & Power Embraces New Initiatives While Preserving Investment Firm’s Culture
In mid-June, hundreds of people gathered on a Thursday night at the Mendakota Country Club in Mendota Heights to celebrate the 90th anniversary of Mairs & Power.
The investment firm, which long has been housed in the First National Bank Building in downtown St. Paul, still adheres to the credo of founder George A. Mairs Jr. to take a disciplined, long-term approach to investing.
During the Great Depression, the founder invested heavily in railroads when St. Paul was a railroad town. In 2022, the stock market has been volatile as investors and companies adapt to an economy challenged by inflation, Covid-19, supply chain woes, and a war in Ukraine.
Despite the chaos in the economy, Mairs & Power chose to celebrate its enduring relationships with clients, shareholders, and friends of the firm.
In political parlance, Mairs & Power has high name ID among the individuals, companies, and institutions that have invested their money with the firm. By 2021, the firm was managing about $12 billion in assets. Its frequent success in picking stocks that outperform the markets overall has drawn national attention in the investment community.
Yet in an era when companies in many sectors market themselves 24/7, Mairs & Power is somewhat of an enigma to the general public. It doesn’t advertise its accomplishments to a broad audience, even in its home state of Minnesota.
In a recent interview with Mark Henneman, the firm’s chairman and CEO, Twin Cities Business asked him how Mairs & Power has succeeded and remained independent, why it has moved into the venture capital space, how it is recruiting women to the firm, and what it’s doing to create new ways of doing business without losing its core values.
During the interview, Henneman also disclosed that he plans to retire from the CEO and chairman roles on Dec. 31, 2026. “I’m focused on developing the leadership for the next generation here,” he said, from a Mairs & Power conference room. In a “careful, deliberate way” he wants to use the next four years to make changes that “prepare the company for its second century.”
St. Paul, family roots
Mairs & Power draws its name from founder Mairs Jr. and George C. Power Jr., who joined the firm after World War II and built a large base of individual investor accounts. In the mid-1950s, Mairs Jr. offered Power a partnership and renamed his firm Mairs & Power. Those two men and George Mairs III shaped and built the St. Paul-based firm’s business and culture over many decades.
Henneman, who isn’t a member of the Mairs or Power families, joined the company in 2004. A Hopkins native with an MBA from the Carlson School of Management, Henneman was in the middle of his career when he was recruited by Mairs & Power executive Jon Theobald.
“He was on the investment committee of the Bigelow Foundation,” Henneman recalled. “U.S. Bank, which is where I was working at the time, was managing assets for them. I did a presentation and Jon Theobald was there.”
Theobald persuaded Henneman to leave U.S. Bank and help grow Mairs & Power, which had 14 employees at the time. He was told he would be working closely with investment veteran Bill Frels and George Mairs III, a St. Paul Academy and Macalester College graduate who was named the firm’s president in 1980. In the late 1950s, George Mairs III had urged his father to establish the Mairs & Power Growth Fund as mutual fund investing was taking hold.
“When George stepped down from his long run as the Growth Fund’s manager in 2004, the Fund was experiencing another of its vintage years,” according to Mairs & Power at 90: A Rich History, A Bright Future, a book by Dave Beal. “It wrapped up the year posting an 18% total return vs. 10.9% for the S&P 500. This performance followed a string of strong showings in preceding years and accelerated a new surge in assets, which rose 57% to $2.06 billion during 2004.”
After many conversations with Theobald, Henneman took the plunge and cast his future with Mairs & Power. “The only job they really defined for me is, ‘We want you to create the buy and sell list,’ ’’ Henneman recalled.
Mairs & Power approach
Henneman was intrigued that Mairs & Power was employee-owned and made investment choices for the long haul. “I did understand the long-term buy and hold [strategy], which was very appealing to me,” Henneman said. “It was the way I ran my own personal portfolio.”
In his initial years with the firm, Henneman spent considerable time absorbing stock and business lessons from George Mairs III. “He was looking for companies that had what Warren Buffet would call an economic moat,” he said. “When you have an attractive business, you get a lot of competition. You’ve got to have some way of defending yourself, a moat around your business.”
Mairs III liked the business strategy of Graco, a Minnesota manufacturer founded in 1926 by the Gray brothers. Henneman said that Mairs III had focused on the fact that “every business that they dominate are actually tiny businesses,” so bigger companies did not take the time to develop competing products in Graco’s small market niches that produced financial success.
Henneman, who started his career in the 1980s working for Ross Perot’s Electronic Data Systems in Texas, was amazed at the reservoir of knowledge that Mairs III kept in his head—from the specifics of a business strategy to the historical performance of a company stock.
Based on his understanding of stocks and information technology, Henneman started constructing a computer-based analytical model that several people in the firm could use. “I built a framework around earnings expectations and appropriate relative valuations, which computers are very good at monitoring,” he said.
Mairs & Power has differentiated itself as a firm in three distinctive ways.
Mairs III was intensely focused on the valuations of stocks. “He was very much a believer in you just let these companies’ [stocks] ride,” Henneman said. “You hold them, you don’t trade in and out of them.”
That philosophy is still paramount at Mairs & Power. “The typical investment management firm has a dramatically shorter time horizon than we do,” Henneman said. “If you look at the average turnover of a mutual fund in America it’s somewhere around 100%, which means that their time horizon is one year,” he said. The Mairs & Power turnover is close to 10%, representing a rare, 10-year time horizon.
Second, Mairs & Power distinguished itself by investing in Minnesota-based companies. The firm reaped the “benefits of proximity,” because its financial performance was boosted by the fact that many Minnesota companies that Mairs & Power knew well were growing rapidly.
“When I got here, 90% of the companies in the Mairs & Power Growth Fund were Minnesota-based,” Henneman said. While the regional focus is still important, he says, the Minnesota-based stocks allocation has dropped. Minnesota companies now make up 41% of the equity geographic allocation for the Growth Fund.
Mairs & Power wants to invest in companies that have what Henneman describes as a “durable, competitive advantage.”
In recent years, the firm has been adding investments in technology companies that are not based in Minnesota, such as Alphabet, Google’s parent company. During his 18 years with the firm, Henneman said, the biggest change in the investing landscape has been “the rising importance of technology and communication services to our overall economy.”
The third pillar of the Mairs & Power investment philosophy is its multi cap approach. In printed materials, the firm said, it aims to “identify strong companies exhibiting the potential for long-term, above-average earnings growth, regardless of size or sector constraints.” Consequently, the firm said, it’s “not forced to sell good investments by arbitrary market capitalization rules.”
“We just invest where we see value,” Henneman said.
Embedding firm values in the next generation
Mairs & Power has grown into a firm that now employs 46 people.
Robert (Rob) Mairs, president, chief compliance officer, and general counsel, joined the firm in 2015. He is the only member of the Mairs and Power families to currently work for the company.
“As I looked around the office, the number of people who knew George Mairs III is fewer and fewer,” Henneman said. “It was so important to me to be understanding that history. How can I convey that?”
One way was documenting the Mairs & Power story in a compelling book. Henneman and Theobald hired Dave Beal, a retired business editor and columnist of the St. Paul Pioneer Press, to capture the firm’s story.
What Beal ultimately produced is a 259-page book that meticulously chronicles the key firm leaders and how Mairs & Power has made a distinctive mark in the national investment community. Woven among those narratives are stories of the economic and cultural history of St. Paul, Minnesota, and the nation.
“The leaders at the firm wanted this history to help mark their 90th anniversary as a free-standing, independent firm,” Beal wrote in the book’s preface. “I realized at the outset that one of the ‘known unknowns’ would be how any firm in this ever-turbulent corner of our economy could come through nearly a century and not be rolled up into a rival, wither away, or just flat-out collapse.”
Covid-19 surfaced shortly after Beal signed on to do the book project. Yet the book still managed to get published in late 2021, the year of the firm’s 90th anniversary. While Mairs & Power has distributed the book to employees and clients, the general public can purchase the book through its publisher, the Ramsey County Historical Society.
Men have been top leaders of the firm through its first nine decades and their work is extensively covered in the book. However, Beal also addresses the topic of diversity and inclusion in the firm’s history. He notes that Mary Schmid Daugherty, a finance professor at the University of St. Thomas, became the first woman to chair the firm’s mutual fund board. That was in 2018. She’s served on the board for more than a decade.
Michelle Warren joined the firm as its first female investment professional in 2016. She’s been promoted twice and is now a vice president and investment manager. Melissa Gilbertson, who recently succeeded Andrea Stimmel as chief operating officer, became a firm shareholder in 2015.
Henneman wants to increase the number of women employed by the firm. “We need to focus earlier in people’s careers to attract women into our industry,” he said.
“We set up an internship program and we focused on the University of Wisconsin at Madison,” he said. “Between the first and second year of the MBA, we offer students an internship to do equity research here.”
A graduate student who had an impressive internship performance was Wendy Lee, who now works as an equity analyst at Mairs & Power. She joined the firm in 2019.
About two-thirds of Mairs & Power assets are in mutual funds and other assets are in individually managed accounts for people, nonprofits, and institutional investors.
Mairs & Power has three mutual funds—the Growth Fund, the Balanced Fund, and the Small-Cap Fund. It also offers the Minnesota Municipal Bond ETF, which stands for exchange-traded fund.
Last year, the firm established a Mairs & Power venture capital fund, which operates as a separate entity.
Mairs & Power hired John Bergstrom, who has spent his career involved in the venture capital business, to manage the fund. Bergstrom and Henneman both graduated from Gustavus Adolphus College, a liberal arts school in St. Peter, in the early 1980s. Bergstrom was an economics major and Henneman was a business major.
The fund is expected to invest in high potential venture-stage companies in the Upper Midwest. Fund leaders are particularly interested in software, business services, healthcare, and financial and educational technology companies.
The Mairs & Power venture fund was launched with $20 million that was raised from three groups of people. About half of the money came from Mairs & Power shareholders, Henneman said, while the other half came from the firm’s clients and associates of Bergstrom.
Fundraising for the new venture capital fund is closed. “We are absolutely not marketing anything right now,” he said.
In late July, akoyaGO, a Bloomington-based software company, announced that it had received a $1 million investment from the Mairs & Power venture capital fund. Bergstrom has joined the board of akoyaGO, which is the first portfolio company in the new fund.
Two other companies also have received support from the Mairs & Power venture fund. They are BetterYou, a St. Paul-based company that’s developed a health and wellness mobile app, and SiteKick Technologies Inc., a Minneapolis firm involved in construction site monitoring and reporting.
“The thing that makes this unique is that John Bergstrom has access to the Mairs & Power research team,” Henneman said. “It’s a team that’s got combined hundreds of years of experience looking at markets and the marketplace and can help assess the likelihood that a business model could be successful.”