Parthenon investment firm founder Todd Lowe supports the arts for positive impact on economy and education
By Ed Lane
Ed Lane: Many people may know who you are because of your high visibility in the arts community. You currently serve as chair of the Kentucky Arts Council (a state-funded entity that supports the arts throughout Kentucky), the Speed Art Museum Board of Trustees (Louisville), and the board of directors of the South Arts. In addition to your high profile in the arts community, you are also known as an entrepreneur in the area of investment management, having founded your own firm, Parthenon LLC in 1998.
Where did you attend college and what was your major?
TL: I started at the University of Louisville as a music major and finished as a finance major at Western Kentucky University.
Bowling Green was my home. I was offered a good scholarship to return there and finished with a business degree after I decided I didn’t necessarily need a music degree in order to perform.
EL: What was the greatest lesson you learned while attending college?
TL: Probably the greatest lesson learned was how little I actually knew about how to function in the real world.
EL: Shortly after graduation from WKU, you joined Merrill Lynch in its new office in Bowling Green. A few years later you joined Hilliard-Lyons in Louisville. How did your experience and training at these two top financial firms help shape your future?
TL: Merrill has trained more people in my industry than any other firm and has done so very successfully. It was a wonderful firm to work for, but I wanted to move from the sales side of the business – being a broker – to the analytical side. The move to Hilliard gave me the opportunity to really hone my skills as an analyst and further learn how to manage departments of people over time.
EL: When you were a broker at Merrill, you earned commissions based on fees generated. When you were working at Hilliard, were you on a salary or did you also share fees there?
TL: My management compensation at Hilliard-Lyons was a salary, plus bonuses based on the firm’s profitability.
EL: In 1998, you founded Parthenon LLC, an advisory firm serving individual and institutional investors. What motivated you to start your own company and become entrepreneurial?
TL: Hilliard-Lyons folded into PNC Bank in 1998, and I and several of my co-workers decided we didn’t necessarily want to work in a bank environment for a very large firm. Seven of us over a course of two or three months left Hilliard-Lyons and started Parthenon in the spring of 1999. I actually left Hilliard-Lyons in 1998 and started building the business. Then others who were like-minded joined over the next several months. We are all still there. Some of us have worked together for as much as 25 years.
EL: How has your business grown during the ups and downs in the economy?
TL: The macro economy is a constant influence on our business, but I’d say overall it has been a modest negative just because the current market squeeze moved people away from wanting to own stock, which is predominately what we do. But we also have a bond-management area. Market conditions have really frightened the average investor, and there’s some debate in the industry whether the average person on the street is ever going to be comfortable owning equities again.
EL: America has a large aging population; a lot of the boomers are starting their retirements. Are they becoming more conservative with regard to their investments because of their age or because of the recent volatility in the stock market?
TL: It’s a combination of those things. I do believe that the boomer generation, and everybody when they retire, will ultimately realize that they really have to have equity investments to offset inflation. I’m not greatly concerned that we’ll see a dramatic shift out of stocks beyond what we’ve had over the last few years.
EL: Reviewing your company’s website, I noted that your firm carefully researches equities but may only invest in a limited number – 20 or 30 at a time. Your firm tracks and investigates each firm very carefully.
TL: That’s exactly right. Our staff conducts original research and really wants to intimately know the firms in which we are considering investment before we own them. We analyze companies’ value based on certain parameters that we use. More often than not, at the end of the analysis we find that the companies are priced in appropriately (for investment). We have a long list of companies we like that don’t meet our valuation criteria. We put them on the back burner and wait for something that will cause them to be more interesting in terms of their stock price. In other words, we are looking to invest in companies we feel are undervalued.
EL: For how many clients does your firm manage assets and how much larger do you want your firm to grow?
TL: Parthenon works with about 125 clients who are predominantly high-net-worth families. We would like to grow that number. In terms of assets under management, I’d be really happy if we could grow that number at 15 percent per year over the next several years. And that’s not taking into account anything the market might give us in equity growth.
EL: I presume your firm works with the bank that holds the client’s equities and assets in their name, the client pays some type of brokerage fee to the bank to service the account, and Parthenon receives a fee for investment advisory services based on the value of the client’s investment?
TL: Yes, that’s exactly right; we work with a number of banks and bank trust companies, as well as Schwab Institutional, which works with about 6,000 U.S. money managers.
It is very important, according to the regulatory world, that the client has plenty of options regarding the custodian for his or her funds.
EL: What is your current advice to clients about the immediate future of the U.S. economy?
TL: We anticipate this recovery is going to be slow, and it’s going to bounce along at 3 percent GDP growth or something similar over the next several quarters, a year, or maybe year-and-a-half. There are pockets of the market that are overvalued and have probably increased too much off the lows. We still feel like there are opportunity areas in which people can invest. We are generally optimistic about the markets, while being less optimistic about the U.S. economy.
EL: While you were building your reputation in investment management, you became actively involved in the arts. Was there any particular reason you were drawn to the management of arts organizations?
TL: I initially got involved by going on the board at Actors Theater (Louisville) because management at Hilliard-Lyons asked me to do so. Hilliard-Lyons is a big supporter of the theater and many other arts organizations. It turned out that I really loved the theater. As a former high school theater performer, I had sort of gotten away from that part of the arts.
I performed music actively until I was 40. That was about the time we started Parthenon, and I decided I didn’t want to stay out till 1:00 or 2:00 in the morning playing with bands. Being on a board, I could help promote and raise money for the arts. I went from being an active performer in the arts to utilizing my skills in business and finance on behalf of arts organizations.
EL: Until recently, the economy over the last several years has been trending downward or static. How has a soft economy affected funding of the arts by government, businesses and individuals?
TL: The economy has taken its toll on arts organizations. Government and corporate funding had been in decline for a period of years and, of course, now it’s gotten even harder to get adequate financial support. Individual support has declined dramatically over the last two years as well, so arts organizations are really struggling to keep up with the decline in funding.
EL: Why should businesses support arts in their communities?
TL: It’s twofold – the pure economic impact of the arts on a community is very favorable in a couple of ways, including the ability of a community to attract and retain businesses and their employees who value a cultural life. It can’t be overstated the impact the arts have on education and improving the ability of students to learn better when they are exposed to the arts in their early and middle years. There are important cultural and economic reasons to support the arts in our communities.
EL: How has funding for the arts by Kentucky state government been affected by the recession?
TL: We can start by saying that state funding has been in decline since 2000 and has been further cut in proportion to the state’s overall budget cuts over the last three years. It’s fair to say on an unadjusted-for-inflation basis (meaning not in real but in absolute terms) the Kentucky Arts Council’s funding is equivalent to where it was in the mid-’90s.
EL: The Kentucky Arts Council’s executive director is Lori Meadows. How have cuts in funding impacted her management of the Arts Council?
TL: Lori has done a fabulous job of managing the arts council during the economic down-turn. There have been some staffing issues when the council has not been able to operate with a full staff. Staffing cuts have been less of an impact compared to the cuts in grants to arts organizations and individuals throughout Kentucky.
The Arts Council has endeavored to focus its funding on operating grants because many arts groups around the state would not survive without the state’s financial support. Funds for grant programs specific to certain areas have been put on hiatus so the council can focus on operating grants.
EL: How is Kentucky’s economy faring in relation to other states?
TL: Kentucky is both fortunate and unfortunate. The state’s economy tends to move in smaller increments when compared to other states. Kentucky never suffers as much on the downside, but it also doesn’t typically enjoy the benefits of a rapidly growing U.S. economy. I anticipate that Kentucky will continue to recover slowly, perhaps more slowly than the U.S. economy. State legislators will have to deal with some serious structural issues, such as pensions and healthcare costs for employees.
EL: The issue of government employee benefits is not only the state’s problem; it also affects counties and cities because they are having to fund these benefits, too. Is that what you find when you look around the state?
TL: Yes, every municipality is dealing with this issue, as is every state in the country.
EL: What are your expectations for Louisville’s new mayor, Greg Fischer?
TL: I’m very excited about Greg and very optimistic that he’ll be good for the community. I like the way that he has started his tenure by asking a lot of questions and listening to a lot of the folks that work for him. So I’m very enthusiastic about the new mayor.
EL: Did it also impress you that Mayor Fischer retained many of the people working in Mayor Jerry Abramson’s administration so that he had good continuity in his administration?
TL: Absolutely. I know a lot of those folks, and they are very talented people. I’m glad that he did retain them.
EL: The Louisville Metro Government has had a long-term relationship with Greater Louisville Inc. (GLI) to help manage its economic development. Could you comment on GLI President Joe Reagan and GLI’s performance on behalf of Louisville?
TL: I’ve known Joe for a long time and hold him in high regard. He is very talented. GLI is one of those organizations that, in many cases, is doing a whole lot of work behind the scenes that is not known. The nature of GLI’s organization has to be that way to some degree, so I’m not sure the community necessarily fully understands and appreciates what GLI does. I think GLI has been effective and I hope it retains its prominence in the city structure.
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One-On-One: Todd Lowe
Parthenon investment firm founder Todd Lowe supports the arts for positive impact on economy and education