Bridgeway Capital is not like other investment firms. Founded by a former transportation engineer and driven by principles of generosity, Bridgeway has been making waves in the finance industry for more than two decades now, with unorthodox policies that range from capping executive salaries to donating 50% of annual profit to charity.
In a recent conversation with Barry Ritholtz of Bloomberg, chairman John Montgomery dives into the genesis of the firm’s unique culture, and uncovers how a company that manages more than $8 billion in assets operates under the principle of “stewardship” in an industry known more for its greed than for giving back.
Many investment firms include language in their mission statements about social values, like philanthropy, sustainability, or plain-old honesty. The difference with Bridgeway’s approach is that it puts its money where its mouth is, by regularly giving half of it away. (That said, the company doesn’t have a perfect record of behavior—in 2004, it agreed to a $5 million settlement with regulators for overcharging clients on performance fees for three of its mutual funds.)
Montgomery says that the company’s philanthropy originated from a “naïve” place. When he founded the firm in 1993, he was living comfortably, and Bridgeway’s quantitative investment strategy was low cost, and high return. Ultimately it was a “cash cow,” he says, one that didn’t require an “army of analysts.” At the time he was also raising children and was wary of having them grow up in an overly affluent environment.
“More money is not always good,” he told Ritholtz.
But in a sense, the strategy failed. “The money that’s left when you’re that generous, and you build it into the fabric of the company and you’re able to hire and retain inspired people, the benefits of that far outweigh the half that you give away.”
In other words, according to Montgomery, by giving money away, the firm profited more than he expected.
“Things have gotten out of hand at the top end of the pay scale,” Montgomery told Ritholz. He’s right: In many countries around the world, it takes many CEOs mere hours to earn the average yearly salaries of their fellow citizens.
In the US, the average CEO makes 271 times the average worker. At Bridgeway the ratio is seven-to-one. Montgomery takes home only seven times the income of the firm’s lowest-paid employee.
That said, the company maintains a small, 28-member staff, and Montgomery doesn’t disclose actual salary figures—so it’s important to note that while pay at the high end may be constrained relative to that at the low end, this doesn’t necessarily mean Montgomery or his employees are poorly compensated.
The pay scale is driven by what Montgomery calls a “stewardship imperative,” and he says it weeds out people who are more focused on generating personal wealth.
What you end up with, he says, is people who are drawn to an industry where you can make an income with seemingly unlimited upside, but who choose to work somewhere they won’t.
Another unconventional Bridgeway policy involves stock ownership. On this, too, Montgomery defers to the stewardship tenant—he believes his employees should have a stake in the firm’s outcomes, just as clients do. It’s hardly an unusual idea in the investment world, but Bridgeway perhaps sets itself apart here, too, with full-time employees putting roughly 20% of their W2 wages into an employee stock ownership plan.