Without anyone really noticing, Kansas City has emerged as the single most significant center for money management in Mid- continent America. What started as a risky enterprise by misters Chauncey Waddell and Cameron Reed in the midst of the Depression has blossomed into a multi-corporate mutual fund megacenter.

What an odd oversight. City boosters, in listing the area's economic high points, have long touted the area's underground storage space, its strength as a rail center, even its primacy in the less than glamorous world of envelope production.

What one hears little about, however, is Kansas City's emerging role as a veritable mid-continent investment capital, what Hank Herrmann, president and chief investment officer of Waddell & Reed Financial Inc., calls "the Midwest's most important money management group to Wall Street."

Chairman and CEO of Kornitzer Capital Management, John Kornitzer, agrees. Says he, in the way of modest understatement, "Kansas City is very competitive." Very competitive indeed. The people who matter nationally have been paying attention to the area's competitiveness for quite some time.

Given the volatility of equity markets, honors are an ephemeral phenomenon. One's wisdom can be contradicted before wall space is identified for the award. Then too the lumping of diverse honors inevitably throws apples and oranges into the same basket. Still, it is instructive to cite a few. They are awarded for a reason.

Money magazine's prestigious list of the "Best 100 Funds" of 2003 included UMB Scout WorldWide fund as well as two funds from American Century Investment Management, the International Growth fund and its Equity Income fund.

Consumer Reports magazine ranks UMB Scout WorldWide fund as the one foreign "Quick Pick" in its March 2004 edition.

Mutual Funds magazine has awarded its "Best In Class" ratings to several of Kornitzer Capital Management's Buffalo Funds: the Small Cap fund, Equity fund, and USA Global fund.

The Wall Street Journal has been consistently putting Security Benefit's Mid Cap Growth Fund in its "Category King." The Journal gives this designation to the top 10 funds by year-to-date performance. Security Benefit's Mid Cap Value Fund has also received this designation.

Each of these honors has netted its parent company some small amount of local recognition. But city boosters have yet to take stock of the collective effect. James Moffett, UMB's chief investment officer, makes a curious observation about the area's emergence as an investment capital. "Even in Kansas City," says Moffett, "most people don't know that it is happening here."

Indeed, one hears more about industries that once were, like the stockyards, or industries that might become, like life sciences, than an industry that already is. What adds irony to this oversight is that the anticipated emergence of Kansas City as a life science center can be traced directly to the success of a mutual fund company, American Century Investment Management. Without the personal largesse of founder Jim Stowers and wife Virginia there would obviously be no Stowers Institute for Medical Research and little talk of Kansas City as a life sciences center.

Yet even with Stowers, there is almost no talk of Kansas City as an investment center. This may be about to change. To understand why, one need only review our history.

In the beginning

The area can trace its roots as a money management center to two unsung Kansas City gentlemen. The pair somehow got it into their heads that 1937 might be a propitious time to address the financial planning needs of small town and rural America. This enterprise took a good deal of moxie back then. Those with a keen memory recall 1937 as the year that an unwanted recession struck an already depressed America.

One imagines that more than a few people told Chauncey Waddell and Cameron Reed that they were out of their respective minds, but the pair persisted. They launched United Investors Management Company little knowing that the company would surface as one of the most enduring mutual fund and financial planning companies in the United States, now commonly known as Waddell & Reed.

Nearly 70 years later the company continues to prosper based on its original mission. "We sell to the average person," says Hank Herrmann, explaining the company's success. "We are going to be there in the small towns and the suburbs."

In the 1950s Waddell & Reed hired on a young salesman to hawk both mutual funds and life insurance. Not content to work for others, Jim Stowers raised some money and launched a fund company of his own. It was hardly an overnight success. In fact, the first decade was pure struggle.

Stowers traced the breakthrough to a Quebec business trip with wife, Virginia, at decade's end. Prior to the trip, he had been experimenting with computers in an attempt to identify those stocks whose earnings were accelerating. Lying awake that night in Quebec, unable to sleep, he conjured up a new line of computer code.

The program he created not only helped grow the company, but it also helped define it. In 1971 he began running the company with an earnings-momentum style. Stowers based his strategy on an unremarkable presumption, namely that companies with improved earnings in one quarter are likely to improve their earnings in the next, and that stock prices tend to follow earnings over time.

Stowers was scarcely the first to come to these conclusions. It is just that his computer skills enabled him to pursue his conclusions methodically. He was able to track and identify momentum shifts more quickly and accurately and to reach the right conclusions more consistently than many of his competitors.

Stowers' approach was aggressive and was getting his firm much positive attention. By 1980 Twentieth Century, as it was then known, had 25 employees and 9,000 investors. Today, although the company has diversified its strategy considerably, it continues to prosper. American Century now has some 1800 employees, 1400 in Kansas City alone, and more than 2 million investors.

In 1982, UMB Financial Corporation got into the mutual fund game with the UMB Scout Stock Fund. "As far as we know," says James Moffett, "this was the first proprietary bank mutual fund in the country." UMB's initial fund family consisted of one equity fund, one fixed income fund, and a money market fund with a federal and a prime portfolio.

In 1993, UMB added an international fund, the UMB Scout WorldWide Fund, which has earned kudos as the only international fund with "Lipper Leader" status for ten years. In 2001, UMB Financial Corporation created a wholly owned subsidiary called Scout Investment Advisors to manage a Fund family that had grown to include 13 funds and more than $2 billion in assets. James Moffett believes that UMB's prudent strategy and team-oriented approach to investing are the reasons that its Funds receive consistently high marks from the industry. Says Moffett of the success of the WorldWide fund, which he has managed since 1993, "It's due as much to what we've done as what we haven't done."

A year after UMB launched its WorldWide Fund, John Kornitzer started offering mutual funds. Five years earlier, following the Ewing Kauffman model, he had launched Kornitzer Capital Management in the basement of his home. For the sake of continuity and a good story, it would be nice if Kornitzer had been a salesman for Stowers, but such is not the case. He came by way of ERC. In the family spirit, however, Kornitzer did recruit two of his key early fund managers, Thomas Laming and Kent Gasaway, from the growing local talent pool, specifically Waddell & Reed.

A long time collector of buffalo paraphernalia-- yes, buffalo paraphernalia--Kornitzer called his new offering "Buffalo Funds." He reasoned that if a buffalo could provide food, clothing and shelter for the Native American what more abundantly appropriate name could a fund family have. The Buffalo Funds proved their hardiness during the recent recession. The Small Cap fund in par-ticular, dazzled Wall Street with annual gains in excess of 30% while the Standard & Poor headed south.

Although the Small Cap fund attracted most of the attention other funds in the family also performed well during the recession, especially the Equity and USA Global funds. The formal explanation for Kornitzer's success is an investment formula that matches long-term demographic trends with favorable company valuations. But Kornitzer himself cuts to the chase, "Hire good people and give them free rein and make sure they stay within bounds."

Security Benefit, a Topeka financial services company and one of the city's largest employers, has gotten into the mutual funds game late but has made up a lot of lost ground in a short time. The company introduced its Mid Cap value fund in 1997 and its Mid Cap growth fund the following year. Each has performed well since its inception--"both relatively and absolutely," says the company's vice president and senior portfolio manager, Jim Schier.

Schier grounds his investment strategy in fundamental analysis. He and his team look at a company's balance sheet, its revenues, earnings, level of reinvestment, profitability and prospects for growth.

Despite three years of bear markets, Schier's investment team has performed solidly or better. The Mid Cap Value Fund and the Security Mid Cap Growth have both posted average annual return for the past five years at or above 10%.

Critical mass

One runs the risk of slighting other organizations by citing only five. Yet these five are indicative of how investment firms grow, how they feed off each other, and how they have formed a foundation for future growth.

The rise of one ancillary business speaks to this symbiosis. As it happened, some forty years ago, Kansas City Southern Railroad invested in a less than prosperous technology fund management company. Kansas City Southern Management promptly changed the company's name to Supervised Invest-ment Services and merged it with Kemper Insurance to create Kemper Financial Services, which the company later sold.

Here the story might have ended save for one inspiration. Kansas City Southern management, being infra-structure oriented, saw that the mutual-funds industry lacked adequate infrastructure to build and service shareholder accounts. The data-processing people at the railroad had just introduced a complex accounting system and were tasked to create one for its mutual-fund customers. That team became DST. DST emerged not only as the nation's leading technology platform for mutual funds, but also as one of the area's two or three most essential corporate citizens.

Growth prompts not only more growth within an industry, but also more innovation. The Kansas City area is now gathering the kind of critical investment mass--what Hank Herrmann calls "a melting pot of exceptional investment managers"--that almost forces change to happen.

To a person, the investment managers interviewed claim that they have no trouble at all recruiting new talent to Kansas City. "A lot of people prefer the culture here," says Herrmann. "We've been able to attract top professionals." John Kornitzer attributes his success to the staff he has successfully recruited. "We've hired people from all over the country," he notes. "They love it here."

Richard Florida has given his enormously influential book, The Rise of the Creative Class a telling subtitle: "Why cities without gays and rock bands are losing the economic development race." The lack of a young hipster culture has, however, not at all deterred recruitment for investment managers. They tend to be older and, ideally, more stable than the stereotypic high tech recruits. In this regard, they fit more naturally into the area's existing culture.

Jim Schier makes a point that even many local boosters overlook. "This is one of hardest areas to recruit from," he notes. "Once here, people don't want to leave. They are difficult to lure away."

Mid-Continent Positioning

A related question is whether the area's central location helps or hurts in the solicitation of new business. The surprising consensus is that it helps.

American Century moves its product through three essential distribution channels: direct retail sales, sales through intermediaries, and one-on-one approaches to pension funds, endowments, and foundations. Chief Investment Officer Mark Mallon sees location as almost irrelevant regardless of the channel.

"In some instances it may be an advantage to be away from the coasts," he adds. "I think we do gain value by being one step away from the hubbub."

John Kornitzer believes that his portfolio managers compare well when they make a competitive presentation. Would-be clients, says Kornitzer, "see us as homespun, down to earth people with good sense."

All agree that enhanced communications have leveled the international playing field. "The advantages that used to accrue in geographical locations have lessened through technology," says Mallon. Any real edge that once accrued to New York firms now accrues to those firms that perform well and can prove it. "A lot of national business comes from data miners," says UMB's James Moffett, "They in essence have found us."

The "melting pot" of which Hank Herrmann spoke continues to brew new entities. Recently, for instance, Buffalo Funds portfolio manager

Tom Laming launched his own firm TrendStar Advisors LLC, which in turn launched two new mutual funds TrendStar Small Cap Fund and TrendStar American Endeavor Fund.

Growth begets growth. To grow, though, companies have to first endure. And the truest sign of success in an industry where performance is so easily documented is that these companies have indeed endured over time.