Looking for diamonds in a skeleton's eyes

Financier Hap Fauth emphasizes commitment, communication

John “Hap” Fauth is founder and chairman of a diverse conglomerate of holdings called the Churchill Companies, which are involved in everything from managing more than $1.2 billion in investor funds to manufacturing and distributing parts for tractors and planes.

He has bought, started and sold companies. He has created seven debt and equity partnership funds, investing money for institutions and wealthy individuals. He always has looked for hidden values, believing that if they are managed properly they will pay off in the long run.

Yet as difficult as his world of high finance can be to comprehend, Fauth has a simple way of describing his goals.

“My mission is to create value – for the people who work at Churchill, for our investors and for the larger community,” he said. “In the process of creating value, you look at markets that other people have abandoned, and often you find the diamond in the skeleton’s eyes.”

That philosophy has served Fauth well throughout his business career, and he waves off suggestions that he has a Midas touch or an intuitive sense of what he should buy and when he should sell. He prides himself on researching investment opportunities and making careful decisions on what’s best for his company and the investors he represents.

Born in Mineola, N.Y., on Long Island, Fauth’s father was an aeronautical engineer and his mother was an educator who inadvertently helped to give him a lifelong nickname as a toddler celebrating his second birthday.

“She called me Johnny,” he recalled, “and at my party I said I was ‘Happy,’ because it was my birthday. It just stuck with me through college. When I went to work at Citicorp, someone said I should go by my real name, John, and we compromised on ‘Hap.’ Many people still call me Happy, including my wife. I like the name and the whole association with it.”

Fauth was captain of his high school football team, playing halfback and middle linebacker, and the University of South Carolina offered him a scholarship. His mother, a devout Catholic and “a big fan” of the Jesuits and their educational philosophy, suggested he also look at Georgetown University. He liked the school and enrolled there, playing football and majoring in finance.

After graduating in 1967, he got a job at Citicorp in New York and worked his way up to a point nine years later where he could open one of the bank’s regional offices. He chose Minneapolis.

“I liked the Twin Cities area,” he said. “It was a really interesting and well-balanced marketplace that didn’t go boom or bust but just pumped along, and it had only two major banks,” then known as Northwestern (now Wells Fargo) and First National (now US Banks). “I felt we could build a high quality, reasonably priced business for Citicorp. And we did.”

Fauth relished the opportunity to start his own operation. He knew it would be a challenge but believed that with the right approach and the right people, he could succeed.

“You put a team together,” he said. “You hire talented people, budget for your operation, build assets and cash flow, and the following year you go up a notch. You have to have a good plan that makes economic sense and the flexibility within the plan to deal with unforeseen problems.

“It’s all about communication and commitment, commitment, commitment.”

Fauth left Citicorp in 1980 to become executive vice president and chief operating officer of Waterways Transportation, a Minneapolis-based barge operation that moved products such as grain, coal and salt. Two years later, he went out on his own by starting an investment bank, and he named it after a man who had long been an inspiration.

“I admired Winston Churchill, and I thought if I would have any chance of success that I would have to be as tenacious and insightful as he had been. I also related to him,” Fauth said with a smile, “in that I enjoyed cigars and an occasional glass of spirits.”

In starting Churchill, Fauth relied on the same principles – communication and commitment – that had served him well at Citicorp. With Churchill Capital over the last two decades, he established funds that invest money in companies for foundations, pension funds and individuals. Churchill Industries, started in 1986, has a different focus.

“We buy companies that I would call ‘low-beta’ businesses,” he said. “They are not boom or bust, they are not volatile and they don’t fall out of bed when a 9/11 happens. They have a constant cash flow. We try to take the fat out of them, establish best business practices and bring them up to their potential. Then, if appropriate, we make acquisitions that build critical mass.”

Fauth doesn’t consider Churchill’s diversity – making investments on one hand and owning agriculture, aviation and precision instrument companies on the other – to be “an odd mix.”

“What’s odd about us,” he said, “is that we never have accessed any public markets for debt or equity. We are private with a capital P. The public markets would not be able to give us what we want, and we would give up a lot of flexibility. If we went public, everybody would know how much cash we have. But as a private, nobody knows how deep our pockets are.”

Associates and friends say Fauth has succeeded because he has superb instincts, hires bright people and listens to their advice.

“Hap has a sixth sense on risk assessment,” said Joe Kohler, long-time general counsel at Churchill and an acquaintance for 30 years. “He’s not afraid to take risks – but not unreasonable risks. He looks at an opportunity from virtually every angle, and in an analytical and timely fashion. A lot of executives have a difficult time making decisions. Hap’s not one of them.”

His best friend and college roommate, Donn Dolce, points to Fauth’s ability to focus as his greatest strength, whether it’s buying a business, sailing on the Atlantic Ocean or playing tennis. “You’ll be talking to him,” Dolce said, “and his face will tighten up and his eyebrows will become furled – he’s concentrating on what’s at hand. He’s methodical, hard working and solid as a rock.”

Lest you think Fauth is all business and no play, he has many other interests. In addition to his duties as a St. Thomas trustee, he serves as chairman of the business school board at Georgetown and is on a one-year sabbatical as a university director (trustee). He has sailed competitively since he was seven and has owned several yachts, including Whisper, a new 120-foot sloop that his crew will take around the world next year.

“Racing a sailboat is like being in a three-dimensional chess game,” he said. “There’s wind, there’s tide and there are tactics, all on separate planes. You have to know how to manage them.”

And as he had done in all of his ventures, Fauth manages them well.

John (Hap) Fauth and St. Thomas• Joined the board of trustees in 2002 and is a member of the Investment and Audit/Finance committees. He served on the School of Law Board of Governors in 2001-2002.• Became involved at St. Thomas because he appreciates the way it provides a Catholic, ethics-based education "to kids who otherwise might no have a chance. That commitment enhances the community and I'm for anything that enhances the community."• Believes St. Thomas needs to aggressively build its financial aid endowment in order "to reach out to the brightest and the most needy. The cost of higher education continues to go up – the fact of like could be a limiting element in the next 10 to 15 years."