Top Traits of CEOs Baron Capital Backs

Top traits of CEOs Baron Capital backs have proven to be an important part of a winning formula for long-term investing success.

Baron Capital Investment, a New York-based strategic asset management firm focused on delivering growth, has been in operation since 1982. Founded by Ron Baron in the same year, the firm became renowned for its emphasis on long-term investing.

During the 30th annual Baron Capital Investment Conference held on Friday, Nov. 10, 2023, at the Metropolitan Opera House In New York City, the company reiterated its vision behind this year’s theme, “Own It!” Baron introduced four key companies that are included in select portfolios that it manages.

Natalie Novakova with Ron Baron during the 30th annual Baron Capital Investment Conference in New York.

Top Traits of CEOs Baron Capital Backs: AI

The firm attributes its success to a unique approach that centers on the long-term potential of companies, achieved through a deep understanding of the businesses, their employees and, most importantly, their chief executive officers (CEOs).

“Baron’s own secret sauce is our AI,” said Ron Baron, chairman, CEO and portfolio manager at Baron Capital, emphasizing the importance of owning businesses with significant investment potential. “Baron and its actual intelligence, not artificial intelligence, enable us to refrain from selling exceptional businesses.,”

Another element of this “secret sauce” involves conducting thorough research on companies.

Top Traits of CEOs Baron Capital Backs: Research

 “We want to know more about executives in their business than anyone else,” said Baron, adding that the firm delves into leaders’ qualifications, personal interests and family backgrounds before making any investment decisions.

According to Baron, as well as other analysts and portfolio managers at Baron Capital whom I interviewed, several top characteristics the firm seeks in CEOs include leadership and vision, people-centric qualities, adaptability and self-reflection.

These are the top characteristics that Baron Capital looks for in CEOs.

Top Traits of CEOs Baron Capital Backs: Leadership & Vision

One of the key characteristics agreed upon by Baron portfolio managers, such as David Baron and Ashim Mehra, is that a company is served well by a founder-led leadership approach, emphasizing the significance of individuals who establish and guide the company.

Both leadership and vision are important for Baron when choosing companies to invest in; however, “obsession” stood out. Several times, Ron Baron spoke of it at the 30th annual Baron Capital Conference. He emphasized the role of Baron’s research in identifying executives who are obsessed with their businesses, missions and growth.

He shared examples of CEOs that fit this description. Andy Florence, CEO of CoStar Group Inc. (NASDAQ: CSGP), is obsessed with real estate data, analytics and the marketplace. Elon Musk, CEO of Tesla (NASDAQ: TSLA), is obsessed with electric vehicles and space engineering. Michael Kehoe, CEO of Kinsale Capital Group Inc. (NYSE: KNSL) is obsessed with quoting all insurance submissions within 24 hours of receipt, using strict terms and conditions based on data and analytics. These are just a few examples.

“Baron is obsessed with talented people, distinctive growth, businesses and audience,” Ron Baron said.

He continued that CEOs like Elon Musk behind Tesla, Michael Kehoe at Kinsale Capital, Andy Florence of CoStar Group Inc., Philip Snow leading FactSet Research Systems Inc. (NYSE: FDS) and Eric Green spearheading West Pharmaceutical Service Inc. (NYSE: WST), have long-term aspirations and a commitment to build something enduring through articulating a compelling internal and external vision.

Most importantly, Ron Baron said he values a mission-driven mindset and leaders who are forward-thinking individuals with a higher purpose for the organization and plans for the company’s future and succession.

Top Traits of CEOs Baron Capital Backs: People-centric Qualities

The second characteristic that Baron Capital looks for in CEOs is individuals with people-centric qualities. As Baron Technology Fund portfolio manager Ashim Mehra highlights, these are often individuals with humble beginnings or immigrant backgrounds.

For example, Andy Florance, the founder and CEO of CoStar Group, started his company when he was just 23 years old in a dorm room in 1986 while studying for a BA in economics at Princeton University.

“I learned to program before anyone else did,” said Florance, referring to his proficiency compared to his undergraduate peers.

From a simple concept of creating value by digitalizing real estate, his company has grown to become one of the largest global providers of real estate, information analytics and online marketing services.

According to Neal Rosenberg, a vice president and Baron Growth Fund portfolio manager, this year CoStar Group will generate almost $2.5 billion in revenue, which is more than a six-fold increase since 10 years ago, given its investment in new asset classes, introducing new products and expanding into new geographic markets. The expanded vision is to enter the residential real estate market.

“We have a great CTO, we have a great product team. We have some really good people…  long, long tenure,” Florance added, highlighting the importance of choosing the right people for a company to be successful.

“There is a difference between hiring someone good and someone great,” Mehra added, in terms of what matters to the company. Baron prioritizes companies that hire individuals, not just based on skills but also their potential for greatness.

Part of this, as David Baron added, is looking for influential leaders who foster low turnover through employee engagement and execution. They need to have honesty, integrity and a belief in the business and its impact.

“It sounds easy, but it’s not,” David Baron said.

Top Traits of CEOs Baron Capital Backs: Adaptability & Self-Reflection

The last key trait that Baron Capital seeks in its CEOs is adaptability and self-reflection capabilities.

“As true for individuals and companies, masterpieces are not created on the first try. It took da Vinci 16 years to create the Mona Lisa,” highlighted Ron Baron, emphasizing his belief in businesses and leaders willing to sacrifice margin to create a sustainable advantage. “Exceptional takes time.”

Therefore, the CEOs Baron Capital seeks to back must have a continuous commitment to personal and organizational growth. They need endurance and a drive to make necessary changes when something goes wrong.

“We believe if you’re doing the same thing as everyone else, you will not be hard to compete against,” emphasized Ron Baron, adding that his company has a maniacal focus on differentiated businesses that meet exacting standards.

Tesla and SpaceX are two cornerstone investments of Baron Capital. The investment firm now owns 0.60% of Tesla ($4.42 billion of the stock at a current market cap of $750 billion) and 1% of SpaceX (or an investment of $1.5 billion). Musk, the founder of Tesla, is seen as a visionary by the Baron team, adapting to current issues with innovative solutions. According to Ron Baron, Musk cracked the code of building profitable electric vehicles and is now making them self-driving.

“When you identify a once-in-a-500-year talent, 500-year talents like Leonardo da Vinci or Elon Musk. When you see what others don’t see, lean in,” encouraged Ron Baron. “Not taking risks is the greatest risk,” he added.

In essence, Baron Capital’s emphasis on adaptability and self-reflection aligns with its recognition of unique talents that drive exceptional outcomes.

Top Traits of CEOs Baron Capital Backs: Conclusion

Overall, Baron Capital emphasizes its unique approach, which delves into the long-term potential of companies through a thorough understanding of their essence, employees and leaders.

There are several key traits that Baron Capital seeks in CEOs before investing in them. The company focuses on CEOs with leadership, vision, people-centric qualities and adaptability to identify individuals who foster success.

“So just like Rome wasn’t built in a day, neither was Baron Capital,” said Ron Baron, concluding that identifying exceptional people has produced “extraordinary returns.”