Friday, February 20, 2015

The Curious Case of Bowen, Hanes and Tampa Police and Fire Retirement Plan: Part 1

The Curious Case of Bowen, Hanes and Tampa Police and Fire Retirement Plan: Part 1

Twenty years ago when I was Chief Investment Officer of NationsBank, I’d heard of Bowen, Hanes & Co., and their control of all the assets of the Tampa Police and Fire Retirement Plan.  Bowen, Hanes is a relatively small money manager in Atlanta with roots in Winston Salem.  Back in 1996, my marketers marveled at (were envious of) Bowen, Hanes relationship with Tampa Police and Fire.    The firm managed all of the pension plan’s equity and fixed income, the plan didn’t have a consultant, and the board didn’t have any dedicated investment staff.  From time-to-time The Wall Street Journal and The New York Times have written flattering articles about the superior investment performance generated by Bowen, Hanes since it began managing money for Tampa Police and Fire in 1974.  Meanwhile skeptics, most vocally Edward Siedle of Benchmark Capital, have insinuated that there must be something improper at the root of the relationship between Bowen, Hanes and Tampa Police and Fire.

In recent days, Leanna Orr, Managing Editor of Chief Investment Officer magazine has tried to unravel the mystery.[1]  If Bowen, Hanes track record is accurate, why after 40 years is Tampa Police and Fire, the firm’s only sizable institutional account?  As Tampa’s account grew, how come it didn’t hire other money managers to diversify its investments?  Why hasn’t Tampa hired an investment consultant to make quarterly or at least annual reports to the board on the performance and risks of Bowen’s investments?  Is the Bowen-Tampa relationship a scandal waiting to be unearthed as Mr. Siedle suggests?

In her cover story entitled “The Riddle of Tampa,” Ms. Orr valiantly tries to get to the bottom of the mystery.  However, after reading her piece, I think the riddle remains unresolved.  However, I don’t think Ms. Orr’s reporting points to a financial fraud.  Rather, I believe the curious relationship between Bowen and Tampa represents one of the last clashes between the old school of money management and the modern school.  And while I don’t think fraud or any other kind of impropriety has been committed, I still think there’s plenty wrong with how Tampa is having their money managed.

I plan to spend a couple of posts writing about “The Riddle of Tampa” because this story offers so many lessons about money management, and illustrates some of the extreme practices in the business.  For starters, I need to discuss a bit of money management history because it might explain how Harold J. Bowen, Sr. came to manage money for Tampa Police & Fire.  The history lesson may also shed some light on Bowen’s attitude toward (dislike for) consultants.  Then I’ll turn to Bowen’s performance to try to shed some light on its accuracy.  Finally, I want to discuss the investment practices at Tampa Police & Fire, which leave a lot to be desired. 

Here’s my bottom line:  While there’s no way to vouch for the accuracy of Bowen’s performance, I suspect their track record at Tampa is at least fairly accurate.  As I’ll discuss in a subsequent post, it would not surprise me if there were some errors introduced into those calculations in the 1970s and early 1980s as mistakes were pretty common in that period. 

I think this story is much more about Tampa than it is about Bowen.  While most people would advise Tampa to hire other managers, I don’t think that is necessary.  After all, it would be perfectly acceptable if Tampa had internal staff managing the money.  In addition, it would also be acceptable if Tampa had hired an outsourced CIO as some pension plans and many smaller endowments have done.  In world of money management, there are plenty of instances when a single entity or firm oversees all of an institution’s funds.   While additional managers or investment styles would add a bit of diversification to Tampa’s plan, the long-term benefits are quite small. 

What if Bowen, Hanes suddenly disappeared or had a horrendous period of performance?  Given the quality and liquid nature of Bowen’s holdings based on the latest SEC 13-D filings and Tampa’s annual report, it wouldn’t take anytime for a transition manager to step in and manage the assets.  The problem at Tampa is that they’ve got insufficient oversight of their money manager.  Either they need to bring in some internal expertise or hire a consultant to monitor and report on Bowen’s strategies and returns.

To be continued . . .


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