Wednesday, February 25, 2015

The Curious Case of Bowen, Hanes and Tampa Police and Fire Retirement Plan: Part 4

The Curious Case of Bowen, Hanes and Tampa Police and Fire Retirement Plan: Part 4

Bowen, Hanes and Company is the only money manager for the Tampa Police and Fire Retirement Plan.  In other words, the entire $1.9 billion plan is in the hands of a single outside advisor.  As best I can tell, the trustees don’t have any professional expertise in investments, and the pension plan does not have an employee or consultant to review Bowen, Hanes’ investment positions or performance on a regular basis.  According to Leanna Orr, Managing Editor of Chief Investment Officer magazine, Tampa claims to satisfy Florida’s statutory requirement for a consultant review by employing a performance consultant once every three years.  While this might satisfy Florida’s minimum legal requirement, it falls far short of proper oversight.

Admittedly, Bowen, Hanes investment approach doesn’t create many complications.  The firm doesn’t use any derivatives or hard-to-price securities.  Its turnover appears to be modest.   Nonetheless, someone other Bowen, Hanes should be reviewing investment performance on a regular basis.  According to Ms. Orr’s reporting, Bowen’s internal systems aren’t state-of-the-art and have been criticized by Bogdahn Group, a consulting firm that oversees Bowen’s investments at other pensions in Florida.  While Bowen’s portfolio management and trading software may not be up to the standards of a major money management firm or mutual fund, I doubt they pose a substantial risk to Bowen’s clients.  Nonetheless, I think it’s important for clients such as Tampa to understand the operational as well as investment risks of any particular manager.

Having said that Tampa’s investment account should have a consultant or a staff person overseeing Bowen, Hanes, I don’t want to leave the impression that consultants add a great deal of value to clients portfolios (see, “Investment Consultants, October 2, 2013 for my views).  They are no better at manager selection than managers are at security selection.  Many consultants are better at telling clients what they want to hear rather than
what they should hear.  Nonetheless, Tampa lacks appropriate oversight.

A battle between Bowen, Hanes and Bogdahn Group over the $5 million Lady Lake Police Pension encapsulates the rift between Bowen and consultants.  It also suggests why Bowen can’t win the battle with consultants.  Bogdahn criticized Bowen’s recent performance and internal controls.  Bowen didn’t take kindly to the criticism and told Lady Lake’s trustees that if Lady Lake kept Bogdahn Group as a consultant, they would resign.  Although this seems like a very dramatic step (and might indicate that Bowen is trying to avoid scrutiny), I suspect Bowen, Hanes probably figured it wasn’t worth $20,000 in fees to battle the consultant.

Even if Bowen can generate strong returns, it isn’t going to win a lot accounts given its attitude toward consultants.  Moreover, Bowen isn’t just battling the consultants.  Consultants like Bogdahn tend to recommend institutional mutual funds rather than separate accounts for their small pension clients, such as those tiny municipal pensions scattered across Florida.  Mutual funds are a powerful adversary with the resources to produce data and reports to keep consultants happy.

In the end, I don’t think Bowen, Hanes is story about impropriety. I think it’s the last gasp of a bygone era of money management.

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