Harold and Jay Bowen who alone have managed billions for Tampa's police and firefighters for forty years may be two of the greatest stock pickers of all time. So why don't they act like it?
HT: The Big PictureCrime seems a mild affair in Lady Lake, Florida.Home to the world’s largest retirement community, the town sits a lazy 90 minutes northeast of Tampa Bay. Given the demographics, the local police force is compact. Recent criminal activity includes a counterfeit $50 bill proffered at the local dog groomers, several golf cart-related DUIs, and a scammer pretending to be retirees’ grandson asking for $2,000 to repair his car. Miami, it is not.
Like the larger force down the road in Tampa, the police tasked with protecting the citizens of Lady Lake from such scourges have a pooled investment account that will one day pay for their retirement. And like the police of Tampa, they have for years entrusted 100% of this money to a single manager: Bowen, Hanes & Co. of Atlanta, Georgia.
Or, at least, they used to.
On June 12, 2013, Lady Lake’s Police Pension Board gathered in the town hall for what was supposed to be a typical quarterly meeting. Four board members and three town staffers were present, along with the fund’s lawyer and its investment consultant, David West. Also present was their money manager, represented by Bowen, Hanes’ deputy David Kelly.
Public pension board meetings are predominantly dreary affairs. Consultants deliver the latest investment figures; managers review markets; invoices get approved; board members occasionally nod off. But by the time consultant West of the Bogdahn Group mentioned he had “an administrative item to bring up,” no one was sleeping.
West’s firm had been looking into Bowen, Hanes’ investment practices on behalf of a number of public pension clients. What it found was troubling.
Bowen, Hanes “do not appear to be keeping up with other managers’ industry standards, trading procedures, and compliance procedures,” West said. Bogdahn had been “comparing other managers’ operational procedures to Bowen, Hanes’,” and found the latter lacking. A state-of-the-art back office system “minimizes error, potential error, and provides for more sound accounting, fair allocation of trades, and minimizes dispersion.” Bowen, Hanes had no such system in place.
West told the board that he had no issue with the manager’s long-only investment strategy, and stated that “they are not doing anything illegal.” Even the recent lagging performance would not justify what amounted to an exceedingly rare move by a consultant to recommend firing a fund’s primary manager. Bogdahn’s issues with Bowen, Hanes were administrative, West said, not personal. Although the firm’s dated website advertises that it sets “the industry standard from a trading and portfolio accounting standpoint,” Bogdahn felt otherwise. “Bowen, Hanes’ operational infrastructure is lacking in state-of-the-art systems for portfolio compliance procedures and trade settlement procedures,” West said. For this reason, he advised Lady Lake to find new money management.
Then, incredibly, things got even weirder.
Bowen, Hanes’ Kelly asked the pension’s lawyer how often Bogdahn or any investment consultant really needed to be involved with the fund. State law required once every three years, the attorney said, but it was his “opinion that having a third-party consultant reporting on the manager’s performance is a prudent thing to do.”
Kelly disagreed. “Every three years is enough,” he argued. Kelly had handed out a letter from his firm’s president detailing issues between Bowen, Hanes and Bogdahn, who share a number of clients. The money manager had made a decision not to actively engage and work with investment consultants, including Bogdahn—a move unheard of in this industry.
Then came the ultimatum: “If the board chooses to go the multi-manager route with Bogdahn Group quarterbacking the plan, then Bowen, Hanes will resign.”
Lady Lake’s lawyer, likely incredulous at this turn of events, tried to clarify what was happening. “Mr. Kelly,” he asked, “if the board keeps the Bogdahn Group as its consultant, will Bowen, Hanes then resign as the fund’s manager?”
Yes, Kelly confirmed.
Lady Lake fired Bowen, Hanes. A few months later, taking Bogdahn’s recommendation, the board invested its $5 million between two new managers.
Like a bad rash, Bogdahn’s consultants have stayed on Bowen, Hanes, advising public pension clients across the state of Florida to take their money elsewhere. Although the consulting firm’s president declined an interview, public records attest to an effective campaign. The City of Hollywood’s Firefighters’ fund pulled its entire $15 million investment in 2012. In 2013, Venice’s police pension board voted 5-0 to heed Bogdahn’s advice and look at new management options. And just a few months ago, a Bogdahn consultant urged the City of Edgewater’s $10 million firefighters’ fund to rethink the risk it shouldered by having all its eggs in Bowen, Hanes’ basket.
But at one of the largest retirement funds in the state—the $1.9 billion Tampa Fire & Police Pension—there’s no Bogdahn to press this message.
Since 1974, Tampa has done what most in the industry consider unthinkable. Casting aside the sacred tenet of diversification, the fund’s board entrusts all of its members’ retirements with a single money manager. And Harold ‘Jay’ Bowen III—and his father Harold Bowen II before him— have delivered, fabulously so.
Tampa’s 12.3% annualized returns under Bowen, Hanes make it not only the most strangely managed public pension in America, but also perhaps the best performing. The massive and acclaimed Ontario Teachers’ Pension Plan think Harvard to Bowen, Hanes’ community college touts itself as the highest earner among major institutional investors worldwide. But the five-person shop in Atlanta beats Ontario Teachers’ in the short game (22.1% to 10.9% last reporting year) and the long (9.8% versus 8.9% over 10 years)....MORE
