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Amid losses, questions arise about one Tampa city pension fund

TAMPA — Eighteen months ago, the city's police and firefighter pension fund was valued at more than $1.7 billion.

Today, it's worth $1.2 billion.

The 30 percent loss isn't so unusual in this gloomy economy.

What's unusual is this: The massive portfolio is managed solely by one investor, Atlanta-based Bowen, Hanes Inc. The firm has been in charge of the city's police and firefighters pension fund for 34 years.

The significant losses in a fund led by a single manager has raised questions from City Council member Mary Mulhern, who heads the council's budget committee.

"I want to see more oversight," she said. "I don't know if the solution is to have more then one money manager or the solution is to have a board that pays more attention and is more involved."

Among Mulhern's questions: Why does the company's president, Jay Bowen, keep more than 60 percent of the fund in stocks, and why did he wait until recent months to alter that mix?

"When other people were backing off and putting stuff in cash and bonds, he wasn't," she said. "That's not good management."

Bowen, who speculates that Tampa's police and firefighter pension fund may be the only one of its type in the country to have just one manager, defends his performance.

He points out that the fund has had an annualized rate of return of 10 percent since 1985. Over 33 years, its common stocks had an average yearly earning of 14.2 percent. The S&P 500, a bellwether index of major U.S. stocks, averaged an 11.1 percent annual gain during that time. By comparison, the city's general employees' pension fund, which has 13 managers, has earned an average of 7.4 percent a year since 1985. Its value has declined 37 percent in the last 18 months.

Bowen also said a single manager costs less in fees. He expects to collect $2.9 million in this fiscal year, or about .24 percent of the portfolio's current value. Managers and consultants who oversee the general employees' fund will receive about $1.8 million this year — about 0.45 percent of the portfolio's value.

"Others that have divided it up, they've done it the other way. They have multiple managers, and they haven't done nearly as well. The question is: Why do they have multiple managers?" Bowen said. "Maybe everybody else is on the wrong model."

Patrick Lynch, a Tampa police officer who chairs the nine-member pension board, also defends Bowen.

"It's hard to argue with the results," he said.

Still, experts agree with Mulhern that large pension funds should have more than one manager.

Just as it's best to diversify a portfolio, it's also wise to have several managers in case one of them trips up, said Jeremy Gold, an actuarial consultant with a doctorate from the University of Pennsylvania's Wharton School of Business.

It also prevents fraud.

"Have you heard of Bernie Madoff?" he asks.

Madoff is in prison for masterminding perhaps the largest financial fraud in U.S. history.

After the Madoff scandal, Lynch said, the pension board hired an attorney to lead a workshop on securities litigation.

The board determined it had nothing to fear, partly because Wachovia Bank, not Bowen's firm, is custodian of the fund's stocks.

Bowen's firm has been in charge of the city's police and firefighters pension fund since 1975, with Jay Bowen III taking over for his father in the mid 1980s.

Tampa's police and firefighter fund largely supports Bowen's 11-person firm, making up about 75 percent of its entire portfolio. Another 100 or so clients account for the remaining 25 percent.

In the past 18 months, despite the fund's $500 million loss, the firm received more than $5 million in fees from taxpayers.

Bowen is a supporter of the Cato Institute, a Libertarian think tank that advocates for keeping government as small as possible and taxes low. In 2007, he appeared on Fox News and railed against the Democratic presidential primary candidates, calling them "anti-prosperity."

His most recent investment summaries to the pension board have called President Barack Obama's economic policies "excessively reckless," advised that the stimulus package will have a net effect of zero at best and warned against "government mandated cost increases" for health care and energy.

"I'm anti-tax in terms of I don't like what happens when you have relatively high tax rates on income and capital," Bowen said. "If you can put a tax system in place that encourages work and risk-taking and capital formation and job creation, that's what leads to prosperity, and that's what makes everybody better off."

In response to Mulhern's questions about investing nearly 65 percent of the city's fund in stocks, Bowen notes the strategy historically has been lucrative. That type of asset allocation is about average for public pension funds throughout Florida.

The approach is in line with conventional wisdom, Gold notes, then adds: "The conventional wisdom is wrong. When you're buying equities, you're just signing on to a roller coaster."

• • •

Across the country, governments are suing their actuaries and investment managers for not telling them the true cost of their benefits and risks of their investments, he said.

In Tampa, where benefits paid to retired police officers and firefighters have increased dramatically in recent years, both the city and current employees will have to increase their contributions to the fund to cover its payouts.

The city's contribution will increase from $6 million in 2009 to $8.4 million in 2010. Public safety workers will have to increase their contributions to the fund from 4.11 percent of pay in 2009 to 6.79 percent in 2010.

This year, public safety workers won't receive one of their benefits — a 13th monthly check -— that's paid out in years when the fund increases by at least 10 percent.

Most likely, the city and the fund's beneficiaries are getting off easy this year.

Contributions are calculated based on the fund's value at the end of each fiscal year, with this year's contributions based on the Oct. 1, 2008, value.

Since then, the fund has lost another $200 million. If it doesn't recover in the next four months, next year's contributions will be even higher.

Ray Wilson, who monitors public pension funds throughout the state, said he expects things to get worse before they get better.

"The public pension plans in Florida have yet to even reach that period of time when their assets and liabilities will officially recognize the meltdown," he said. "Everybody ought to be worried about the magnitude of these changes. And if you look at what's going on around us, everyone is."

Janet Zink can be reached at jzink@sptimes.com or (813) 226-3401.

Amid losses, questions arise about one Tampa city pension fund 06/15/09 [Last modified: Monday, June 15, 2009 11:13am]
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