Board selects Philadelphia firm to serve as pension manager
By KAREN CALLANAN
Philadelphia-based Rorer Asset Manage-ment has been selected to serve as the Mehlville Fire Protection District's pension investment manager.
Both the Board of Directors and Pension Committee voted to name Rorer Asset Management as the district's pension investment manager.
Board Chairman Tom O'Driscoll and Treasurer Dan Ottoline Sr. agreed to appoint Rorer Asset Management at the end of three half-hour presentations and further discussion with the Pension Committee and representatives of Rorer Asset Management, Austin Calvert & Flavin and Phoenix Investment Partners.
Al Benedick, a retiree and Pension Com-mittee member, supported their motion. Opposed were Pension Committee members Dan Rosenthal and Charles Lischko.
During a Jan. 15 closed session, the Board of Directors had voted unanimously to terminate services of Regent Investors Services, one of the money managers of the pension fund, on the advice of the district's investment consultant, Kirk Narick, and legal counsel, John Hessel.
After the presentations on July 21, district officials — including Chief Ray Haddock, the board chairman and treasurer, and three other Pension Committee members — each submitted their own rankings of the three firms. The outcome was a close ranking — each one vote apart — with Austin Calvert being the most favored and Rorer being the least.
Narick said that the close vote told him there was no clear consensus and the discussion continued.
"Clearly you've got two firms — being Austin Calvert and Rorer — that are basic bottom-up stock pickers," Narick told district officials. "They're kicking the tires, they're looking at the companies, they're doing on-site visits, they're going to competitors. Both of them have good track records. Both have very little turnover, although you know, there is some turnover that was mentioned in Rorer — it's not portfolio management turnover, it's marketing client service administration turnover, so that to me is not a worrisome issue. It would be if I thought it was systemic, but it doesn't seem to be.
"In Phoenix you've got a firm that does things totally differently. They're quantitative geniuses from the get-go, and they're doing all their sorting and slicing with computers, and they obviously have done a good job with it or they wouldn't be able to attract the business that they have, the record that they have. Fortunately they do have at the tail end of their process as they stated qualitative input, to make sure that what the computers are telling them makes sense, and they cited an example of that. That's important because computers are only as good as the information they get, and if they're not getting qualitative issues — which computers don't get — then there aren't any ways to rank them.
"So you've really got three entirely different stories here. I think any one of the three is appropriate, again it comes down to the level of risk that you want to employ. Rorer, as I said in the outset, is the lowest risk of the three in terms of the volatility of their portfolio. Then again you look at an outfit like Phoenix that's always going to have a risk that's less than the S&P, and performance that's close to the S&P. Austin Calvert, again on the other end is just plain old stock pickers, sitting down in San Antonio visiting everybody and their brother and really kicking the daylights out of the tires and looking people in the eye and saying: Is this guy lying to me?'
"So I think any of the three would be appropriate or they wouldn't be in the search at this point. ... But I think any of the three — again, Rorer being the least risky, Phoenix being in the middle, Austin Calvert basically higher in risk, but also higher in reward,'' Narick concluded.
Haddock noted during the discussion that he liked Rorer best because of the lesser risk and that it managed a large amount of money within the public sector, and had a philosophy of picking 30 to 40 stocks. He added that he was impressed by Managing Director and Senior Portfolio Man-ager Richard Lunsford's presentation and comment that he would be available not only on an annual basis to attend the district's meetings, but whenever the district needed him.
Narick added that the firm's people were "a big part of the equation" in money managing. "As we did with Reg-ent, when you start to see the key players leave, we recommend that the plug gets pulled very quickly," he said.
Rosenthal said that he chose Austin Calvert as his favorite because the firm lost no accounts in the last five years, it has low turnover, and he liked the better return.
"Twelve-point-six over the last 10 years — they're still, in comparison to the others, they're still a lower risk and better than the S&P, they're just not quite as low as the other two ... it's a better return ..."
Ottoline said, "To be honest with you, Tom, I like Phoenix. As far as Austin, I have a little affinity toward Texans. I think there's a lot of good ole boy attitude there. Rorer — Kirk just made a good point: the man said 'he' would be here."
O'Driscoll agreed that was the reason he liked Rorer, as well as because it was the least risky of the three.
District Comptroller Jeff Geisler added that he believed Rorer was No. 1 because it manages about 78 percent of the total assets in core equity. "They're concentrated on core equity, and that's what we're looking for," Geisler said.
O'Driscoll agreed that Rorer's client list was more compatible with the district's organization.
Narick added that Rorer had a visible number of fire and police clients.
"We are a core manager," Lunsford said during his presentation. "We call ourselves a relative value manager be-cause we have a value bias, but we combine both value in terms of the way we select stocks and growth, a combination of which we would call a core manager. We buy high quality companies when they're selling in out-of-favor prices and wait for them to come back into favor. That's basically the philosophy that we have overall in terms of managing the portfolio." He added that during "up" markets, the portfolios do well, and during "down" markets, they probably do better than most.
Lunsford said that the district's fees would be 50 basis points, which is a discount from the standard 75 basis points. He explained that this means the fees normally are .75 percent on the first $10 million, .60 percent on the next $15 million, and then .50 percent thereafter. The district's $9 million account would start at a lower rate because it is an institutional client, he said. Once the account reached $10 million, the fees would decrease to .45 percent, Lunsford said.
The Regent Portfolio had been liquidated the previous week for about $150,000 more than originally had been anticipated, Narick said.