Workers' comp fires 5th fund manager

7/15/2005

COLUMBUS Despite a government fraud investigation, the Ohio Bureau of Workers Compensation hired Oechsle International Advisors in 2001, an investment manager it fired yesterday because of weak performance and changes in management style.

This news shows that the BWC is not content with managers who merely make money but expects them to aggressively and continually outperform their benchmark relative to their asset class, said bureau spokesman Jeremy Jackson.

The $210 million allotted to the Boston-based firm failed to keep pace with inflation, let alone the bureau s benchmark.

Oechsle is the fifth fund manager fired by the bureau, which invests employer premiums to run an insurance program for injured workers. The bureau has lost about $300 million in various investments over the last few years.

Only six months after the bureau made its investment with Oechsle, the Securities and Exchange Commission fined the firm $200,000 in August, 2001, for manipulating stock prices. The firm also voluntarily paid $6 million in damages to its clients.

Invested in foreign companies such as German drugmaker Bayer and Spain s Telefonica, the Oechsle fund will be liquidated at $212.3 million, several million dollars less than the price increases caused by inflation in the last five years.

Mr. Jackson said the dismissal was spurred by changes in how Oechsle runs its clients portfolios, which total $16.2 billion.

Previously, they had an individual portfolio approach and now they re gravitating to a team portfolio management approach, he said. There s nothing wrong with that, but given the historical underperformance, we felt it was best to part ways.

Those changes would undercut the bureau s ability to govern investments.

As I understand it, when an individual manages a portfolio you have greater control, Mr. Jackson said. With a team, there s more personnel involved in making decisions.

Representatives from Oechsle declined to respond.

The growth fund investment with Oechsle was part of the bureau s effort to grab a sliver of the global economy. Out of a total of $14.3 billion, the bureau currently has $1.95 billion invested in foreign equities.

With an international growth fund, what you re seeking are firms that are progressively trying to expand their operations, Mr. Jackson said. And obviously, with investments in international funds, you further diversify your portfolio.

The Ohio Public Employees Retirement System fired Oechsle two weeks ago because of performance and organizational issues.

Oechsle was dismissed one week after the bureau terminated its contract with Allegiant Asset Management, the product of a larger evaluation of the bureau s 144 investment managers by financial consultant Ennis Knupp.

The bureau uncovered losses of $71 million by Allegiant, the investment subsidiary of National City, and $4.8 million lost in a hedge fund managed by American Express.

After revelations of troubled bureau investments in rare coins and a Bermuda hedge fund, a three-person review team was appointed and Ennis Knupp was hired to scrutinize the bureau s investment operations.

As much as $13 million is reported missing from the rare-coin funds managed by former Toledo-area rare-coin dealer Tom Noe, who is being investigated for laundering contributions to President Bush s 2004 re-election campaign.

The state is suing Pittsburgh-based investment adviser MDL Capital Management to recover the $215 million lost in the offshore hedge fund.

Pledging that additional managers will be fired, Lottery Director Tom Hayes, who chairs the review team, said that Ennis Knupp is scheduled to complete its audit by the middle of August.

We have to go through an analysis of every single one and make a decision based on the long-term interests of the fund, Mr. Hayes said. As issues come up, we prioritize them.

One of those issues may be why the bureau invested with a firm while it was being penalized for committing fraud.

Andrew Parlin, Oechsle s lead portfolio manager, colluded with another trader in 1998 to artificially boost the value of his clients holdings, according to SEC records.

With help from a counterpart at another brokerage, Mr. Parlin arranged to purchase foreign stocks already heavily owned by Oechsle s clients right before the market s closing bell rang.

The practice, known as marking the close, would temporarily inflate the price for stocks such as European automobile companies Volkswagen and Renault. Even though the scheme failed, it still constituted fraud.

Mr. Parlin had attempted to mark the close before his firm sent out its quarterly earnings, which would have allowed Oechsle to report illusory returns to its clients.

After learning about the fraud, Oechsle fired Mr. Parlin and tightened its controls by hiring more compliance officers and preventing its portfolio managers from initiating trades.

The bureau s Mr. Jackson said he could not explain why the bureau chose to entrust its money with a firm that violated SEC regulations.

We can t speak to the decisions made by former investment personnel, he said. As we go forward and seek to modernize our investments, certainly issues with the SEC would raise a red flag.

Contact Joshua Boak at: jboak@theblade.com or 614-221-1766.