The Curious Case of Fletcher Asset Management

Just a little over a month ago, on July 7th, the Wall Street Journal's Money & Investing section had, as its lead headline, "Highflier Tells Clients to Wait."

It seems that Alphonse Fletcher, said to, have "made a splash on Wall Street in the 1990s, reporting 300%-a-year returns at his firm," and "told of going 11 years without a single losing month," may have bamboozled three Louisiana public union pension boards.

Fletcher made them an offer, so to speak, which they could not refuse- "an investment assured of returning 12% a year."

When asked by the three pension boards for the return of their money recently, Fletcher "sent them promissory notes "in satisfaction of this redemption request" that pledged repayment within two years."

And you wonder why we have underfunded public pension funds? Who even knows who sits on the investment committees of these three Louisiana state public union pension funds? Somehow, I am guessing not people with requisite experience relevant to and adequate for the task.

Apparently it's not even clear just how much money Fletcher's fund complex actually runs. The Journal alleges that it is probably close to $200MM, although Fletcher, by double-counting amounts that one fund invests with another within its complex, gave a figure of some $500MM.

The story reads like Hillary Clinton's legendary gains from funds managed by "Red" Bone. In that case, Red essentially decided, after the fact, where Hillary's money had been that period, and credited her account thus.

Between the guaranteed minimum 12% return and the many cross-feeds of funds from one element of Fletcher's complex into others, one gets the sense that the same scheme was afoot in this recent case.

In the Journal's July 16-17 weekend edition, it updated the Fletcher saga. By then, all three Louisiana unions' pension funds had requested the return of their total investments of $143MM. This sum would seem to be the bulk of Fletcher's investments, if the Journal's earlier-stated, $200MM figure is close to correct.

The articles made for interesting and, frankly, fun reading. As I read each subsequent paragraph, I grew more curious as to who could possibly be so stupid as to invest so much public union pension money with a manager who promised- promised- a minimum return of 12% per annum. That's more than the S&P averaged before the recent flat decade.

Mind you, we're not talking about Steve Cohen or Jim Simons. Fletcher was described in the earlier article as a once-promising equities trader at Kidder Peabody who sued over a bonus dispute and for racial prejudice. He was involved in another racially-based lawsuit with the prominent New York city co-op, the Dakota.

Honestly, it reads like something out of a Tom Wolfe novel (Bonfire of the Vanities) except, sadly, it's all true.

I believe it was Forrest Gump, who hailed from the same general region, who said,

"Stupid is as stupid does."
Now, ask yourself, how will more federal financial regulation stop the idiots in Louisiana in charge of public union pension money from making more stupid mistakes like this in the future?