Rob Gurwitt is a GOVERNING contributor.E-mail: firstname.lastname@example.org
When the news broke this fall that Alabama's public employee pension fund intended to take a controlling interest in US Airways, financial trend-watchers seemed puzzled. A correspondent on CNBC, the business network, asked "why anyone in their right mind" would want to buy a bankrupt airline. And more particularly, why would a pension fund manager in one of the smaller, poorer states--a civil servant unlikely to be rewarded for risky bets--stake billions of dollars on such a deal.
The answer, says David Bronner, CEO of the Retirement Systems of Alabama, is simple: "You buy things when other people don't want them, and you sell them when they want them." Besides, he pointed out to a newspaper reporter, a group of Texas investors had made a bid for the airline that he considered undervalued. "Does it make sense that the goodies of a very good company should go to some rich Texas arbitrage guys," he asked, "or should they go to some little old pension people: cops, firemen, prison guards and teachers?"
This was vintage Bronner, brash and reasonable-sounding at the same moment. Over the past decade, Bronner, 57, has become one of the country's more noticeable public pension fund managers by pursuing just such an investment strategy--one that combines attention-getting investments with sober expectations for long-term returns. "Some funds, almost all their money has to be invested in index funds," says Frederick Nesbitt, executive director of the National Conference on Public Employee Retirement Systems. "David has been more creative and more innovative, and he's been successful."
Bronner has been with his state's pension fund for close to 30 years. Raised in Minnesota, he headed off to the University of Alabama for law and graduate work, and was 28 when the dean of the business school sent his resume over to RSA. Since then, the fund has grown from about $500 million in assets, and $1.5 billion in unfunded liabilities, to $25 billion in assets, with its liabilities entirely covered.
It was about a decade ago that the board decided they'd had enough of "being whipsawed by the financial markets," as Bronner puts it. Instead of keeping their assets entirely in stocks and bonds, the directors opted to try operating companies themselves. RSA's first such venture was the Robert Trent Jones Golf Trail, a chain of 21 courses at eight sites running the length of Alabama. That cost $142 million. Later, the fund spent $2.5 billion to take control of Raycom Media, a television chain that has grown under its ownership from six small stations to 34 stations in 18 states. Bronner and the board invested $1.8 billion in Community Newspaper Holdings Inc., which now owns hundreds of small daily and weekly newspapers around the country. It bought 55 Water Street, one of the largest office buildings in Manhattan. And it owns real estate throughout Alabama, including a project to build a 35-story hotel in Mobile.
Not surprisingly, Bronner has his critics, who charge that pension funds ought not gamble with their stakeholders' futures in this fashion. But Bronner seems sanguine about his choices. The benefits to Alabama, he argues, go beyond the simple bottom line of respectable growth in RSA's assets. The golf trail, for instance, has made Alabama a destination for visitors; so has RSA's media ownership, since the newspapers and television stations it controls are required to give the state free publicity. "Tourism in the state has gone from a $1.8 billion industry 10 years ago to a $6.2 billion industry," Bronner says. "That's more than all of agriculture in the state. You have to remember, this is not Minnesota or California; Alabama is a very, very poor state. So in order to make a pension fund secure, you have to do something about the economics of the state. The stronger I can make the state of Alabama, the stronger I can make the fund."