Milwaukee County Pension Examining Strong Relationship

May 21, 2004 ( - Strong Financial Corp may have reached a settlement with federal and state regulators, but one of its hometown pension funds is still concerned about the firm's ability to manage a fixed-income portfolio.

The Milwaukee County Employee’s Retirement System Pension Board voted unanimously to search other investment management firms to handle the $110.9 million in county retirement funds currently managed by the Menomonee Falls, Wisconsin-based Strong.   The search comes as three members of Strong’s fixed-income management team have jumped ship in recent months, according to a Milwaukee Business Journal report.

Fixed-income portfolio managers Ashok Bhatia and Thomas Sontag and research analyst Shannon Servaes left the firm last month, Jay Mueller, director of fixed income investments for Strong told the Milwaukee Business Journal.   After the defections, Mueller, along with F. Jon Baranko, managing director of Strong’s institutional investment department, and portfolio manager Frank Koster split up the duties to maintain stability in the fund’s fixed-income investments.   Mueller will handle treasury and agency investments and Koster will manage mortgage-backed and asset-backed securities. Todd Schomberg has been promoted into Servaes’ former research analyst role.

The finger in the dike appears to be holding back the floodwaters for now.   The pension fund will make a decision on whether to move funds from Strong once a potential buyer of the firm has been announced and analyzed by the board, board chairman Walter Lanier to the Milwaukee Business Journal.  

At the present moment, the leading candidate for Strong’s business appears to be Wells Fargo & Co.   Previously, talks on a possible sale were held up by the negotiations between Strong and regulators on charges that the company, and its founder Richard Strong, profited from market timing mutual fund trades. Yesterday it was announced Strong reached an agreement with New York Attorney General Eliot Spitzer and Wisconsin Attorney General Peg Lautenschlagerand separately by the U.S. Securities and Exchange Commission (SEC)includes $140 million in disgorgement and civil penalties.   Of the $140 million in disgorgement and penalties, Strong Capital Management will pay $80 million and an additional $60 million will be paid personally by Richard Strong (See   Strong Settles with Federal, State Regulators ).

Once those allegations were settled news of a sale should come quickly, Mueller told the Business Journal.

However, a Wells Fargo purchase does not guarantee the business for the current portfolio team, as the fixed-income portfolio managed by Wells Fargo is handled differently than the current Strong management.   Additionally, the county pension fund has demonstrated in the past it is not afraid to change fund managers when the board voted to replace ColumbiaFunds, a division of Columbia Management Group.