The state pension board has fired a money manager that lost 43 cents on every dollar entrusted to it -- ending a relationship similar to the system's former ties with Baltimore investment banker Nathan A. Chapman Jr.
Joseph M. Coale, the pension system spokesman, said the board decided behind closed doors Tuesday to close its account with Progress Investment Management Co.
The announcement was delayed until yesterday to give pension officials time to notify Progress and to secure the board's assets, Coale said.
Progress, a subsidiary of FleetBoston Financial Corp., lost $53.5 million of the $125 million the system gave it to invest in July 2000.
The 43 percent loss was one of several factors that prompted the board to pull the plug earlier than it usually does with under-performing managers. The system typically gives money managers three years to demonstrate their abilities.
Progress, like Chapman Capital Management, is a so-called "fund of funds" manager -- an adviser hired to assemble and supervise a group of sub-managers to invest a portion of the system's assets.
In both cases, the "fund of funds" approach was used to give small, minority-owned investment companies an opportunity to manage money for the system. Unlike Chapman, Progress was not a minority-owned company.
The firing of Progress, which follows Chapman's firing in January, leaves the $26 billion pension system with no "fund of funds" managers in the stock or bond markets. It continues to employ one such manager in the less volatile real estate sector.
The board did not adopt a formal policy against entering into "fund of funds" contracts, Coale said, but the arrangements have become much less attractive to trustees as a result of unfavorable publicity about Chapman's dealings with sub-manager Alan B. Bond.
The pension system's staff has said it didn't scrutinize the investments of Chapman's sub-managers -- even after Bond was indicted on fraud charges in December 1999 -- because that was viewed as Chapman's job.
While awaiting trial on the 1999 charges, Bond was indicted in August last year in connection with a second scheme to defraud pension systems -- this time one in which the Maryland retirement fund was among the victims.
Bond has since been convicted of multiple counts of fraud stemming from both indictments and is awaiting sentencing.
Bond also invested roughly $5 million in state pension funds in companies controlled by Chapman, the man responsible for supervising him. Those investments have been called a blatant conflict of interest, and they are under investigation by federal authorities.
On an annualized basis, Progress' investments were down 24.4 percent since July 2000. The benchmark by which it was judged, the Russell 3000 index, was down only 17.5 percent over that interval.
Coale said there was no evidence of improper activity at Progress. He said trustees decided to act quickly because of a recent turnover of key personnel at the San Francisco firm.
"It's positive in that we're moving promptly to get rid of under-performing managers," he said. "It's not something we enjoy doing, but it's something we recognize is our responsibility."
A Progress official said she could not comment on the firing.
Coale said the firing was recommended by the system's investment consultant, Ennis, Knupp & Associates, and the retirement agency staff. He said Progress representatives were given an opportunity to plead their case this month before the board's investment committee.
The remaining $71.5 million of the money entrusted to Progress will be invested for now in an S&P; 500 index fund, Coale said.
The pension system, with more than 250,000 participants, provides benefits for 86,000 retired state employees, police officers and schoolteachers.