Consulting firm that quitI am writing in regard to your Dec. 27 news story "Consultant quits over hire: Relationship severed after New Haven rejects advice," on page 30.
We feel the reasons Prudential Securities resigned from the account were not clearly articulated in the article.
The tone of the article suggests conflicts existed that prevented Prudential Securities from acting in the best interest of our client.
In reality, Prudential Securities resigned from the account for all the right reasons: that factors other than our impartial and professional advice were the primary reasons for the board's choice of investment managers.
As the consultant to the City of New Haven Police and Firemen's Fund, it was our role to provide the information and guidance necessary for the board members to make prudent decisions.
We believe the process followed to make the decision is as important as the decision itself.
At the Nov. 23 board meeting, the board elected to appoint investment managers without the full benefit of our report and recommendations regarding the managers, or the allocation of assets among the managers.
We believe the process the board followed to review the material was not the proper one; thus we resigned over "procedural prudence" and "due diligence" issues.
The resignation was not the result of quality concerns regarding Bond Procope Capital Management and NCM Capital Management Group Inc. We believe both firms are quality investment firms.
Prudential Securities is in complete agreement with the board's stated policy of engaging a number of minority investment managers to manage the funds on behalf of the board.
Based on the criteria set by the board, Prudential Securities selected management firms for the search based solely on those firms' investment capabilities. There were no conflicts of interest.
To imply that Prudential or the board may have acted inappropriately in this regard is completely without foundation.
Lastly, and most importantly, the fund's performance for the time we have been consultant, since 1982, has been excellent.
Over that time period, the fund has grown at an annual compound rate ahead of all appropriate indexes and is in the top quartile of comparable funds.
We believe the resignation was made for all the right reasons.
Frederick W. Weiss III
Director, Consulting and Research
Investment Management Services
Asset Management Group
Editor's note: A P&I reporter phoned Mr. Weiss at least three times seeking comment for the story; he did not return any of the phone calls.
We applaud Messrs. Danco and Scholl for their Dec. 27 Portfolio Management article, "Fact and fiction in 401(k) stable value funds," on page 24.
We have long advocated using a pro forma "mark to market" framework to do performance comparisons between stable-value funds, or with other asset classes such as bonds.
We agree that at the current time, comparisons of guaranteed investment contracts and bond performance are often misleading, based on inconsistent and inappropriate performance measurement techniques.
While wholeheartedly supporting the framework as outline, we do question the actual numbers.
Our own calculations show the Lehman Aggregate bond index outperforming a 3.5-year duration GIC portfolio over most the time periods because of its longer duration in a falling rate environment.
This difference highlights the need to establish uniform asset valuation standards when measuring GIC portfolio performance.
Finally, we take exception to the proposition that comparing the yield on a constant duration bond fund to that of a fixed-rate GIC is a good basis for making a tactical asset allocation decision between these two alternatives.
The bond fund yield, even correctly calculated, gives little insight into the future portfolio return. The duration of the two investments are similar only at the outset.
The tactical allocation question is a very complex one, but this clearly is not the answer.
Senior vice president