CHICAGO - Gardner Rich & Co. wants to make sure its "relationship" with the board of trustees of the Public School Teachers' and Retirement Fund of Chicago is well defined.
In a recent letter, the brokerage firm assured the $8 billion fund's money managers that the board of trustees was not just looking "to make a few minorities rich."
Christopher P. Gardner, president and chief executive officer of the Chicago firm, wrote the letter, with copies also sent to trustees.
"It came to my attention that certain money managers have been instructed by a member of the board of trustees of the Chicago Teachers' Pension Fund not to do business with our firm. The numbers (the share of trades the firm is getting) testify to this. It is our understanding that certain money managers, perhaps even you, were informed that 'Chicago Teachers were not trying to make a couple of minorities rich,' " he stated in the letter.
He declined to be interviewed for this story.
His letter says the firm has taken advantage of the opportunity given to it by the pension fund and has "graduated" from a minority business to a small business.
Gardner Rich has done brokerage transactions for the fund for about eight years, said Mike Nehf, executive director of the fund.
"When I glance at the commission reports, I recollect this broker ranks among the most utilized," Mr. Nehf said. He estimated Gardner Rich is in the top 5% of brokers used by the fund's managers.
The board's policy is to direct 40% of trades to local firms. Of those, 40% are to be done by minority- and women-owned firms. The other firms that fall under local and minority status are Berean Capital Inc. and Melvin Securities Corp.
Board President Mary Sharon Reilly, rumored to be the trustee Mr. Gardner refers to in his letter, said, "By policy, we don't have a relationship with brokers .*.*. It's a manager decision which broker to use."
Some of the fund's money managers say it's more an issue of politics between the board and the brokerage firm.
Louis Holland, chief investment officer of Holland Capital Management, Chicago, remembers getting a phone call from Mr. Gardner after getting the letter. "I wasn't very charitable. I told (Gardner) it's between you and (the board)."
Cindy Shoettler, president and co-owner, Zevenbergen Capital, Seattle, said the firm hasn't used Gardner Rich, but has talked to them.
Other managers would not comment or did not return phone calls.
In 1994, Gardner Rich proposed starting a commission recapture program for the fund. Gardner Rich proposed "any and all securities transactions done with Gardner Rich & Co. by the external investment advisers of your plan will generate a credit of fifty percent (50%) for the account of the fund."
The board held off on starting commission recapture until the fall of 1996. Merrill Lynch Citation, New York, was hired as a broker and agreed to trade 15% of the total volume of transactions by the fund's domestic core equity managers and to rebate 62.5% of the commissions to the fund. The fund is looking at adding two minority- and women-owned firms to its commission recapture program.
A source familiar with the fund said Gardner Rich backed out of doing commission recapture because it wouldn't be as lucrative as the business the brokerage had been getting. It is estimated the firm did up to 80% of the trading for the fund at that time, the source said.
The firm allegedly pressured the Chicago Teachers Union not to re-elect Ms. Reilly because of her effort to open transactions to other minority firms that were estimated to be receiving less than 5% of the money managers trades.