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Creative Investment Management

David Bronner gambled on Alabama and won, to the benefit of hundreds of thousands of state employees. He also put a chunk of Wall Street real estate in the pocket of pensioners — one of his best private placements.

Like most executives’ offices, David Bronner’s is equipped with all the necessary supplies to get him through a typical workday, which in Bronner’s case means an ample stockpile of Alka-Seltzer, aspirin, Pepto-Bismol and Tagamet.

“I have another antacid, too, but I can’t remember the name,” Bronner says with a chuckle.

Such is life for a man whose financial decisions directly affect the pension fund of more than 325,000 people in Alabama and have a significant impact on the state as a whole. As the CEO of the Retirement Systems of Alabama, a position he has held for 40 years, Bronner oversees a wide variety of investments that can ebb and flow – sometimes wildly – in the wake of fiscal tides.

For the most part, Bronner has successfully navigated those waters. When he arrived at the RSA in 1973 at the age of 28, the organization had approximately $500 million in funds. Four decades later, Bronner says the RSA has amassed more than $32 billion in investments, making it the 45th largest private/public pension fund in the United States and the 117th largest in the world.

But it didn’t happen without what Bronner says were “lots of headaches and lots of sleepless nights.” He has had to endure stock-market crashes, major changes in interest rates and the occasional investment that did not work out. Those are issues that every investor must deal with, but the stress for Bronner is greater than most, because of the large number of people whose livelihood is in his hands.

“It comes with the territory,” Bronner says. “After a while, you start to learn that there are certain things you can control, but there are certain things you can’t control. So what you’re doing is working your portfolio so you have some things that you feel are as secure as you can make it. And even then you can get shocked.”

That is especially true when it comes to the stock market, which Bronner says accounts for “60 to 65 percent” of RSA’s current investments. He notes that every one-point movement in the Dow Jones Industrial Average produces a net gain or loss for the RSA of approximately $1.5 million. That can result in a nauseating ride these days, as the Dow has had numerous moments in recent years in which it has fluctuated by several hundred points in one day.

“That’s the hardest thing,” Bronner says. “Last year, we had five movements of more than 500 points in a day. Not a week, but one simple little day. So that meant we either lost or made $750 million in one day, and I probably didn’t have a clue what the hell had just happened to me.

“It took from 1939 (when the RSA was formed) to 1973 for us to get to $500 million (in funds). That means last year there were five days in which we either made or lost 50 percent more than we made in all those years from 1939 to 1973. In one day. That’s the difference in scope. So you’ve got to have a lot of Pepto and a lot of Alka Seltzer.”

A native of Minnesota (Bronner was born across the border in Iowa because that was where the nearest hospital was located), Bronner came to Alabama to attend law school at the University of Alabama and also earn his PhD in business. He remained at the university as the assistant dean of the law school before becoming the unexpected choice to take over the RSA. Bronner says he was a compromise candidate between Gov. George Wallace and Paul Hubbert of the Alabama Education Association.

“I was put in because both of them were powerful enough to kill the other one’s first choice. So they found some kid at the university and gave me the job,” Bronner says. “I felt like I was the meat between two pieces of bread. I was just trying to survive the job, because it felt like everybody wanted to run me out of town.”

Instead, Bronner became a permanent fixture in the state capitol, impressing observers with his ability to shore up the retirement system, which was only 25 percent funded when he arrived. Initially he did so primarily through fixed-income investments, which were extremely profitable in the 1970s because interest rates hovered near 20 percent. When interest rates dropped significantly in the 1980s, Bronner shifted more than half the investments into the stock market, a move that continued to pay off through much of the decade.

“We switched with the markets,” Bronner says. “When interest rates were close to 20 percent, that was a great time to be buying fixed incomes. When interest rates are 1 percent, it’s a terrible investment. So you have to go into different markets to try to get your return. We started out almost all in fixed incomes, then we grew into stocks.”

Then came the stock market crash of Oct. 19, 1987, when the Dow lost nearly a quarter of its value in a single day, and everything changed.

“That was a kick in the gut,” Bronner says. “Your whole screen turns red and you lose hundreds of millions of dollars by the hour. So you go back out and say, ‘OK, that didn’t work so hot.’ That’s when we decided to put some money in Alabama. Because if we’re going to be a total captive of Wall Street, the people of Alabama don’t really get any benefit out of the rise, and they get hurt with the fall.

“So let’s take a small percentage, less than 10 percent, and start investing in Alabama so we have something tangible that’s outside of the direct connection of Wall Street. And that’s what we did.”

The most visible in-state investment was the creation in the 1990s of the immensely successful Robert Trent Jones Golf Trail, a series of 26 championship-caliber courses at 11 sites across Alabama, initially designed by noted golf course architect Robert Trent Jones. More than 500,000 people play golf on an RTJ Trail course every year, many of them from out of state.

Bronner, who plays golf nearly every weekend, says the Trail is one of the reasons that tourism revenue in Alabama has increased from $1.8 billion to $10.7 billion over the past 20 years.

“We wanted something that would make people stop in Alabama as opposed to passing through Alabama,” Bronner says. “But the big thing that I was interested in was being able to recruit industry. If you come to my office, I don’t want to really give you an hour, and if I go to your office, you really don’t want to give me an hour. But if you can get to know somebody out on the golf course for four or five hours, you have a different relationship than you will ever have with any other business group.”

When Bronner began working at the RSA, he had no staff and much of his financial information came from “a day-old Wall Street Journal.” Now he has employees who track individual stocks and are graded on their ability to buy and sell, while he focuses on the RSA’s private placement investments, such as Raycom Media (which owns 46 television stations) and Wise Metals Group, a Muscle Shoals-based company that is the world’s third-leading producer of aluminum can stock for the beverage and food industries.

Bronner says the RSA’s biggest success over the years has been the investment into 55 Water Street in New York City, the second-largest privately owned building in the U.S. next to the Willis Tower in Chicago. Bronner says the RSA has invested approximately $700 million in 55 Water but already has earned more than $800 million in cash from owning the building, which he says is currently worth approximately $1.5 billion. “That’s one of those ring-the-bell type deals, as they call it on Wall Street,” Bronner says.

Bronner says his biggest failure was the inability to complete a $240-million investment in US Airways as the airline was going through bankruptcy 10 years ago. Bronner says he was “sold out to the hedge funds” and was unable to complete the transaction.

“I got through half of it, and when they whack you in the middle of it, you lose money,” Bronner says. “So we lost a couple of hundred million there. But we’ve made more than 10 times that on 55 Water. You’re going to get some right, and you’re going to get some wrong.

“My father once told me that ideas without money just remain ideas. So if you dream big dreams, they’re just going to remain dreams unless you can find a way to finance them. And the greater the risk, the possibility of a greater reward. All those things go through your head when you make these types of decisions.”

And plenty of antacids go through your stomach, as well.

Cary Estes is a freelance writer for Business Alabama. He lives in Birmingham.

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