Breeden Capital Management Fired by New York City Pension Fund

New York City Comptroller John Liu
John Liu, New York City comptroller. Photographer: Daniel Acker/Bloomberg

New York City’s $36 billion pension fund for civil-service employees fired a money management firm headed by former U.S. Securities and Exchange Commission chairman Richard Breeden, who was stung by losses on his investment in retail jeweler Zale Corp.

The Employee Retirement System board of trustees voted via e-mail May 25 to terminate Greenwich, Connecticut-based Breeden Capital Management, according to information obtained from the city comptroller’s office under a public records request by Bloomberg News.

New York City Comptroller John Liu, a Democrat who took office in January, is reviewing the investments of the city’s five public-employee retirement funds. The pensions have fired at least six money management companies.

“NYCERS has given notice to Breeden, in accordance with the terms of its investment agreement, to withdraw from the fund,” Lawrence Schloss, the city’s chief investment officer, said in an e-mail.

Cathy Hanson, a spokeswoman for Liu, declined further comment.

As of June 30, the value of the city’s $136.5 million investment was $133.3 million. That was 2.3 percent less than what it gave Breeden since October 2008. The Standard & Poor’s 500 Stock Index lost 2.5 percent in the period.

The pension fund has paid the firm $6.2 million in fees, according to the comptroller’s records.

Breeden also manages money for the California Public Employees’ Retirement System, or Calpers, and Maryland’s State Retirement and Pension System. The so-called activist investor buys stock in publicly traded companies and then presses for management changes to boost share prices.

Years to Unwind

The city’s withdrawal from Breeden Capital Management will take from 18 to 24 months, Schloss said. Breeden will remain a manager for the civil employees’ pension during that time, he said.

Victoria Weld, a spokeswoman for Breeden, declined to comment.

Breeden, 60, was chairman of the SEC from 1989 to 1993 under President George H.W. Bush. Under his leadership, the commission expanded shareholder rights by requiring more disclosure in proxy statements of executive pay and making it easier for dissidents to nominate directors to corporate boards.

After the SEC, Breeden was chairman at accounting firm Coopers & Lybrand and was the court-appointed monitor for WorldCom Inc., the telecommunications company that imploded after an accounting scandal. He opened Breeden Capital Management in 2005.

Tarnished Diamonds

Breeden, which oversees $1.29 billion in assets, is the largest shareholder in Irving, Texas-based Zale, the third-largest U.S. jeweler. Zale was battered by the recession, with annual revenue declining 21 percent to $1.78 billion in July 2009 from $2.15 billion in July 2007, as consumers cut discretionary spending, according to data compiled by Bloomberg.

Breeden Capital Management’s stake in Zale, now 28.3 percent, was valued at $14.3 million as of June 30, down from $201.8 million in September 2008, according to regulatory filings.

Liu, 42, elected in November after vowing to bring more transparency to city finances, has delayed naming fund managers fired by pension funds for as long as six months, saying “premature disclosure” would harm the value of plan assets.

Disclosure could cause prices of securities held by the manager to decline before the account was closed, First Deputy Comptroller Eric Eve has said.

Last month, Schloss, New York City’s chief investment officer, declined to say whether Breeden had been terminated. Bloomberg News then filed a public records request with the city comptroller’s office.

Billions in Assets

New York City’s civil employees retirement fund has more than 300,000 active members and retirees. The five city pension programs including the civil employees fund had $103.8 billion in assets as of March 31.

Since investing with Breeden in September 2007, Maryland has lost 12.8 percent compared with a 7.45 percent decline for the S&P 500, according to state pension records. The value of Maryland’s investment with Breeden was $134.1 million as of July 31.

Calpers has lost 4.5 percent investing with Breeden’s U.S. fund since June 2006, according to investment records for the quarter ending June 30. The market value of California’s investment in Breeden’s U.S. fund was $347.9 million.

Wayne Davis, a Calpers spokesman, and Michael Golden, a spokesman for the Maryland pension fund, declined to comment on their pensions’ relationship with Breeden.