The Mehlville Fire Protection District Pension Committee and Board of Directors recently voted unanimously to hire Denver Investment Advisors as the district’s new fixed-income manager.

Denver is replacing Sirach Capital Management Inc., which notified the district just before the last Pension Committee meeting June 14 that it was resigning, effective Aug. 15. Sirach is restructuring its firm and no longer will manage fixed income.

Pension Committee members recently listened to presentations from Denver Investment Advisors of Denver, Colo., Western Asset Funds of Pasadena, Calif., and the Dwight Asset Management Co. of Burlington, Vt., on the recommendation of Michael Fisher of Milliman USA.

“What I was attempting to do was find managers who would manage against your benchmark, who did not make interest rate bets, who were more steadier managers with quality organizations,” Fisher said, prefacing the July 12 presentations.

All of the managers are in the intermediate area, both in corporate interest bonds and government interest bonds, he explained.

Of the three managers that the Pension Committee examined, Dwight Asset showed the highest return with the lowest risk, which Fisher said was a “no-brainer on paper only.” However, during the first three-year rolling period, Dwight significantly underperformed, he said.

Denver is a lower risk manager, but the return is not quite as high, Fisher said.

“In our opinion, and I think most consultants agree, if you’re not going to allow these people to vary from the benchmark some amount … You can’t find managers that are going to overcome their fees if you don’t give them some rope. So I think one of the things that we’re going to have to get a feel for is who do you feel comfortable with making small incremental bets away from the Index to try to add some value to really get access fees,” Fisher said. “If you can’t beat the Index, then just Index.”

All three managers fairly consistently beat the Index benchmark and take less risk than the benchmark, Fisher said.

While Fisher’s analysis focused on quantitative issues, the presentations focused on qualitative issues, he reminded the Pension Committee.

“It’s important to know what’s behind the numbers,” he said. “All three of these managers are going to talk about not making interest rate bets … Seventy percent of your excess return in fixed-income management really comes from getting direction of interest rates right, but we don’t think anybody can do that. If you would go out there and interview 100 economists right now, you’d have 50 or 60 saying interest rates are going up, some going down — it’s just tough to do.”

Fisher told committee members that they would see some very large managers, like Western with $140 billion in assets, and only do fixed income, but would not send a portfolio manager to the presentation and would place the district in a mutual fund because the district is relatively small.

On the other end of the spectrum, Fisher said Denver manages $6 billion, $2.5 billion of which is fixed income. Denver will do a separate account, and the firm will give personal service so the decision-makers will be in contact with the Mehlville Fire Protection District.

Denver Investment Advisors has five portfolio managers, three research analysts and four market specialists for a total of 12 fixed personnel, according to the information provided by Milliman USA. Denver gained three accounts in 2000, one in 2001, and lost an account in 2001, 2002, two in 2003 and one in 2004.

Denver Investment Advisors Director of Institutional Sales Vice President Dean Graves and Director of Fixed Income Management Vice President Jeremy Powers presented information to the Pension Committee.

Graves highlighted that the firm has been around since 1958 and takes pride in being investment managers as opposed to asset gatherers.

“In other words, it’s more important for us to do a good job for our clients through a lot of hard work and fundamental research than it is for us to grow ourselves to be much much bigger,” he said. “And I think that should be important to our clients because we want to have orderly growth, we want to find clients much like yourselves that are interested in the long-term investment horizons, and so on, so forth.”

Graves noted that Denver Investment has 26 employee-owners of the company with no dominant owner, so it is structured with the highest probability of being the same firm years down the road.

Denver Investment Advisors will match the fee that the Mehlville Fire Protection District has been paying to its fixed-income manager, which is less than Denver’s stated standard fee for an account of its size. Within St. Louis, Denver also works with AmerenUE and Washington University. Public Retirement Plans is one of the largest groups of clients that Denver Investment Advisors works with, including some fire, police and county retirement systems.

Powers, who heads the fixed-income group and will work directly with the Mehlville Fire Protection District, explained how Denver would manage the district’s retirement plan. He said the firm believes in adding income to the portfolio, in doing bottom-up fundamental research and long-term consistency. The firm does not believe in market timing or in short-term horizons, Powers said.

During the Pension Committee’s discussion, member Chuck Lischko said he liked Denver because it had many clients in the public sector, and that someone — Jeremy Powers himself — would come from the firm whenever the district calls him to do so.

Committee member Dan Rosenthal added that he liked a firm that was 100 percent employee owned.