Thursday, October 28, 2010

ROGER HERTOG - SO MUCH FOR THE BEGINNING...SO MUCH FOR THE END...

It is still important to preserve the truth about the early history of Sanford Bernstein and Company. In a recent interview with Roger Hertog, his version of the birth of Bernstein continues to be different than mine. What prompted him to comment on events that I have never seen mentioned before my website was launched? I don’t think he has ever stated in any interview that Bernstein lost his business partners (with the exception of his brother) within three months of the founding of the company.

The idea that Bernstein came to Roger and “a couple of others with an attractive offer” has no truth whatsoever as far as I’m concerned. While at Oppenheimer I went to Roger Hertog and proposed that we either start a firm or join one. We decided to discuss the possibilities with Bernstein after hearing he was practically out of business. A long protracted negotiation took place over seventy two hours; I was made the second largest shareholder. I brought along a hedge fund client Century Partners, which was the largest account of the firm for many years. At one point we made a clerical error of several hundred thousand dollars in our favor which Century didn’t know about. After long arguments with Bernstein, I persuaded him to return the money. Hertog seems to be in denial and can’t admit he was junior to me in the beginning. He babysat for me, worked as my assistant and then worked under me at Bernstein for over a decade.

It has come to my attention that people when questioned who Osherow was, were told that I left when the company was small. In the article Roger states that the firm had less than $100 million under management in 1980, as if to make the point indirectly again. The fact of the matter is that because of the difference in revenues per dollars of assets at that time, $100 million dollars under management in 1980 would be similar to $1 billion dollars today. Also, the reason we only had $100 million was because when Bernstein was in charge of money management we lost half of our client’s assets in addition to half the clients simply leaving the firm. Just to keep the record straight and to clarify the illusion trying to be created, when I left Bernstein, I immediately joined a well known firm as co-chief investment officer and helped to increase the firm's assets under management from $150 million to $6 billion in a few years.

Within a few years of joining Bernstein, I was appointed head of account management after Bernstein totally failed. I was left alone to produce investment ideas, recreate the entire money management department and keep the firm afloat. More shall come in the future to make this point absolutely clear. It is worth stating that from 1968 to 1980 Lewis Sanders had next to nothing to do with money management decisions, although Sanders has stated “I have a forty year record that is among the best in the industry”. That too will be debated and analyzed in the near future…

Roger finally sounds to me like he agrees with much of my assessment of Bernstein’s personality. Hertog refers to Bernstein hiring a clinical psychiatrist to study the company executives. Roger also refers to the Bernstein eulogy in the interview. I can find no such personality commentary in any interview Mr. Hertog has given prior to my website. Did the reporter find my website and ask for confirmation of these statements?

The reporter describes Roger as smoking a cigar in his Hamptons home. Hertog discusses attending Stuyvesant high school and refers to sex in his dialogue. None of this sounds like Roger to me, it sounds totally like Bernstein. Bernstein thought he was going to be president of the United States and besides his sexual analogies we know Bernstein “smoked a mean cigar”. I wonder what’s going on in Hertog’s mind.

As regards to Hertog and Sanders “anchoring Bernstein’s battleship of a personality” I was the one that lived in a home in Pound Ridge near Bernstein, saw him all the time, commuted to work with him and could relate stories much more malignant that I witnessed but choose not to reveal at this time.

The Hertog article states “Bernstein also took the step of giving all of its clients the same level of service, no matter whether they were $100,000 or $10,000,000 investors". This is in complete contrast to the Bernstein who was quoted in an interview in august 1970 in New York magazine in which Bernstein is quoted as saying “These Idiots! We’re managing their money. They want us to talk to them…”

Immediately after the “Idiots” interview I insisted that Bernstein write a letter to the editor to clarify that our clients were not idiots. The Hertog article states “besides treating clients ethically (and equitably) the company also went to enormous lengths to keep them engaged”. Does that sound like the Bernstein that called our clients idiots? As you can see from Bernstein’s idiots interview I attempted to protect the firm from his explosive and bizarre personality.

According to Hertog article “the firm’s success was more than simply a matter of adjusting to individual styles. It was mainly about the culture that the three men instituted, and the seamless way in which their moral and intellectual values meshed with corporate strategy”. There was no mention of the approximately $600 million dollar settlement paid by AllianceBernstein for illegal fund practices. A December 12, 2003 Washington post article titled “Alliance Struggles to Settle With Regulators; Size of Firm, Weight of Evidence May Make Deal a Model for Other Money Management Firms” was summarized on the Motley Fool’s website as follows:

NY ATTORNEY GENERAL ELIOT SPITZER WANTS ALLIANCE TO ACCEPT A SETTLEMENT: A LARGE FINE, CHANGES IN MANAGEMENT PRACTICES, AND LOWER FEES CHARGED TO MUTUAL FUND INVESTORS. ALLIANCE HAS THE HIGHEST AVERAGE FEE FOR EQUITY FUNDS, 2.09 PERCENT, AND THE SECOND HIGHEST FEE FOR FUNDS OVERALL, 1.63 PERCENT. ALLIANCE HAS SET ASIDE $190M TO COVER FINES, LAWSUITS, AND INVESTOR RESTITUTION. LAST WEEK ALLIANCE TRIED TO SETTLE THE CHARGES. ALLIANCE, THE SEC, AND SPITZER'S OFFICE DECLINED TO COMMENT. SOURCES SAID REGULATORS “WANT MORE HIGH-LEVEL HEADS TO ROLL”.MICHAEL LAUGHLIN, FORMERLY HEAD OF MUTUAL FUND SALES AT ALLIANCE CAPITAL MANAGEMENT LP, SENT AN E-MAIL TO FORMER PRESIDENT JOHN CARIFA AND ROGER HERTOG, CURRENTLY VICE CHAIRMAN OF ALLIANCE'S BOARD, AND OTHER TOP MANAGERS IN JAN 2002 INDICATING THAT ALLIANCE WOULD ALLOW DANIEL CALUGAR, A LAS VEGAS INVESTOR, TO MAKE TRADES IN ITS MUTUAL FUNDS, OF A TYPE THE COMPANY NORMALLY PROHIBITED, IN EXCHANGE FOR PUTTING $51M IN 3 ALLIANCE HEDGE FUNDS. THE E-MAIL SAID CHAIRMAN BRUCE CALVERT IS OKAY WITH THIS.

Moral and ethical decisions? Personality distortions? Performance claims? Legal settlements costing AllianceBernstein public shareholders hundreds of million dollars to settle? Was that the beginning of the end for Alliance and Bernstein’s top managements which finally culminated in abysmal client performance and Sanders abrupt dismissal after Hertog had already left? Let the facts speak for themselves. So much for the beginning, so much for the end.

3 comments:

  1. Doesnt sound too much like morals stood in the way of making money.

    ReplyDelete
  2. Dear Sir,
    Please contact rbarnett@seekingalpha.com at your soonest convenience to discuss the possibility of your joining our family of elite financial bloggers at Seeking Alpha.

    Regards,
    Rebecca Barnett
    Seeking Alpha Editor

    ReplyDelete
  3. Where are they now. Have they acknowledged your story?

    ReplyDelete

 

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