Independent Streak

Independent Streak

By FRANCIS X. GILPIN

Associate Editor

A 7-year-old investment advisory firm picked a fine place to raise its profile in downtown Tampa.

CapTrust Advisors LLC has "CapTrust" on the side of an office building next to where Donald J. Trump's 52-story luxury condominium is going up. Trump Tower Tampa will lord over the six floors of the CapTrust building on the banks of the Hillsborough River. Trump buyers paying up to $6 million a unit could make dandy new clients.

The high net-worth crowd is one of three target groups for CapTrust. Eric W. Bailey, a CapTrust managing principal, says he and his partners also advise non-profits and pension plans.

"We went in with a pitch that was different," says Bailey, when talking about their approach. CapTrust functions like a chief investment officer, but works with whomever clients have chosen to hold or manage their money.

"We didn't come in and knock on the door and say, 'fire them,'" says Bailey, whose firm earns service fees rather than trading commissions. "We just said, 'hire us.'"

CapTrust started with $200 million under management when Bailey, Roger E. Robson and Samuel L. "Bo" Perry Jr. founded the firm in 1998. They now call the shots for clients with assets of $2 billion.

Thank you, Paine Webber

Bailey's boyish looks belie the considerable experience that he has packed into his 32 years.

A Tampa native, Bailey majored in accounting at the University of South Florida. He took a second major, finance, and a part-time job with Paine Webber Group Inc. Robson ran the Tampa office at the time.

"Getting an eye-opening experience as to what using analytical skills in an entrepreneurial world could bring," Bailey says, "I just saw a huge opportunity."

After graduation and training on Wall Street, Bailey returned to Tampa to work full time in 1994.

Before UBS AG acquired Paine Webber in 2000, experienced accountants or insurance agents were often hired as wealth managers because they came with rich clients.

But not Bailey. "I knew a lot of people who didn't have any money," says Bailey.

To enhance his credibility, Bailey began studying to be a chartered financial analyst. "That was my first tool to help substantiate who I am and what I did, even at a young age," he says.

But Bailey's individual clients were unimpressed with the grueling course of study he undertook to get his charter. So, for that matter, was his employer. "They saw it in their minds as a distraction to sales," he says.

That fueled his disillusionment with Paine Webber.

"It was a very transactional environment," he says. Discount and online brokers were beginning to undercut full-service commissions at Paine Webber, which countered with proprietary investment products that weren't always suitable for clients.

"We could see the writing on the wall," says Bailey. "That wasn't our model. We were independent, objective investment advisers. We didn't want to be bringing product to a client."

Robson bailed out with Bailey, who supplied the analytical skills to match the client roster that the Paine Webber boss brought to CapTrust.

No benchmarks

At first, Bailey, Robson and Perry tended to their own book of clients. They later decided to specialize. "As we grew," says Bailey, "we figured out there wasn't much efficiency in all of us being experts at everything."

Bailey immersed himself in the finer points of the Employee Retirement Income Security Act, a 1974 federal law governing most health and pension plans in the private sector. "I didn't have to know what was going on with estate planning laws," he says. "I could focus on what was going on in the world of ERISA and retirement plans."

CapTrust benefited from the business scandals that made New York attorney general Elliot Spitzer infamous on Wall Street. "People were embracing the whole fiduciary responsibility well before Spitzer started on his investigation of mutual funds," says Bailey.

There was an appetite for CapTrust's objective guidance. "We didn't want to have our own stable of managers or mutual funds," Bailey says. "You work with a bank and they never fire themselves. So we wanted to be in a position to hire or fire managers."

CapTrust found numerous organizations that hadn't seriously scrutinized their investment portfolios in years. "What we uncovered was amazing," Bailey says. "You had large pools of money that hadn't been benchmarked."

Jacksonville's municipal electric, sewer and water authority hired CapTrust two years ago to straighten out one of its pension funds.

"I won't say it was disorganized, but it wasn't as organized as it should have been," says Bill Hegeman, director of employee services at the JEA. "They organized our plan so that it can withstand public scrutiny."

John J. Griffith, a CapTrust consultant, also provided fiduciary training to the pension fund trustees. "They've done an absolutely marvelous job," says Hegeman.

Success after tech collapse

CapTrust examines everything from asset allocation to custodial charges.

"You might own the same stuff in different buckets," he says. "We can come in and still keep your relationship with your brother-in-law. But have them do international or domestic equities."

CapTrust principals also see to it that investment fees are in line with performance. That includes theirs. Most clients find the savings from CapTrust's overhauls more than covers the firm's pay-as-you-go quarterly fees, according to Bailey.

During the late 1990s, CapTrust might have begged for business. "Everybody was making 30%," says Bailey. "Why do they need you?"

After the tech stock crash, however, fiduciary investors paid more attention to CapTrust. "And it wasn't to get 30% returns," he says. "Their priorities were not in capturing the last 10% of a market rally, as much as it was protecting on the downside."

A stack of books on Warren Buffett sits atop a table in CapTrust's lobby. The firm has an affinity for the legendary investor's value orientation.

CapTrust can put its name on 102 W. Whiting St., next to the Trump complex, because the firm took over the entire fourth floor. There are two or three empty offices in the new space, but that's all CapTrust will expand payroll for now.

"We want to grow our business through more and larger clients," says Bailey, "not through adding a bunch more people."

With little additional marketing planned, CapTrust is going to let performance speak for the firm.

"We can be nice people and show up in a suit and tie, like the rest of the world," says Bailey. "But people will still hold us accountable for results."

Small Business Advice

CapTrust's Eric Bailey often works with small employers. Many are understandably obsessed with rising medical costs. But some neglect other employee benefits, which he says could haunt them.

Baby boomers are retiring now that their personal investments have recovered from the Internet stock crash. Finding competent replacements with equivalent experience could turn on the retirement benefits offered by a small employer.

New information technology can help. "You can implement a 401(k) plan," says Bailey, "a very savvy 401(k) program, for little cost to the plan's sponsor or the participants."