When he decided to retire as team leader of the municipal bond group at OppenheimerFunds Inc. nearly four years ago, Ronald H. Fielding never expected the transition phase to last so long.
What the senior portfolio manager and muni veteran did expect was to be able to walk away at any time knowing that senior portfolio manager Dan Loughran would take the reins effortlessly.
After three-and-a-half years, Loughran confirmed Fielding's expectations and convinced the 25-year market contrarian and tobacco bond investing pioneer last Thursday to officially announce his retirement from his role as municipal team leader at the Rochester-based mutual fund family, effective May 20.
The two have worked together since 1994 when Loughran joined Rochester Funds and the company managed only three portfolios with less than $4 billion in assets under management. Two years later in 1996, the Rochester Funds was acquired by OppenheimerFunds.
The team currently manages 18 municipal bond funds, including 12 state-specific, three limited-term, and two AMT-free funds, as well as one high-yield fund with $21.6 billion of combined assets under management as of last Wednesday, according to the firm.
Loughran, 45, will continue to handle the day-to-day administrative aspects for the group and oversee the management of all funds as he began doing since Fielding first decided to relinquish those duties and focus solely on portfolio management. There will be no major changes in the structure of the municipal team, or the tax-exempt mutual fund product line as a result of his exit.
Fielding, 60, said his departure from the firm and the industry is bittersweet, and that his retirement is long overdue, noting he has outlasted many of the professional colleagues he knew 25 years ago.
"The average age for senior portfolio managers is 40, only some are over age 50," he said. "I am pretty ancient."
Fielding started his career in corporate finance, at Security Trust, now part of Bank of America, in 1973, and in 1976 moved to Lincoln First Bank in Rochester, which became part of JPMorgan.
He started his own firm, Fielding Management Co., in 1980, and also co-founded Rochester Capital Advisors LP - the two investment advisers to the Rochester Funds, which were established in 1983.
Both companies were later sold to Oppenheimer in 1996 at which time Fielding became an employee there.
Reflecting on his career, Fielding said his fondness for municipal bonds backed by shares of the states' 1998 Master Settlement Agreement with tobacco companies was among one of the most noteworthy aspects of his tenure. On the other hand, having to weather the market's recent unprecedented credit and liquidity crises amid a national fiscal meltdown was among his most challenging and "pretty scary" professional experiences.
He first started investing in tobacco bonds when they were introduced in 1999 as a new credit that offered diversity from general obligation bonds and extra yield in exchange for their risky, credit-sensitive nature.
Fielding credited tobacco bonds with providing mostly stellar performance of the Oppenheimer's funds that hold them. However, the firm's high-yield funds, like others, suffered in 2007 and 2008 when their returns dipped into negative territory.
For example, the Oppenheimer Rochester National Municipal Fund had the worst performance of the firm's three high-yield funds - delivering an annual return of negative 48.90% in 2008 on the heels of a negative 10.33% annual return in 2007, according to Morningstar Inc. That performance, however, followed positive annual returns of 10.56% in 2006, 9.96% in 2005, and 10.56% in 2004. More recently, the fund posted a 4.61% three-month total return, as of March. 31, but also had a negative 39.51% one-year total return.
"Whenever spreads widen, tobacco bonds get hit, and they have been a big part of the portfolios," Fielding said. "We are at a low point in terms of the price of tobacco bonds because credit spreads are extremely wide right now, but the bonds are performing the way they are supposed to."
The turmoil and volatility that existed in the second half of 2007 through the end of 2008 was also a hurdle for managers like Fielding, he recalled.
"Whether it was municipal bonds or stocks, that 18-month period was particularly harsh on value investors," he said. "Although we had positive flows for the year [in 2008], we were in net redemptions for the latter part of the year."
The firm's Rochester Fund Municipals portfolio, for example, posted a negative 30.84% annual return in 2008 after posting a negative 1.59% annual return in 2007. That performance followed strong annual returns in the prior three years of 8.32% in 2006, 8.76% in 2005, and 7.25% in 2004, according to Morningstar.
Performance aside, the Rochester Fund Municipals portfolio is targeted in an April 2008 suit in the U.S. District Court in New York filed by Abraham, Fruchter & Twersky LLP on behalf of purchasers of the fund between Feb. 26, 2006, and Oct. 21, 2008, that charges Oppenheimer misled investors about certain risks associated with the A, B, and C shares, resulting in an over 30% decline in the fund's value.
The suit alleges that registration statements used to sell shares of the funds failed to disclose that under certain circumstances trusts that contain inverse floaters, such as those employed by the fund, may be put to the fund for repayment of principal.
This caused the trusts to be collapsed and required the fund to repay the principal amount of the tendered securities by selling securities from the portfolio regardless of market conditions and at prices far below the values at which the bonds were carried on its books, according to the suit, which is still pending.
In October 2008, the firm filed a prospectus supplement that disclosed the relevant risks associated with the fund's investment in inverse floaters, the suit says.
Meanwhile, San Francisco-based Girard Gibbs LLP was one firm that filed suit on Feb. 9, against the Oppenheimer California Municipal Fund, managed by Fielding, for false and misleading registration statements and prospectuses that the fund's loss of 45% of its net-asset value during the class period was associated with its overexposure to low-grade bonds, unrated bonds, high-risk securities and the California real estate market.
An Oppenheimer spokeswoman said the firm does not comment on the details of pending litigation, such as those mentioned. However, she said both suits "are without legal merit and we will defend ourselves vigorously."
Fielding, meanwhile, said he believes the market can sustain the improvement it has experienced following last year's tumultuous period, and continue to strengthen going forward.
"We have had a good first quarter," he said. "I am happy that I was on board for the first four months of this year."
The Rochester Fund Municipals, for example, posted a 10.42% three-month total return as of March 31, following a negative 19.80% one-year total return, Morningstar data shows.
Year to date the Rochester funds overall have experienced positive flows and consistent monthly reinvestment dividends, according to Fielding.
For instance, the Oppenheimer Limited Term Municipal Fund achieved a 6.96% three-month total return on the heels of a negative 7.53% one-year total return, while the Rochester Fund Municipals portfolio delivered a 10.42% three-month total return after a negative 19.80 one-year total return, according to Morningstar.
Fielding anticipates that the current cheapness of the municipal market and pending increases in state taxes will make munis even more attractive going forward. His advice for his colleagues as well as fledgling money managers is to stay focused and don't get discouraged by the market's cyclical difficulties.
"In very difficult periods when spreads are very wide there is always a tendency to believe that your strategy didn't work and maybe you should change it, but that is the wrong time to change," he said. "While it may look darkest before the dawn, the uptick is an extremely rewarding period."
Apart from continuing his non-salaried role as vice chairman of the Washington, D.C.-based Investment Company Institute's Mutual Insurance Company, and seats on a couple of other professional boards, his upcoming retirement will be a full time endeavor, he said.
In retirement, he plans extensive traveling with his wife, Donna, including a cruise to the Mediterranean, brushing up on his golf swing, and watching dolphins frolicking in the Atlantic Ocean near his new full-time residence just outside of Charleston, S.C.
In preparing for the next phase of his life, he said he has the same mixed feelings and qualms as when he gave up his role as chief executive officer of Fielding Management and began his career with Oppenheimer. "You hope for the best."
