The states of Louisiana, Mississippi and Alabama may not be known as the center of the mutual fund universe. But when a devastatingly powerful Hurricane Katrina began bearing down on New Orleans and several other Gulfport cities two weeks ago, at least two mutual fund advisors knew it was time to high tail it to higher ground.
"Everybody in this business has their disaster recovery plans. We had a plan and backed up our systems on Saturday," said Farrell Crane, vice president and general counsel of Orleans Capital Management, whose office has been in New Orleans since 1911. With a total of $2 billion under management, the firm has been the sub-adviser to the Performance Strategic Dividend Fund for just over one year. The Performance Funds include a total of nine funds. All but the strategic dividend fund are internally managed by Trustmark Investment Advisors, a wholly-owned subsidiary of Trustmark National Bank, which is headquartered in Jackson, Miss., an area untouched by Katrina's wrath.
While some of Orleans Capital's 11 employees lived in New Orleans, the bulk resided in nearby Mandeville, which is just north of New Orleans and sits on the north shore of the now-famous Lake Pontchartrain, which overflowed its southern banks and flooded New Orleans.
With the storm's arrival imminent, Orleans Capital's employees fled the area.
"Three headed for Baton Rouge, while the rest of our employees went to Houston," Crane noted. The firm's receptionist fled to be with family in North Carolina.
Flight to Houston
Crane drove 15 hours with his family, including his four-month-old baby in the back seat of his car, to his younger brother's house in Houston. The firm has since set up seven of its employees in a temporary office in the Texas city and has sent one employee back to Mandeville to scope out temporary office space.
As for the fate of employees' homesteads, those in Mandeville didn't fare too badly, thankfully being located on the dry side of Lake Pontchartrain.
"Most of our homes are fine," Crane said, although one employee had some water in his house and another had a tree fall on his roof.
By Friday, Sept. 2, the money managers were back to making trades for clients, Crane said.
So what was the toughest obstacle?
"The asset management has been the easiest part," Crane conceded. "The biggest obstacle was cellular communications in and around the area."
Once in Houston they acquired new cell phones.
"The toughest part has been making sure we've contacted all of our clients to let them know where we are," he added. Those clients include large state retirement systems for the City of New Orleans, the New Orleans Firefighters, and the New Orleans Sewage and Water Board, Crane noted.
"We have been contacted by people who aren't our clients, there's been a huge outpouring of support," Crane added.
Fleeing the French Quarter
Houston was also the destination for the employees and managers of family-owned St. Denis J. Villere & Co. of New Orleans, the advisor to the stand alone $49 million Villere Balanced Fund. The firm managed a collective $1.5 billion, mostly for clients in and around the New Orleans area out of an office on Barone Street, in the French Quarter. About 40% of the fund's clients reside in New Orleans.
Villere partner George Young had been casually watching the weather forecasts on the Thursday and Friday before Hurricane Katrina made landfall. By 10 a.m. on Saturday morning, with predictions that they could be in the direct path of the storm, Young formulated a plan.
"I went on the Internet, booked a hotel room in Houston and got the hell out of there," he said. His family, which includes his wife and two teenage children, were out the door by 11 a.m. His three other family members/business partners, all of whom had lived close by, also ventured to Houston to avoid the brunt of the storm.
While the firm's partners knew the mutual fund they managed would be just fine since all books and records were kept at U.S. Bank in Milwaukee, where to set up a temporary office was very much an uncertainty. With about $1 billion of his clients' assets in custody with Charles Schwab's institutional unit for registered investment advisors, Young called Schwab for help and was told he could set up a temporary beachhead at Schwab's Houston office and make use of their office services.
The plan last week was to shortly sublet office space from an attorney friend in Houston, he said. They, too, have been busy contacting clients to let them know where they are and are planning to send a letter or postcard to clients assuring them that "the Villere Balanced Fund is up and running," Young said.
Young's family has since found corporate housing in Houston and both of his children, aged 15 and 17, have now been enrolled in the Houston school district. Young said that he expects to stay in Houston between two and six months.
"I've always said that it would be nice to have a second office, and there is a lot of money here, but... I don't know," he added.
As for their houses in the uptown section of New Orleans, they appear to have been spared, Young said. But no one is sure what condition the office is in.
"We saw some media report that showed our block and it looked like our building was okay," he said. "The buildings most affected were the other tall buildings that weren't buffered by other buildings," he noted.
An Outpouring of Support
St. Denis J. Villere & Co. wasn't the only investment advisor sending out an S.O.S. to Schwab, confirmed spokeswoman Lindsay Tiles. Several of Schwab's institutional advisory clients that were displaced, or otherwise affected by Hurricane Katrina, have called Schwab for everything from help assembling their client list, of which Schwab also maintains records, to providing office space and the use of Schwab's telephones and fax machines, to giving them the proper emergency numbers to contact the Federal Emergency Management Agency, she said.
"Schwab has been providing services as a communications and information hub. It's the logistic concerns we've helped them manage," Tiles said. And Schwab isn't charging a dime for the assistance. "It's all part of providing services to our clients."
Houston denizen AIM Investments is also doing its part to help the more than quarter of a million people who have sought refuge in its backyard. Some 300 of AIM's employees have stepped up to volunteer at one of the temporary shelters housing New Orleans' residents, including the Houston Astrodome, which is only five miles from AIM headquarters.
Employees have been volunteering day and night, workload permitting, said company spokesman Ivy McLemore. In addition, AMVESCAP, AIM's parent, has agreed to match up to $100,000 in employees' contributions to relief organizations, and will award one extra personal holiday to all employees who volunteer, he said.
For one mutual fund advisor, Hurricane Katrina has caused a major headache, if not disrupted its mutual fund operations. The storm hit three days before Hibernia Bank of New Orleans was to close on the sale of its company to Capital One Financial of McLean, Va. That sale was to include the purchase of Hibernia Asset Management, the bank's asset management division, which manages seven mutual funds. That sale has now been delayed, and the negotiated purchase price has been slashed by 9% to $5 billion as Hibernia assesses significant damage to 21 of its bank branches and has watched its stock price take a nose dive.
Efforts to reach a Hibernia spokesperson, who had relocated to Houston, were unsuccessful.
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