When Thomas Pence, the former chief investment officer of Conseco Capital Management of Carmel, Ind. abruptly left the firm earlier this month to join Strong Capital Management of Menomonee Falls, Wisc., he left behind a lot more then an empty office.

Hanging over Pence's old office at Conseco Capital Management are feelings of resentment and questions as to why he left, according to members of the firm. Conseco agreed this summer to give Pence the management and a percentage of gains of two hedge funds, a deal many portfolio managers would find hard to turn down.

Pence would have split 20 percent of the funds' appreciation and the management fees with Conseco Capital Management, according to a copy of the agreement, which was signed July 31 by Pence and Maxwell E. Bublitz, president and CEO of Conseco Capital Management.

The terms of the agreement gave Pence an increasing percentage of the funds' appreciation depending on the amount of assets invested in each fund. Pence would have earned 60 percent of the funds' appreciation for $100 million or less invested in each fund, 70 percent for assets above $100 million and below $200 million and 80 percent for assets above $200 million.

Conseco Capital Management has filed a lawsuit against Pence seeking unspecified damages and claiming he breached his obligations under the agreement.

Pence, who had been with the firm since 1991, told Consceo executives that he had decided to leave because Strong had made him a more lucrative offer, said Craig S. Andrews, a spokesperson for the company.

Pence did not return phone calls seeking comment.

Pence betrayed much more than the agreement he signed, said Andrews.

"Given his position and the level of commitment we had made to Tom, I have to say the word betrayal is an interesting word," he said. "He certainly betrayed our confidence. We were totally caught off guard. Tom left a few folks e-mail and I understand that he did swing by Max Bublitz' office to give him his resignation."

Pence's decision was especially shocking to the firm because Pence had specifically requested to manage hedge funds and the company had given him what he wanted, Andrews said.

"He asked us to do it," Andrews said. "It was one of those things that he said would help assure his presence at Conseco Capital Management."

Particularly after the stock of Conseco, also of Carmel, Ind., the management company's parent, fell in the second quarter and 2,000 people were laid off from another Conseco subsidiary in July, Pence frequently represented the company in front of the media and answered questions about the strength of the companies. Four days before he resigned, Pence was the subject of a Barron's profile in which he said he had no desire to leave the company.

The Barron's article is an almost "poetic" example of the risks associated with giving portfolio managers heavy media exposure, said Roy Weitz, a financial advisor and publisher of FundAlarm.com, a website that tracks manager changes in the fund industry. The media exposure probably raised Pence's profile, and may have prompted Strong to make a bid for him, Weitz said. But, portfolio managers usually approach firms to see if they would be interested in a new manager, not the other way around, he said.

As chief investment officer, Pence was expected to meet with the media and increase the exposure of Conseco Capital Management's equity funds, said Andrews.

"I don't think that was a flawed strategy," he said. "In fact, one of the things that we work on here ... is a pay-for-performance approach and part of Tom's performance incentive was to help us market the equity portfolios."

As well as feelings of betrayal, Pence's departure leaves a gaping hole in professional talent that has forced Conseco Capital Management to take emergency measures to run the day-to-day operations at the firm, Andrews said. Three other managers - Erik Voss, Mark Babka and Nick Truitt - left with Pence to work for Strong, according to Andrews.

"We got caught in a shortage of professionals," he said. "Basically we were left with one portfolio manager, a couple of analysts and our traders. All of our traders are intact. But we needed research and analysis and some technical advice."

As a temporary measure, the firm has hired Frank Russell Company of Tacoma, Wash. to fill in while the firm searches for replacements for those positions. Bublitz is filling in as portfolio manager for the firm's equity investments, said Andrews.

This is not the first time Conseco Capital Management has suffered a resignation, en masse, of employees. The firm's bond department, which had 16 employees including portfolio managers, traders and analysts, left the firm in July to work for Delaware Investments of Philadelphia. That departure was sparked by the parent company's problems, according to Peter Andersen, a former high yield bond portfolio manager at Conseco.

"We wanted to work in an environment that was pretty much independent and unencumbered by distracting events at the parent company," he said. "And certainly Conseco had distracting events."

Changes in senior management at Conseco and the company's drop in stock price had been the underlying reason for the 16 members' decision to leave, Andersen said.

Conseco Capital Management's troubles could have played a role in the most recent flight, said Travis Pascavis, an equity analyst for Morningstar, who follows Conseco.

"It's an ill-timed move," he said. "It kind of corresponds to the company restructuring its debt with the banks in the last month. [Conseco] is different than a growing, vibrant company ... it takes a toll on the employees. [Pence's] leaving could be part of that."

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