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To Be Young, Gifted, And Sitting Pretty


Finance

TO BE YOUNG, GIFTED, AND SITTING PRETTY

Though he is only 28, Alphonse "Buddy" Fletcher Jr. has already achieved an unusual amount of notoriety on Wall Street. He is the black trader who sued Kidder, Peabody & Co. for stiffing him on his bonus and won a $1.3 million award in 1992. He also sued Kidder for race discrimination. That case went all the way to the Supreme Court, which refused to hear it, landing it back in arbitration, where it is still pending.

Yet Fletcher is an atypical figure in less widely known ways. He owns and runs his own successful, 11-person investment management firm in New York, Fletcher Asset Management. Audited financial statements say he has racked up triple-digit annual returns. "He's a huge success and a good guy," says Alan C. Greenberg, chairman of Bear, Stearns & Co., another of Fletcher's former employers.

Fletcher, who was educated at Harvard University, doesn't disguise his wealth. He gets around town in a chauffeured Jaguar, lives in one of Manhattan's most prestigious buildings, the Dakota, and has elegant offices in midtown Manhattan, complete with a private chef and stunning views of Central Park. To Fletcher, luxury is a necessity for his fledgling firm. "When we call a company and say we'd like to invest millions of dollars when other investors are shying away, sometimes they don't take us seriously," he says.

While thriving in the white world of Wall Street, Fletcher--as his discrimination action against Kidder suggests --has declined to simply assimilate quietly. In 1993, he pledged $1 million to a National Association for the Advancement of Colored People endowment for the Reginald F. Lewis fund, named for a black businessman who befriended Fletcher. "Buddy is not looking for any special edge because he is black, nor has he forgotten he is black," says Steven Rattner, an investment banker at Lazard Frres & Co. and a former neighbor of Fletcher's. "He has found a way to deal with it."

Fletcher has achieved impressive investment results by pursuing niche plays ignored by others on Wall Street. An applied-math major at Harvard, he started out as a quantitative equity trader doing dividend-related arbitrage. Popular in the late 1980s, the strategy involves buying stock from companies at a discount to market price, often under corporate dividend reinvestment plans, and selling it soon after at the market price. "He's very smart and creative. He's looking at new ways of doing things," says J. Pedro Reinhardt, treasurer of Dow Chemical Co., a Fletcher advisory client.

DIVE-PROOFING. Fletcher's latest niche is buying equity stakes directly from companies, ideally at a discount to the market price. He chooses companies that are strapped for cash but have fundamentally sound underlying businesses and could turn around within a year. While that strategy is common, Fletcher's approach uses a sophisticated hedge of his own design--employing different options and offsetting stock positions--to minimize the damage if the stock takes a dive and yet profit if the stock goes up. Says Fletcher: "If the hedge works, and you can tie up a very, very small amount of capital in the process, even if the stock declines, we should do O.K. And if it runs, we win big."

His biggest killing to date was Zenith Electronics Corp. He got interested in buying into Zenith after reading newspaper reports in late 1992 about the company's liquidity crisis. Further, the company was about to issue 5 million shares of stock. Zenith executives initially ignored Fletcher's request to buy a big stake. But Rattner, whose firm was representing Zenith, changed their minds. Fletcher bought 2.25 million shares, or 7%, of Zenith, at about $6.85 a share, or $15 million in two separate blocks. The stock is now trading at 12. Since Fletcher paid Zenith with mostly borrowed money, his return was magnified by leverage. Says Kell B. Benson, Zenith's chief financial officer: "I'm quite impressed with him and his people."

Fletcher has negotiated investments in two other companies, Cytogen Corp., a Princeton (N.J.) biotech concern, and Compression Labs Inc., a videoconferencing company. But he's still waiting for the payoff: Their stocks haven't budged much from where he bought them.

Yet overall, Fletcher Capital Markets, his trading vehicle and a broker-dealer, claims stellar results. A report by certified public accountants Goldstein Golub Kessler & Co. says Fletcher had returns of 471% in 1992 and 177% in 1993, and unaudited returns of 267% in 1994 through Aug. 31. While Fletcher won't disclose how much he is managing, a Securities & Exchange Commission filing said Fletcher Capital had $46 million in assets and $3.6 million in equity at the end of 1993.

Fletcher gives his family and Harvard credit for his success. He and his two younger brothers, also Harvard grads, were raised in a middle-class home in Waterford, Conn. Fletcher was class marshall, or president, of his 1987 class at Harvard.

BONUS BRAWL. He got his start on Wall Street when Bear Stearns recruited him in 1987 to work in the options department. In 1989, he jumped to Kidder to be a vice-president in its equity department. He parted ways with the firm in 1991 following the dispute over his bonus. He says Kidder paid him $1.7 million instead of the $3.9 million he says the firm had promised him. He set up his own firm in March, 1991. A few weeks later, Michael S. Meade, a former Kidder trader, Harvard pal, and currently his only partner, joined him.

Fletcher has made hiring mistakes along the way. He initially staffed up to 22 people before trimming down by half. He is also in arbitration against a former employee he claims stole proprietary ideas.

Fletcher's next step could be raising money from outside investors. Possibly in preparation, this October he withdrew his broker-dealer registration and became a registered investment adviser, a vehicle more convenient for managing money. If he can keep producing outsized returns, he could win a more desirable kind of notoriety--as an investor instead of a plaintiff. Alphonse Fletcher

AGE

28

EDUCATION

BA, Harvard College, applied-math major

PREVIOUS EMPLOYERS

Bear Stearns, Kidder Peabody

CURRENT POSITION

Founder and CEO, Fletcher

Asset Management

INVESTMENTS

Zenith Electronics (7%),

Compression Labs (5.6%),

Cytogen (2%)

CONTRIBUTOR

NAACP, United Negro College Fund, Harvard

Leah Nathans Spiro in New York


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