Buddy Fletcher: Financial Genius — or a Fake?
Young, African American, and rich, Buddy Fletcher was a dream alumnus for Harvard—a Wall Street philanthropist who gave millions to endow professors and support civil rights. And then his whole world came tumbling down.
AFTER THE BITTER END at Kidder, Fletcher rented office space from Bear, Stearns and began soliciting investors for a firm of his own, Fletcher Asset Management, or FAM. Over the next four years, Fletcher, acting as a broker-dealer — meaning that he could buy and sell equities for himself and his clients — built a business around his secret investment strategy. By 1994 the press was reporting that Fletcher was an investing wunderkind. BusinessWeek touted his audited financial statements, which established triple-digit returns. Fortune wrote that “math wizards at his ten-person firm use complex computer programs to do an arcane form of stock trading timed to dividend payouts.” And, the magazine added, “His firm achieved average annual returns of over 300 percent over the past two years….”
Fletcher later moved on from his dividend strategy to one of investing in cash-poor companies, giving them capital infusions in exchange for stock priced below market value. (Investment clients provided most of the cash; Fletcher would take a management fee and a slice of the profits.) That stock was likely to go up, Fletcher explained to clients, because he would invest only in companies with strong underlying fundamentals and because FAM would help the company grow. Fletcher’s deals were immensely complicated — hard even for financial professionals to decipher — but they seemed to work. Starting in 1991, the year it was founded, FAM would report an unbroken string of profitable quarters that lasted more than a decade.
In 1995 Fletcher registered FAM with the SEC as a hedge fund, a move that allowed him to conduct a broader range of investment activities. Most new hedge funds are hungry to raise capital, but FAM insisted that it would not take money from just anyone. Potential investors in FAM were “screened” to make sure that they were “friends and allies,” Fletcher explained in Stock Market Wizards, a 2003 book by Jack Schwager. As Fletcher put it, in language that called to mind Bernie Madoff, “If we were just looking to raise as much money as we could, sure, the more the merrier. [But] at this point, we just want supportive investors. It’s not worth the trouble having an investor who would be a distraction.”
Fletcher told Schwager that he’d had a talent for investing since childhood. In junior high, he said, he wrote a computer program that could pick winners at a local dog track. By analyzing everything from finish times to weather conditions, the program could predict with 80 percent accuracy whether a dog would finish in the money. When an impressed Schwager asked Fletcher how much he’d made from his bets, the hedge fund manager demurred, saying that the racetrack took such a significant cut of his winnings, “even though we won 80 percent of the time, it still wasn’t enough to make money.” Had Fletcher thought of a similar program for beating the S & P 500? “Oh, sure,” Fletcher told Schwager. So why hadn’t he implemented it? “We’ve been very busy.”
In the mid-’90s, Fletcher moved FAM from Bear, Stearns to the GM Building, and then later to an Upper East Side townhouse. (It’s now at 48 Wall Street.) He set about hiring friends and family to help him manage his growing portfolio. Several of Fletcher’s Harvard chums — classmates Angela Dorn, Stephen Cass, Michael Meade, and Paul Ryan — would join him at FAM during the ’90s. He appointed his mother, Bettye, a director of FAM’s philanthropic activities. As a director of international investor relations, he hired his youngest brother, Todd. And for a vice president, he turned to his own boyfriend, Hobart Fowlkes Jr., who worked in European furniture at the auction house Christie’s.
Fletcher and Fowlkes moved comfortably through New York society, regularly inviting friends, potential clients, and neighbors to soirees at Apartment 52. Fletcher’s staff included chefs for his home and office and a chauffeur, who drove, variously, a Porsche, a Mercedes, a Jaguar, and a Bentley. All the amenities were necessary, Fletcher told BusinessWeek, to convince investors who might be skeptical of his youth and experience: “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.”