Atlanta V. Hamlin Case Study

Abstract

The year 1994 began with promise for both Hamlin Dewey, Inc. ("Hamlin") and Atlanta Park Medical Center ("Atlanta Park") yet one year later, each of these two venerable organizations was fighting for its own survival, battling each other in litigation.

Hamlin's investment management subsidiary, Hamlin Asset Management, managed over $17 billion in mutual funds and private accounts. Atlanta Park, a not-for-profit research and teaching hospital, was one of Hamlin’s clients. Based on a discretionary agreement between the two parties in September 1991, Hamlin was given full authority to invest Atlanta Park’s endowment fund in any investments Hamlin deemed fit, while adhering to the investment objective that was put forth by the latter. Hamlin invested mainly in the Hamlin Dewey Solid Government (HDSG), Hamlin’s in-house top performing bond fund and the remaining amount into an equity portfolio of individually selected blue chips.

By October 1994, the investments had lost 36% of their value. Hamlin lost over $800 million of investors' money which left investors stunned. Some investors brought individual lawsuits, while others banded together in a class action suit. Hamlin's mutual fund and private accounts heavily invested in mortgage derivatives.

This case explores the intricate investor relationship between the two parties involved, the fiduciary responsibility of portfolio managers, the responsibilities of managers and trustees of not-for-profit institutions, securities litigation, mortgage-backed securities, endowment portfolio management, and the historical events that shook the bond market in 1994. Just as the court was asked to do in the actual civil case, we seek to measure the damages involved and sort out who is responsible for the losses suffered by investors. We will also discuss if Jackson Montgomery, the fund manager of HDSG, should be considered as a financial genius in the industry by looking at both his success in the management of...