Alabama Inc.

Waving a Cohiba cigar in his expansive office overlooking downtown Montgomery, Ala., David Bronner talks enthusiastically about his investments: in an airline just reorganized after bankruptcy, a chain of luxury golf resorts and a group of television stations. Is he a gunslinging Sunbelt entrepreneur in the mold of Ted Turner? A hedge-fund manager? A contrarian private-equity investor? Not even close. Bronner, 58, is, in his own words, "a government bureaucrat"--the chief executive of Retirement Systems of Alabama (RSA), the pension fund for 290,000 state workers and retirees. An unabashed cheerleader for Alabama who is comfortable in the spotlight, Bronner is overturning the image of the pension manager as passive investor--and not without controversy.

Bronner turned heads last fall when RSA spent $240 million for a 37% stake in the nation's seventh largest passenger carrier, US Airways, which this month emerged from Chapter 11 protection and named Bronner as its new chairman. Some of his ideas for reviving the airline involve RSA's other unorthodox ventures, including its $5 billion in media holdings and its string of acclaimed Alabama golf courses, the Robert Trent Jones Golf Trail. "I'll give US Airways free advertising," Bronner says. The pitch: "Fly US Airways to the Robert Trent Jones Golf Trail!"

Such big bets on synergy aren't the typical way to provide for the golden years of assistant principals and highway patrol officers. Most state pension funds are staid, blue-chip investors that focus on earning steady returns. But since taking over RSA in the early 1970s, when it was worth $500 million, Bronner, a finance Ph.D., has overseen its growth into a $22.4 billion concern. Under Bronner, RSA has ventured boldly into direct investments intended not only to fund state workers' pensions but also to boost Alabama's lagging economy and image. "I don't want to be a pension-fund manager who doesn't given a s___ about the state he lives in," Bronner says with characteristic bluntness.

But the US Airways acquisition, which included a $500 million loan to help the airline through bankruptcy reorganization, has pension-fund experts wondering about the risks of Bronner's approach. The deal makes RSA the carrier's largest equity investor (RSA already held $340 million in US Airways debt and owned nine of the airline's jets.) RSA's stake should create jobs in Alabama, where the carrier is expected to build new regional facilities. But whether that sort of spending will benefit the airline and its shareholders--including RSA--is another question.

To gain effective control of US Airways, RSA outbid by 20% the Texas Pacific Group, based in Fort Worth, a private-equity outfit with long experience investing in distressed airlines. RSA has plunged into a battered industry that has bedeviled even value-stock gurus like Warren Buffett, who once described his airline investments as "temporary insanity." Olivia Mitchell, executive director of the Pension Research Council at the University of Pennsylvania's Wharton School of Business, warns that for a pension fund, direct investment in such a risky business--especially when the fund manager becomes the airline chairman--"creates a slippery slope to conflict of interest. Running a pension fund and running an airline are two different skill sets."

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