STAMFORD, Conn. - C.F. Wolfe, assistant treasurer and chief investment officer at IBM Corp., announced his retirement in the midst of a shake-up that will result in more than half the pension staff being laid off and half the internally managed assets being farmed outside.
One source called the dismantling of the pension department at IBM a classic "make or buy" decision as IBM moves to concentrate its management and resources on its core business, and IBM decided to buy rather than make.
Others noted that Louis V. Gerstner, IBM's chief executive officer, and Frederick W. Zuckerman, treasurer, had long records of cutting staffs at other companies. Mr. Gerstner had in the past not spared the pension departments.
While IBM officials declined to discuss precise numbers of pension staff members being let go or transferred to other areas of the company, a company spokesman said layoffs would be unavoidable.
Among those reportedly leaving are David Stein, director-equity management, who oversees investment research activities, and Roger Petrin, director-equity management and a member of the department's equity trading staff.
Among those said to be staying are Charles Maxfield, director-investment management and strategy, responsible for overseeing indexed assets at IBM, and James Peterson, director-investment management and strategy, responsible for overseeing a major portion of IBM's external money managers.
According to one source, those leaving were told on Wednesday, Feb. 23 and were to be out of their offices by Feb. 25.
Mr. Wolfe ran a staff of 60 and oversaw $16 billion under internal management.
All actively managed in-house assets will move to external managers, probably during the next six months, he said.
Only about $8 billion in domestic and international indexed equity assets will remain under internal management at IBM, which has had a reputation for having one of the more proficient pension staffs in the nation. IBM has about $28 billion in defined benefit plan assets.
Mr. Wolfe announced his retirement, effective May 1, only six months after replacing Joe Grills as CIO (Pensions & Investments, Sept. 20). Mr. Wolfe said he will join the $8 billion Howard Hughes Medical Institute, Chevy Chase, Md., as vice president and chief investment officer. He will replace Graham O. Harrison, who is retiring.
"Basically, we will be reducing much of the inside money management we were doing at IBM and moving to outside managers," said Mr. Wolfe. "We will continue to do domestic and international equity indexing internally."
Essentially, those who will remain will be involved in overseeing indexed assets and in supervising current and several new managers, he said.
Asset classes being shifted to external management include short-term cash, global and domestic fixed-income and domestic equity assets. They total about $8 billion.
Mr. Wolfe said there would be no changes in IBM's asset mix. According to the 1993 Pensions & Investments survey of the top 200 pension funds, IBM's asset mix is about 60% equity, 27% fixed income, 6.5% real estate and 6.5% private equity partnerships.
The search for money managers will be conducted internally, Mr. Wolfe said.
IBM officials are conducting a nationwide search for Mr. Wolfe's successor. IBM sources said there was no second in command at the IBM pension fund.
Mr. Wolfe said a "confluence of several things" led to his decision to retire after almost 29 years at IBM.
"First, I am eligible to retire and I had an outstanding opportunity offered to me. It was not planned. It came up, I considered it and it all seemed to fit," he said.
One source familiar with the situation said "heads are rolling at IBM and you need look no further than what (Louis V.) Gerstner (Jr.) did at RJR Nabisco. Nabisco is the model for this. He cut the Nabisco pension staff to essentially one or a skeleton crew."
Mr. Gerstner became chief executive at IBM last year. Prior to that, he served a stint as CEO at RJR Nabisco Holdings Inc. After taking over as CEO at RJR in 1989, Mr. Gerstner reportedly ordered the pension staff cut to one professional from five (P&I, April 5, 1993). At the time, the RJR pension fund had about $2.6 billion in assets.
Some industry sources warned late last year that Mr. Gerstner might start cutting the pension staff at IBM within a few months of taking over the computer giant, which is in the midst of a cost cutting mode.
"This is just Gerstner saying 'why do we need in-house asset management.' That's what they did at RJR, this should be no surprise," said the source familiar with the history of both companies. "They are going to cut to the bare bones," he said. "He (Mr. Gerstner) is saying we only need one guy to watch over the outside managers and an outside consultant to help out. That's it."
Another source noted Mr. Zuckerman had overseen large staff cuts at Chrysler Corp. while he was treasurer there in the early '80s, although he had not cut the four-person pension staff.
Under Mr. Zuckerman, however, Chrysler's $2.1 billion pension fund dropped all of its equity managers and established a $1.1 billion dedicated bond fund in July 1984. The move cut Chrysler's unfunded pension liability in half.
Several consultants said IBM's move to shift actively managed assets to outside managers while retaining oversight of indexed assets makes sense.
"They would probably want to keep indexed assets inside because it is simpler to manage, and they probably have developed their own software and developed their own indexes. So all you really need to manage an index fund is data entry and to rebalance the portfolio periodically. It really is a matter of software updating, and that doesn't take too many people," said one consultant.
In other news, IBM indefinitely has put off its project to create a global investment approach to its worldwide pension assets, sources said.
Under the approach, IBM was hoping to pool its pension assets worldwide and have a single list of money managers. But the project ran into numerous regulatory, tax and fiduciary problems. In addition to $28 billion in U.S. pension assets, IBM has about $12 billion in pension assets worldwide.
IBM was viewed as the industry leader in developing a global approach. Officials at many multinational companies had hoped to mimic the company's approach.
Mr. Grills had spearheaded the project. But his retirement last December and sweeping changes in IBM's top management have led IBM to shelve the project, sources said.
"When senior management changed, (IBM execs) had to worry about other things - like their jobs," one source said.
In additional, pension executives at several IBM units were loath to relinquish investment control to a centralized strategy.