John W. English, who retired last year as vice president and chief investment officer of the $6 billion Ford Foundation, has two concerns about institutional investing:
It seems more difficult than ever to identify managers who can consistently outperform the market; and
Derivatives being incorrectly used may cause a serious financial problem.
Mr. English earlier this month was named the 1994 recipient of the Lillywhite Award for "outstanding lifetime contributions to Americans' economic security." The award, initiated by the Association of Investment Management Sales Executives, is made annually by the Ray Lillywhite Award Fund, managed by the Employee Benefits Research Institute's Education and Research Fund, Washington.
In an interview, Mr. English, who first became involved with institutional investing as an assistant treasurer of Illinois Bell Telephone Co. in 1962, said since that time, finding managers who can beat the market consistently has become more difficult.
He mentioned one possible explanation. "There seem to be a lot more earnings surprises in the market than there used to be," Mr. English said. "If actual earnings are a few pennies off what had been expected, everyone dumps the stock."
As for derivatives, Mr. English said he has become concerned "that we are getting ourselves overleveraged, and if we are not careful, the whole house of cards will collapse. The proper use of derivatives is to provide insurance."
Mr. English's involvement began when AT&T broke up its $3 billion pension fund and gave each Bell subsidiary its share of the assets. Illinois Bell received $900 million, which he helped oversee.
Later Mr. English oversaw the recentralization of the Bell System pension funds.
"When we completed the process of recentralizing the funds again in 1980 we ended up with 111 investment managers," he recalled. "We were getting S&P 500 index returns minus fees and transactions costs. So we started indexing."
Before Mr. English could complete the job of redirecting the consolidated AT&T fund, he was offered the job of chief investment officer at the Ford Foundation, New York.
During Mr. English's tenure, Ford Foundation assets grew to $6.4 billion from $2 billion.
"Everyone said, 'John, you are a genius.' But timing is everything," he said.
"I joined when the Dow (Jones industrial average) was at 845. It was 3600 when I left."
Nevertheless, Mr. English did have an impact on the Ford Foundation.
During his tenure, he increased its investments in private placements, real estate, venture capital and international investments. He also increased the proportion of the fund being managed by the internal staff.
Mr. English is now putting his long experience at the disposal of 19 boards of trustees for charitable and other institutions on which he serves.