I feel compelled to respond to Fred Williams' rather perfunctory article on internal management ("Internal management slipping away," page 3, Sept. 19). For most of the article there is a repeated assertion that it "costs more" to manage assets internally. The argument is completely fallacious.
It costs substantially less to invest assets internally. RogersCasey has worked extensively with internal management firms over the years. Based on our experience, internal management costs for a full array of asset classes range from a low of five to 10 basis points to a high of 20 to 25 basis points (depending primarily on the extent of private market assets). In contrast, externally managed assets cost from 35 to 70 basis points. Most market participants will agree that there is little doubt about which is cheaper.
I suspect that Mr. Williams is referring to the fact it costs the corporation less because in many cases the costs of internal management are not billed to the trust, whereas the costs of external management most commonly are. The comparison is therefore between apples and oranges.
In addition, drawing conclusions based on small differences in numbers, using survey methodology that is not calibrated, is fraught with errors. Even with these inexact numbers, if you measure internal management between 1988 and 1993, the numbers will point to an increase in internal management. Is this merely a counter-blip caused by one or two players withdrawing from the field?
Internal management is a viable option for pension plans. Just like any other "business" it needs to be cost effective and managed well. Let us not strike its death knell simply because some turnaround corporate officer's personal compensation is being tied to decreasing personnel.
Due to an administrative glitch, Bankers Trust's Small Cap Fund was not included in the PIPER growth commingled equity ranking on page 29 of the Aug. 22 issue.
For the one-year period ended June 30, Bankers Trust's Small Cap return of 9.1% would have placed us No. 4 in PIPER's top 10 managers list.
Bankers Trust was included in the top 10 list for periods ended March 31, ranking No. 4 in the one-year performance category. This was reported on page 16 in your May 30 issue.
We are very pleased that we would have maintained our No. 4 ranking for two consecutive quarters had our numbers been included. I am writing to clarify that Bankers Trust did not drop out of the ranking due to performance. We were not included because PIPER did not receive our performance numbers in time.
Jane Marie Petty
We at BIRR Portfolio Analysis were delighted to see your Sept. 5, page 29 article "Software ignorance hurts investors."
As you so clearly pointed out there is a great deal of interest in these products and a wide choice.
We provide our clients with a database and financial analysis tools based on our founders' research. The items focus on, among other things, the sensitivity of financial assets to Arbitrage Pricing Theory factors.
Our clients have successfully incorporated our product into a wide range of disciplines. We deliver high-quality investment tools to progressive institutional managers and continue to push our technology as our clients help us appreciate their needs.
Heather G. Chaffee
Chaffee & Co.