BOSTON - The $5 billion Massachusetts Pension Reserves Investment Management Board has consolidated its investment managers, reallocating $600 million to existing managers and terminating five firms.
The firms terminated are: Babson-Stewart Ivory International, Cambridge, Mass.; Standish, Ayer & Wood Inc., Boston; Lombard Odier International Portfolio Management Ltd., London; Scudder, Stevens & Clark, New York; and Barings, London. (The decision to drop Barings was made before the disclosure of the British bank's failure.)
Portfolios managed by TCW, Los Angeles, and Massachusetts Financial Services Co., Boston, also were dropped although the firms continue to run other assets for the fund.
In a separate development, PRIM committed an additional $30 million to Landmark Equity Partners, a $500 million private fund that will acquire interests in established buy-out funds in secondary market transactions. A 1993 investment in the fund has proven lucrative with a 70% compound-annualized return for the two years ended Sept. 30, according to Gregory White, PRIM's executive director.
At PRIM's next board meeting in mid-March, Mr. White will recommend three new limited partnership investments to the board.
Mr. White declined to comment on the specific changes affecting the firms involved in the consolidation because not all were notified at press time.
But he did say the consolidation will bring the fund closer to its long-term asset allocation target for stocks vs. bonds.
"We were substantially overallocated on the equity side. That will come down slightly. At the end of the rebalancing we will probably have $3.2 billion in equity, (or 64%) and $1.4 billion (or 28%) in fixed income." At year-end 1994, the stock and bond mix was about 70% equities and 30% in fixed income.
The rebalancing also takes into account an expected $200 million 39 to $300 million in new cash flow from the Massachusetts State Employees' Teachers' Retirement System, Boston, which will come in during the next month. The fund is required by statute to transfer its excess earnings to PRIM each year.
"The consolidation was a strategic decision, not performance-related," he said. Nor was cost the driving motivation. "Similar portfolios will be managed by other managers. The increases in the other portfolios would not be significant enough to realize a reduction in fees."
Mr. White said the changes were not done in anticipation of a possible merger with the $7 billion teachers and employees' fund. However, he said, "a leaner, and more efficient status will help if that occurs." Proposed legislation on the merger is now in the state Legislature.
A benefit of the manager consolidation is that the number of portfolios fund officials must oversee has dropped to 27 from 35. But that was not the reason for the move.
Instead, a combination of strategic factors came into play.
"Certain managers were undertaking a style we decided to reduce," he said. For instance, the firm abandoned region-specific portfolios in favor of more diversified international portfolios.
In another instance, a subcategory of fixed income was dropped in favor of a broader fixed-income approach.
To avoid redundancies in terms of style, PRIM let go of the third manager using a given style, based on the manager's relative standing compared to its peers.