Some major pension sponsors may employ too many investment advisers to manage their defined benefit funds. It's questionable how closely they can monitor them. How finely tuned are the investment styles in any asset allocation? The issue, ultimately, comes down to performance. How well can they pick so many managers who can beat the market?
Some of these sponsors using large numbers of managers may have reasonably good results. But without details about investment objectives and performance, it's impossible to know whether effectiveness justifies a huge stable of managers.
On average, major sponsors use about 20 money managers, excluding in-house management, which sometimes runs all or a substantial part of a pension fund.
Among major sponsors, those having many more managers than typical include: Aluminum Co. of America, with $3.3 billion in defined benefit assets and 60 managers; Ameritech Corp., Chicago, $11.3 billion and 77; AT&T Co., $39.2 billion and 57; California Public Employees' Retirement System, Sacramento, $78.5 billion and 79; Chrysler Corp., Highland Park, Mich., $10.5 billion and 48.
Also, the Connecticut Trust Funds, Hartford, $11.2 billion and 73 managers; Eastman Kodak Co., Rochester, N.Y., $7.1 billion and 65; the Florida Board of Administration, Tallahassee, $37.8 billion and 48; General Motors Corp., New York, $43.4 billion and 69; GTE Corp., Stamford, Conn., $11 billion and 55; IBM Corp., and Stamford, $28.1 billion and 63.
Also, Teachers' Retirement System of Illinois, Springfield, $12 billion and 67; State of Michigan Retirement Systems, Lansing, $24.7 billion and 56 (for only its real estate and alternative investments); the Minnesota State Board of Investment, St. Paul, $18.5 billion and 74; New York State and Local Retirement Systems, Albany, $60.7 billion and 66; Pennsylvania State Employes' Retirement System, Harrisburg, $13.3 billion and 67; the Virginia Retirement System, RichMichigan Retirement Systems, Lansing, $24.7 billion and 56 (for only its real estate and alternative investments); the Minnesota State Board of Investment, St. Paul, $18.5 billion and 74; New York State and Local Retirement Systems, Albany, $60.7 billion and 66; Pennsylvania State Employes' Retirement System, Harrisburg, $13.3 billion and 67; the Virginia Retirement System, Richmond, $16.5 billion and 77.
Many of these organizations, especially the corporations, have initiated many cutbacks and consolidations of operations and employees. The question follows whether they have looked as hard at their external managers.
Ameritech's pension fund has so many managers, its executives aren't sure how many it has. Richard W. Pehlke, treasurer, said some managers it lists may include managers under manager-of-managers programs and partnership investments, neither of which he regards as separate managerial relationships. He said the fund has 38 actual managers, although he hasn't made a list available to clarify.
A recent Pensions & Investments story noted the $11.2 billion Connecticut Trust Funds plans to ask for letters of resignations from all its managers, which number 69 or 73, depending on the report. Christopher Burnham, the new state treasurer and the sole trustee, while inviting all the existing managers to resubmit requests for proposals, hopes to par the number to between 20 and 25. Clearly, he questions whether the managers in aggregate and many individually can meet their objectives. Other pension funds should ask similar questions.