IBM Corp. and NYNEX Corp. reportedly are among the pension funds exploring a new concept - global multiasset portfolios - that is causing a stir in the pension investment community.
IBM is further along than NYNEX in the exploratory process, sources added.
(A spokesman for New York-based NYNEX declined to comment; an IBM spokesman in Armonk, N.Y., wasn't available for comment by press time.)
The concept became a hot topic when executives of GTE Corp.'s pension fund acknowledged they had created a bold new investment thrust: they allocated $1 billion each to four money managers to invest - within some guidelines - in any marketable securities around the world.
GTE's 7-month-old program is seen by some as a breakthrough for pension executives weighted down by such problems as too many asset classes to assess and too many money managers. But critics say it marks a return to the old days of balanced investing. Still others see it as a threat to consultants.
In July 1993, Times Mirror Co.'s $1 billion pension fund adopted the global multiasset approach as a way to cope with a shortage of in-house staff. Although the pension department sought more staff, the Los Angeles-based company turned down the request because of cost pressures. Subsequently, Assistant Treasurer Mark Schwanbeck decided to cut in half - to six - the number of managers investing in major public markets and create the broad global balanced program.
The pension fund tapped existing managers J.P. Morgan Investment Management Inc., New York, and Los Angeles-based Capital Guardian Trust Co. for broad, multiasset portfolios covering 40% of plan assets.
How is it working? "Fine," said Mr. Schwanbeck. Performance of the global multiasset strategy so far has "definitely met our expectations," he said.
And, freed from having to oversee as many managers, Mr. Schwanbeck also has been able to implement two new deferred compensation plans and new strategies for the 401(k) plan. "This would not have been possible under the old arrangement," he said.
John Carroll, head of GTE's $12 billion pension fund, said it will "take several years to determine if we are on the right path. We have a three- to five-year time frame for getting a strong sense of the incremental value added" from the program.
But in the first six months the program had been operating, he said, the group as a whole did "very well relative to (GTE's performance) benchmark," he said without specifying returns.
Managers tapped for the program were: Goldman, Sachs & Co., J.P. Morgan & Co. and Morgan Stanley & Co., all in New York, and Grantham, Mayo Van Otterloo & Co., Boston.
Thomas Healey, general partner at Goldman, cited two main reasons pension funds are interested in global multiasset investing: they know asset allocation is key to investment performance, but they find it difficult to determine the best asset mix; and they see that a handful of money management firms have invested heavily in this area. These firms have bigger staffs, more support and more investment dollars than most pension funds.
So far, only a small number of other pension funds are close to adopting global multiasset assignments, experts say. But interest is growing, especially since news broke about GTE's move in this direction.
Laurence Smith, functional head of worldwide asset allocation for J.P. Morgan Investment Management, said his firm was being contacted "almost daily" by institutional investors inquiring about the process and its benefits. The firm has two other clients for global multiasset allocation investing, besides Times Mirror and GTE. He wouldn't name them.
How institutional investors implement this strategy varies considerably. GTE, for example, has set up four separate global multiasset funds totaling one-third of its pension assets. But executives at other funds probably will establish one or two, at least initially, sources said.
Richard Woolworth, a managing director with Morgan Stanley Asset Management, said only a dozen or fewer money managers "could really add value in a global balanced multiasset context. Institutions we are talking with about this....typically want to reduce the number of managers and find those who can add value through asset allocation."
Proponents say the new form has a larger number of asset classes and more emphasis on tactical investment decisions. Plus, assignments involve only a portion of the pension fund, instead of the whole fund.
Still, some observers remain skeptical. Russ Flynn, director of pension fund investing for the $13 billion Chrysler Corp. fund, Highland Park, Mich., hasn't "done anything like GTE."
That type of broad assignment "would seem like it was going back to the balanced management concept, which wasn't necessarily successful in its heyday in the 1970s," he said.
Stephen L. Nesbitt, senior vice president of Wilshire Associates, Santa Monica, Calif., concurred in an article in a recent client publication: "Plan sponsors can do better than turn back the clock to solve their problems.
"Attention should be paid to implement low-cost, low-maintenance index portfolios in more market-efficient asset classes and save management time and fees for the less efficient asset classes. This alternative also benefits sponsors by allowing them to retain the discretion and flexibility they came to regret giving up in the '70s."