Internally managed domestic fixed-income assets among the 200 largest U.S. pension funds dropped 19.5% on a market-adjusted basis, and took a back seat to domestic equities, statistics collected for Pensions & Investments' 1996 pension fund directory show.
Internally managed domestic equities reported by the top 200 pension funds went down 12.5% on a market-adjusted basis this year; still, domestic stock is now the dominant asset class among in-house managed pension funds.
Internally managed U.S. equities totaled $285.2 billion as of Sept. 30; domestic bonds totaled $263.7 billion, down from $287.3 billion last year. Internally managed foreign equities went up an impressive 16.9% on a market-adjusted basis, to $25.6 billion, while foreign bonds increased 7.7% to $12.6 billion.
Overall, internally managed assets climbed to $692.85 billion from $647.64 billion a year earlier, according to P&I's survey of the top 200 pension plans. At least 52 large pension funds increased their internal management while 21 decreased it.
The nation's private pension system could be an ``unintended casualty'' of efforts to overhaul the tax code, a report by the American Academy of Actuaries said today. The current tax structure gives incentives to employers and employees to put aside money for pensions, notes Robert E. Heitzman Jr., senior pension fellow. But if ``all forms of savings were given tax-favored treatment, employment-linked pensions would be jeopardized,'' Mr. Heitzman said.
Tomorrow, a Republican task force headed by Jack Kemp is expected to release its tax reform report. The actuaries' group recommends tax proposals include a partial tax credit for employer contributions to pension plans, or mandated employer-sponsored retirement plans.
Indianapolis Power & Light Co. is using Merrill Lynch Consults' Asset Information and Performance Service to review the asset allocation of its $200 million defined benefit plan, said Max Califar, vice president-human resources. AIMS provides investment management performance reviews and manager peer group analysis for use by the plan's pension committee. Changes to the asset allocation may follow.
Harris Investment Management launched its first market-neutral fund, seeding it with a total of $8 million from a pension fund client and part of the cash component of the firm's own collective enhanced equity index fund, said Donald G.M. Coxe, president and CIO. Harris will market the new fund to both pension funds and corporations for their corporate cash. The market-neutral strategy is 50% long stocks and 50% short stocks; it expects to outperform cash-type instruments regardless of stock market movements.
Hong Kong pension funds averaged returns of about 16% in 1995, said A. Grahame Stott, Watson Wyatt Worldwide's regional director, Asia Pacific. That's up from -5% in 1994, but down from about 40% in 1993.
The 1995 returns were ``not brilliant,'' but they exceeded salary inflation in Hong Kong, which is running about 11%, he said.
One of the big surprises of early 1996 could be a sudden decoupling of the stock and bond markets, and the year will belong to stock pickers, rather than theme investors, said David Shulman, Salomon Brothers' chief economist. In his latest report to clients, Mr. Shulman notes the Federal Reserve's seeming success in controlling inflation is removing it as a factor in the correlation between stocks and bonds, so investors will bid up stocks and sell down bonds if the economy looks good, and reverse that order if it looks bad.
Several events could trigger a sudden decoupling, mainly a rise in fears of recession and more worries about the outlook for profits, the report said. But Mr. Shulman points out he doesn't expect a recession in 1996, so any fears would be overblown and the decoupling modest.
Meanwhile, 1996 will be a stock-pickers' market, said Mr. Shulman. He is maintaining his recommended allocation of 50% stocks, 35% bonds and 15% cash for balanced portfolios; he favors a mixed portfolio of oil service, consumer growth and value-oriented stocks.
The stock market will turn in a ``comfortable'' return of 8% to 11% this year, although it will be volatile, predicts Peter Anderson, chief investment officer, IDS Advisory Group. Technology stocks will be the most attractive sector. Among the best, he cites in a news release, are Intel, Compaq and Cisco Systems.
Also, he said financial stocks, particularly, Citicorp, First Chicago and NationsBank, will do well. Inflation will be 3%, he forecasts. (Last year, it was an estimated 2.74%, according to Ibbotson Associates.)
By the end of 1996, short-term interest rates will be 4% and long rates will 5.5%, he forecasts. The rates are now, respectively, about 5% and 6.3%.
Janie S. Kass resigned as director-investment consulting services at Kwasha Lipton to join Jacobs Levy Equity Management as director of client services, a new position.
A Kwasha spokesman said the firm is seeking a replacement for Ms. Kass, but no timetable has been established