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April 01, 1996 12:00 AM

ELI LILLY IS CREATING 'VIRTUAL' GLOBAL FUND;U.S. PLAN TRIPLES FOREIGN STOCK HOLDINGS

Margaret Price
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    INDIANAPOLIS - Eli Lilly & Co. plans to triple its U.S. pension fund's international allocation, and to cut costs and enhance returns of its foreign funds, said Frederick Ruebeck, director of investments.

    Changes in the United States and abroad are part of a move toward a "virtual pension fund" perspective, Mr. Ruebeck said. The ultimate goal is to examine assets and liabilities worldwide and make "decisions as if we had one asset pool," he said.

    Among other overseas changes, company executives are creating a new defined contribution plan in Europe; Mr. Ruebeck wouldn't identify the country.

    The pharmaceutical giant has 14 funded plans around the world and $4.5 billion in worldwide pension assets. Of that, $2.2 billion is in the U.S. defined benefit plan and about $2 billion is in its U.S. defined contribution plan.

    Some of the most significant changes under way involve the company's U.S. defined benefit plan:

    International stocks will be boosted to 20% of the total equity allocation over the next 18 months, up from 7% to 8%. A small portion will be in emerging markets. Additional managers will be hired, and candidates have been identified. The fund's overall allocation to equities will remain at 70%.

    Alternative investments, including private equity and real estate, will be doubled to 15% of total assets from 7%. Fund officials have selected, but not yet funded, the outside limited partnerships that will be used.

    The domestic stock allocation will be cut to finance the international equities increase as well as most of the increase in alternative investments. So far, no managers have been terminated. (Mr. Ruebeck would not provide details on the asset allocation.)

    Maintaining "the good performance of our funds" is paramount, but "we also feel we can contain our costs of managing funds as we broaden our relationships" with service providers, he said. Mr. Ruebeck would not provide performance data.

    Toward that end, Lilly funds have begun to share money managers, when legally and culturally feasible.

    For example, Brinson Partners, Chicago, which had managed money for the U.S. fund, was hired first to run a global equities portfolio for the œ150 million ($220 million) U.K. defined benefit plan and, later, for the company's A$30 million ($25 million) Australian plan. And Credit Suisse Asset Management, which already had been a global balanced manager for Eli Lilly's 40 million ($4 million) Japanese fund, was hired by the Australian fund to manage Australian equities.

    Eli Lilly also wants to leverage global custody relationships.

    Mr. Ruebeck said executives are "studying that area to ensure that we have the best flows of information back to the parent company and the best fee structure." The U.S. fund uses Northern Trust Co., Chicago, as master trustee. State Street Bank & Trust Co., London, is the custodian for the U.K. plans.

    The overseas moves result from increased oversight of both the U.S. and foreign plans by the Indianapolis-based pension management staff of four.

    The process is collaborative, Mr. Ruebeck said, and ideas are shared on asset allocation, investment policies and investment managers.

    Where foreign plans have pension trustee companies or pension committees, such as in Canada, Ireland and Australia, an official from headquarters is on the committee to help disseminate information gained from another area of the company.

    In the United Kingdom, "we have an individual charged with pension fund oversight among other duties, and we provide support for his activities as a way to transmit some general points of view," Mr. Ruebeck explained.

    Like other multinationals, Eli Lilly eventually would like to pool pension assets to obtain investment economies of scale.

    "Early on, we set a goal of looking at least at Europe with the idea of creating trans-European types of pooled vehicles. But so far, that has not been possible" for legal reasons, Mr. Ruebeck said.

    "We continue to seek" ways of achieving this; "we participate in groups in the U.S. and abroad that explore such possibilities."

    In Japan, meanwhile, the company in 1994 shifted from book-reserve accounting for its pension obligation to a funded plan, which is now 40 million.

    For employees in Basingstoke, England, the company last year expanded from one to four the investment choices available for its 9 million ($15 million) defined contribution plan.

    For U.K. employees, Eli Lilly also has a 150 million ($220 million) defined benefit plan.

    Company executives expect to set up more funded plans in Europe, in places where the government has shown interest in providing adequate incentives. "Our mission is to optimize the overall delivery of benefits in any country....as effectively and efficiently as possible," said Thomas Obsitnik, international plans adviser.

    In addition to the United States, Eli Lilly has pension funds in the United Kingdom, Ireland, Belgium, the Netherlands, Austria, Japan, Australia, New Zealand, South Africa, the Philippines, Brazil, Mexico and Canada.

    "Our company is growing worldwide," Mr. Ruebeck said. "We see changes taking place that encourage more private saving - even as more of the pension burden falls to the private sector."

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