The Walt Disney Co., Burbank, Calif., and Capital Cities/ABC Inc., New York, combined their defined benefit assets last week under the Disney pension staff.
The combined plans have $1.9 billion in defined benefit assets. (According to data supplied by Cap Cities/ABC for the Pensions & Investments' directory of plan sponsors, its defined benefit plan had $603.6 million as of Sept. 30, 1995.)
The two companies' 401(k) plans are being kept separate for the time being. The Cap Cities/ABC profit-sharing plan will stay in effect until Feb. 9, 1998, said a Disney spokesman. Assets of those plans total $1.3 billion. Of that amount, about $919 million came from Cap Cities/ABC.
(Disney's purchase of Cap Cities/ABC became effective earlier this year.)
Industry observers say the Disney investment management approach is more aggressive than Cap Cities/ABC's.
Disney staff had been managing both companies' defined benefit plans separately since May, said Christopher J. Zyda, director of investments at Disney. Speaking at the annual conference of the National Association of Securities Professionals last month, Mr. Zyda said Disney had been consolidating the funds' manager rosters while merging the two defined benefit plans.
He wouldn't say how many managers had been terminated as a result. All assets are managed externally.
Contacted after the conference, Mr. Zyda would not provide further information.
Disney officials are reviewing the liabilities the fund assumed along with the Cap Cities/ABC work force to see if its asset allocation needs to change, Mr. Zyda said in his speech. Disney pays out approximately $20 million in benefits annually, he said.
Any such allocation changes would be achieved by reducing the fund's exposure to the U.S. debt and equity markets, he said.
The combined defined benefit plan is now allocated 25% in global fixed income, 65% in equities (10% small-cap, 10% international, 5% Disney stock and 40% large-cap) and 10% in alternative investments.
The merger of the plans was achieved "pretty seamlessly," with Disney leading the way, said a manager familiar with the company.
Disney had streamlined and updated its pension plan during the past two years, while the Cap Cities/ABC plan was more of a "sleepy" fund that didn't even have an international exposure, said the manager.
"It's really Disney calling the shots," said the manager. "Disney is absorbing it (the ABC plan) and will be putting its own imprint on it, and Chris Zyda is the guy."
The company has a young work force, which lends itself to a more aggressive allocation to less-liquid asset classes, said Mr. Zyda.
Mr. Zyda noted he felt the international allocation is low and could be as high as 20% to 25% and should eventually include an emerging markets component. Disney plans to make the change in the coming months. It also is looking at emerging markets debt, he said.
Alternative investments have produced good returns for the fund, said Mr. Zyda, adding he wants to increase the allocation to 15% during the next six months.
Disney's alternative investments include long-short strategies, hedge funds and arbitrage using instruments such as convertible bonds. Disney manages the risk by making allocations no larger than 1% of assets to each alternative investment fund to control losses should something go wrong with a fund.
The Disney spokesman said all members of the Cap Cities/ABC pension staff remain in place. Sources said Cap Cities/ABC Treasurer David Vondrak, who had overseen the plan before the merger, is not involved in pension management any more, although he is still with the company and retains the title of treasurer. Mr. Vondrak didn't return phone calls.
Before the merger, there was no overlap in the manager rosters of the two defined benefit plans, according to the 1996 Money Market Directory of Pension Funds and their Investment Managers.
According to MMD, Disney used Clay Finlay Inc., Essex Investment Management Inc., Geewax Terker & Co., J.P. Morgan Investment Management Inc. and Fayez Sarofim & Co. for equities; and Morgan, Pacific Investment Management Co. and Payden & Rygel for fixed income.
Cap Cities/ABC, in contrast, used Aldrich Eastman Waltch, Bankers Trust Co., Bear Stearns Asset Management, Sanford C. Bernstein & Co. Inc., First Manhattan Capital Management, Met Life, Neuberger & Berman, Ruane Cunniff & Co. and Sound Shore Management Inc. (The type of portfolio for each manager was not listed.)
Bankers Trust Co., Disney's master trustee, was appointed as custodian of the combined assets. Mellon Trust Co., Cap Cities/ABC's master trustee, was terminated.
An industry source said Disney officials were impressed with Mellon's services, but chose to continue their long-standing relationship with Bankers Trust to retain their pricing advantage in other investment products and services the firm provides the fund.
Additionally, Bankers Trust was seen as providing more exotic fare, such as international and derivatives strategies.
Both companies' 401(k) plans and the Cap Cities/ABC profit-sharing plan use Fidelity Investments, Boston, for record keeping and investment management.
The Disney spokesman said there has been no decision yet on what to do with the more than $150 million Cap Cities/ABC profit-sharing plan; Disney has no profit-sharing plan of its own.
If the company chooses not to continue the profit-sharing plan, it can leave it dormant or move the balances into the employees' 401(k) accounts and discontinue the profit-sharing contribution, said William T. Cleary, national practice leader, retirement plan services, at Sedgwick Noble Lowndes, Melville, N.Y.
