More Taft-Hartley pension funds are being invested abroad, creating a small ripple in the overall pool but no splashes yet.
At year-end 1995, Taft-Hartley funds had roughly $4 billion invested internationally, more than double the amount recorded a year earlier, according to InterSec Research Corp., Stamford, Conn. But that $4 billion was minuscule compared with the $376 billion invested abroad by all U.S. tax-exempt institutions as of Dec. 31.
At least several international managers have benefited from the increased interest by some Taft-Hartley funds.
Delaware International Advisers Ltd., London, has 19 Taft-Hartley pension fund clients for its international equities and global bonds offerings, the bulk of which were obtained in the last 18 months, said Michael McCloskey, a vice president of client services, Delaware Investment Advisers, Philadelphia. Both Delaware Investment and Delaware International are affiliates of Delaware Management Co., Philadelphia. In all, Delaware International manages $210 million in international/global investments for union funds.
In January, Delaware unveiled its Labor Select International Equity product. It takes into account various concerns of the labor movement when choosing international investments. The product is available either as a separate account or as a commingled fund. Already, it has attracted about $90 million, including one separate account for about $60 million and nine Taft-Hartley clients for the commingled fund.
Trust Fund Advisors, Washington (a unit of ULLICO Inc.), a manager of managers with predominant Taft-Hartley fund clientele, tapped Oeschle International Advisors in Boston about 18 months ago to serve as its first - and so far only - international equities subadviser. TFA now has five Taft-Hartley clients for international assignments and $75 million under management.
The firm stresses labor-sensitive foreign investing to ensure that Taft-Hartley fund investments wouldn't harm U.S. jobs, said Michael Steed, senior vice president, investments, of ULLICO Inc. and president of Trust Fund Advisors. Oeschle is instructed to screen out any country with human rights violations and companies with unfair labor practices and/or with products or services that would hurt U.S. jobs, he said.
Sierra Investment Partners, Napa, Calif., a manager of managers that specializes in serving Taft-Hartley funds, is now reviewing subadviser candidates for its first international equities product. The firm hopes to unveil the offering in the next six months, said Bruce Dereschunk, president and chief executive officer. He said the product's investment style would be sensitive to labor issues.
According to Mr. Dereschunk, Sierra plans to add this offering because requests from trustees of "several different" Taft-Hartley plans in the last few months. "Two years ago, Taft-Hartley plans were adamantly opposed to international investing. Now, you're starting to see interest in it by some big plans," he said.
Money managers questioned would not name their Taft-Hartley clients. But Pensions & Investments found from plan sponsor interviews and information in The Money Market Directory of Pension Funds and Their Investment Managers 1996 that a number of Taft-Hartley funds had 5% or more of assets invested abroad.
According to MMD, the roughly $4.6 billion United Mineworkers of America Health & Retirement Funds, Washington, has about 5% in international equities. The $861 million supplemental retirement and disability fund of the Graphic Communications International Union, Washington, has 7% in international equities, 3% in global bonds and 2% in global equities, a fund official said.
The roughly $32 million Leather Goods Local No. 1, New York, has 3% in pooled European bonds, 7% in pooled global bonds, 10% in pooled emerging market bonds and 2% in pooled global equities, according to MMD. Fund officials did not return telephone calls seeking information. The approximately $92 million Laborers Local No. 210 & Construction Industry Employees' Association pension fund, Buffalo, N.Y., has 8% in pooled international equities. Fund officials wouldn't return phone calls.
The $250 million pension fund of Iron Workers, Texas Locals in Houston made a $10 million allocation this year to a broad international account. The move increased the fund's foreign equities allocation to about $25 million; the remainder of the international allocation had already been invested in emerging markets, said a source who asked not to be named.
Since 1993, the $47 million fund of Sheet Metal Workers Local No. 40, Rocky Hill, Conn., has had 5% allocations each to global bonds and global equities, said fund manager Bill Aneshensel.
Some Taft-Hartley plan trustees and administrators view international investing as a good way to diversify investments - and possibly boost returns.
"Fiduciaries have the responsibility to act in a prudent manner. To (decide) not to diversify overseas when more of the culture keeps talking about the importance of international (raises the question of) whether (the fiduciary) is being prudent," said William Leitold, director of the Office & Professional Employees' Local No. 153 fund, New York. Mr. Leitold believes more Taft-Hartley funds are starting to "think about international investing in various ways." In fact, he believes that about 10% to 15% of Taft-Hartley plans are actively looking into international investing.
About 18 months ago, the investment subcommittee of the fund - that has about $180 million in assets - approved a $10 million commitment to emerging markets, and it had had identified a manager. But the allocation never was funded. Mr. Leitold said the reasons were unrelated to concerns about foreign investing.
Mr. Leitold left the fund on Sept. 13 to become administrator of a larger Taft-Hartley fund that he would not identify.
Among other factors, several money managers cited consultants' advice as a factor prompting some Taft-Hartley funds to look abroad. A recommendation from New England Pension Consultants put the Sheet Metal Workers Local No. 40 down the road to foreign investing - an idea that the trustees were open to, said Mr. Aneshensel.
Ara Jelelian, director of international research for SEI Capital Resources in Chicago, says SEI encourages clients to invest internationally. In fact, one big unnamed Taft-Hartley client this year doubled to $80 million its international equities allocation and is expected to increase it further next year, he said.
"Many of our international searches arise from asset-liability studies, and usually the results of these recommend some exposure to international equities," said Mr. Jelelian. In this regard, "Taft-Hartley plans are treated the same as any other client."
In coming up with a recommendation, "we look at the plan, its obligations and use our long-term assumptions about asset classes." From there, the plans decide how much of the recommendation - including international investing - they are comfortable with, he said.
But some other consultants have a somewhat different view. For instance, Jack Marco, president of Chicago-based Marco Consulting Group, which specializes in serving Taft-Hartley funds, is neutral on whether the funds should invest abroad, he said. If officials do decide on the international route, the firm would advise on the best way to accomplish it.
Marco Consulting did a paper in January, 1995 on issues that Taft-Hartley funds should consider when investing abroad. "Since then, we have had some discussions with funds and probably more dialogue on this issue than in the past," said Mr. Marco. But according to Mr. Marco, the movement into international by Taft-Hartley funds "has been minuscule."
Foreign investing remains a sensitive issue for many Taft-Hartley funds. Concerns linger about undermining jobs at home by exporting capital abroad. At the same time, the relative performance of "foreign investments over the recent five-year period were disappointing for many corporate plans that participate in this, " said Alex Sussman, senior vice president and director of Segal Advisors Inc., New York.
As a result, international is "hard to bring to the attention of multiemployer funds from a performance standpoint," said Mr. Sussman.
Data from the Employee Benefit Research Institute, Washington, show that between the third quarter of 1990 and the second quarter of 1995, multiemployer defined benefit funds outperformed EBRI's universe of defined benefit plans. Multiemployer funds posted a 12.1% average annualized return vs. 11.8% for all DB plans.