The exciting rise in the U.S. stock market is the most significant story of the year to readers of Pensions & Investments.
Like a Godzilla pounding through the city, meeting only limited resistance as it rumbled on and on, the market in 1996 was a juggernaut, pushing up the Standard & Poor's 500 Stock Index 18.3% and the Dow Jones Industrial Average 23.2% through mid-December and stumbling only briefly. But as the year drew to a close, hints of market overvaluation by Federal Reserve Board Chairman Alan Greenspan seemed to send the monster spinning.
P&I readers chose the consolidation among money managers and mutual fund companies as the No. 2 topic of the year. Big deals included the merger of AIM Investment Management and INVESCO PLC, announced in November, which is worth $1.6 billion; the $1.12 billion purchase of Van Kampen American Capital Management Inc. by Morgan Stanley & Co.; the $802 million purchase of Heine Securities Corp. by Franklin Resources Inc.
The emerging importance of risk control was No. 3. New efforts at risk control, spurred mainly by the highly publicized derivatives-linked losses at Barings PLC and Orange County, Calif., prompted several big operations - including General Motors Investment Management Co. and GTE Investment Management Corp. - to take specific steps to manage risk. The sell side also responded, offering new products in the form of sophisticated software packages that help pension funds and money managers pinpoint danger zones and problem areas.
The ups and downs of Fidelity Investments Inc. - including the ascension of Robert Stansky to replace Jeffrey Vinik as captain of the starship Magellan in May - the same month the mammoth mutual fund recorded a reported $1 billion net cash outflow - was ranked No. 4 by P&I readers.
The growing trend of defined contribution plan coverage for public employees was chosen No. 5. The most significant move came in a bill by California Assembly Howard Kaloogian to establish a defined contribution plan for the state's public employees. That would take a big bite from the clout of the $100 billion California Public Employees' Retirement System, one of the most powerful public pension funds in the world. Michigan also took steps to establish a defined contribution plan for its state employees, and Virginia and Vermont were studying a switch.
The impending issuance of inflation-indexed bonds by the U.S. Treasury earned the No. 6 spot with readers. Some see the new bonds, called inflation-protection bonds by government officials, as the dawning of a new asset class that could become a big hit with investors.
A Unisys Corp. court decision involving its defined contribution plan was No. 7. The Supreme Court declined to review Unisys vs. Meinhardt and let stand a 3rd Circuit Court of Appeals ruling that put Unisys on the hook for the annuities it bought from Executive Life Insurance Co.
The No. 8 story voted by readers was the industry reshuffling in global custody and master trust. Morgan Stanley & Co. bid to buy the global custody business of Barclays Bank, while Citibank bought the institutional trust and custody business of Chicago's Harris Bank. Also, First Chicago NBD Corp. announced it was leaving the institutional business and recommended fast-rising Northern Trust. Co., Chicago, to clients as its chosen successor.
Manager terminations in New England earned the No. 9 spot from readers. In January, the State of Connecticut Trust Funds terminated 26 managers. In November, the Massachusetts Pensions Reserve Investment Trust - which merged with the Massachusetts State Teachers' & Employees' Retirement System - announced seven terminations and promised many more.
The No. 10 spot was a tie between consulting industry consolidation and the trend toward consolidation of multinational pension funds.
