ROSEMONT, Ill. - The Teamsters, Central States Southeast and Southwest Areas Pension Fund quietly has invested one -third of its assets in international securities, federal documents show.
According to data from the fund's Form 5500 report, dated Dec. 31, 1995, Central States Teamsters' had at least $4.8 billion of its $14.5 billion in assets in international. (Form 5500s are filed by ERISA-governed U.S. pension plans with the Department of Labor. The fund now has estimated total assets of $16.6 billion.)
For its external management, Central States has a stable of 40 investment firms that were paid $38.6 million in fees in 1995. That is approximately 29 basis points, using the average of the fund's beginning and ending net assets for that period.
Central States Teamsters' 33% international allocation is highly unusual for union pension funds, and even for pension funds in general.
By contrast, the Western Conference of Teamsters Pension Trust, Seattle, has just $140 million of its $16.3 billion invested internationally, all of it in non-U.S. fixed income.
The difference comes from the involvement of Morgan Stanley Group Inc., New York.
Morgan Stanley took over management of Central States as named fiduciary in 1983 from Equitable Life Insurance Co. Equitable had been appointed named fiduciary in 1977 under a consent decree with the Labor Department following years of investigations and lawsuits involving the fund, and allegations of fraud and mismanagement.
Morgan Stanley essentially acts as a manager-of-managers for Central States, and for doing so, earned $13 million from the fund in 1995 (about 10 basis points based on the average of the fund's beginning and ending assets in that year).
Fund executives, including Ronald Kubalanza, executive director, would not return repeated phone calls to confirm the size of the international allocation.
Harold J. Schaaff, an attorney for Morgan Stanley Asset Management, said Morgan Stanley cannot comment, saying it is "a client confidentiality issue."
International exposure detailed
At first glance, it isn't apparent in the Form 5500 that Central States is heavily invested outside of the United States because all of its non-U.S. holdings are in a vehicle called the Capital Asset Trust Fund.
Elsewhere in the report, though, it is noted the Capital Asset fund "consists primarily of debt and equity securities in international markets, including emerging markets."
In union fund circles, Central States' international allocation is huge.
"Our experience is that allocation would be quite high," said Alexander Sussman, senior vice president for Segal Advisors Inc., New York. "Most (union) funds have no allocation to international.
"Over the last five years they have probably profited from doing so," he said.
He said Taft-Hartley funds generally are more cautious about overseas investment, not wanting to support overseas jobs at the expense of U.S.-based ones.
Jack Marco, president of Marco Consulting Group, Chicago, said interest in international investing among union funds has waned with recent lagging returns.
From a pure investment standpoint, though, the allocation makes sense, consultants say.
"I would not call that aggressive, I would call that smart," said Scott Lummer, managing director for consulting firm Ibbotson Associates, Chicago.
Teamsters' fund 'innovative'
Besides its international exposure, the Central States fund is innovative in other ways, actively using stock and bond derivatives, currency overlay, an energy fund and commodity futures.
On Dec. 31, 1995, the fund had swapped the returns on $500 million worth of a high-technology stock index for the return on a like amount of a basket of U.S. Treasury debt securities.
Also at that time, Central States had shorted $400 million worth of the March 1996 S&P 500 Index futures.
Noted currency manager Pareto Partners, New York, is also on the fund's roster, earning $526,000 in fees in 1995.
The Teamsters fund invested $34 million in an energy fund, the TCW Debt and Royalty Fund V, which makes debt, royalty and equity investments in energy companies.
Central States also has a commodity futures allocation, using one or two managers (P&I, Jan. 22, 1996).
In its more conventional investments, the fund had an allocation of 42% to U.S. equities, 15.3% to U.S. fixed income and 6.5% in real estate-related investments. The TCW fund holds 0.2% of assets.
The highest paid managers in 1995 and amounts they received were: Putnam Investments Inc., Boston, $5.4 million; Trust Company of the West, Los Angeles, $2.9 million; Mellon Bank, Pittsburgh, $2.2 million; Provident Investment Counsel, Pasadena, Calif., $2.1 million; and Marvin & Palmer Associates Inc., Wilmington, Del., $1.9 million, probably one of its international managers.
The other probable international managers and their total fees for 1995 are: Brinson Partners Inc., Chicago, $1.3 million; Fiduciary Trust Co. International, New York, $1.1 million; Oechsle International Advisors, Boston, $855,000; Pictet International Management Ltd., London, $706,000; Genesis Asset Managers Ltd., London, $568,000; GT Capital Management Inc., (now Chancellor LGT Asset Management) San Francisco, $550,000; Rowe Price-Fleming International Inc., Baltimore, $473,000; and Boston International Advisors, $89,000.
Terminated in 1995 were Goldman, Sachs and Co., New York; Mitchell Hutchins Institutional Investors, New York; PanAgora Asset Management Ltd., London; and Miller Anderson and Sherrerd, West Conshohocken, Pa. Morgan Stanley purchased Miller Anderson that year.
Conflicting return data
The Form 5500 offers conflicting information on the fund's 1995 investment return.
One section indicates total investment income and return was $3.7 billion, which would result in a return of 28% gross of fees and expenses, when measured against its average net assets during the year.
Another section says the total of the net realized and unrealized gains and losses, and investment income was $2.8 billion, which would result in a return of about 21%, before fees and expenses.
The median fund in the Segal Advisors Multi-Employer Universe, reported a return of 26.2%. for 1995 gross of fees.
Very little has been known about the Central States fund because many groups have some type of oversight of the fund, but none has ultimate responsibility, and nobody will talk about it.
Morgan Stanley effectively makes investment decisions.
The U.S. government controls the fund through the Department of Labor and U.S. District Court Judge James B. Moran in Chicago.
The independent counsel, former Ohio Sen. William Saxbe, has oversight as well and reports quarterly to trustees on the fund's activities. (Mr. Saxbe was paid $276,000 in 1995 by Central States).
Trustees apparently have little power in the process, although they do use Cambridge Associates, Boston, to assist with their evaluation of Morgan Stanley's decisions, according to Mr. Saxbe.
