Some institutional investors have become quicker at slapping a manager with warnings or penalties if the manager exceeds plan guidelines.
Among the investors taking or considering action:
The $740 million Orange County Transportation Authority, Santa Ana, Calif., is preparing new guidelines for its managers after it suspended fixed-income manager BlackRock Financial Management Inc., New York, for one year for violating investment guidelines.
Officials at Ohio State University, Columbus, will tell one manager its risk control policies are inadequate and another that its policies and systems aren't sufficient, said James Nichols, Ohio State University treasurer.
Mr. Nichols said he has been monitoring the portfolios of the endowment's external managers using portfolio management and accounting software by Advent Corp., San Francisco.
The hint of potential risk for the California Public Employees' Retirement System triggered
Sheryl Pressler's request March 7 for a review of the fund's relationship with Nomura Securities Co. and Nomura Capital Management Co., New York. Ms. Pressler is chief investment officer of the $111 billion Sacramento fund.
CalPERS staff and consultant Wilshire Associates, Santa Monica, Calif., are expected to report to the board on the matter March 17, said fund spokeswoman Pat Macht.
Separately, the fund held a workshop recently for its board on risk control, and staff members are developing new risk control plans.
Fund-of-funds manager Frank Russell Trust Co., Tacoma, Wash., has beta tested Bankers Trust Co.'s new risk control product BT Sentinel and is leaning toward purchasing the finished product because of its tight restrictions on managers. Trust officials have noticed violation of guidelines in several instances.
Strong demand by pension funds for improved monitoring of managers has led New York-based Bankers Trust to develop a software client warning system and The Northern Trust Co., Chicago, to offer a second version of its compliance monitoring software.
Many pension funds are putting more emphasis on determining whether their managers have risk controls in place, said Hal Reynolds, a senior vice president at Wilshire in charge of the firm's executive information product, Compass.
And the increased emphasis by plan sponsors on determining whether managers follow guidelines and have risk controls comes with the wider availability of new analysis programs.
It's harder for money managers to hide under performance with the availability of new analysis tools, said Lisa Mazzacco, senior investment officer for equities for the Los Angeles County Employees' Retirement Association.
The $20 billion Los Angeles system - using monitoring tools from Vestek Systems, San Francisco, and Wilshire's Compass software - terminated Capital Guardian Inc., Los Angeles, last fall as manager of a $560 million large-capitalization domestic equity portfolio.
Los Angeles fund officials felt they weren't getting adequate investment return for the risk involved and the cost of active management fees.
Capital Guardian executives had no comment. The firm remains a manager of international equities and emerging market equities for the Los Angeles fund.
At Orange County, the suspension of BlackRock came after a clerk at the firm committed a keypunch error.
No money was lost, but the violation involved exceeding the fund's 5% restriction in investment in the commercial paper of any one issuer.
BlackRock had been warned about five earlier errors of various kinds, said Patricia Jukubiak, treasurer/manager for the transportation fund. BlackRock manages $132 million in fixed income for Orange County Transportation.
BlackRock's replacement is expected to be chosen March 25.
A spokesman for BlackRock acknowledged the errors and said his firm hopes to work again for the fund after the suspension.
At CalPERS, officials asked for the review of Nomura after learning from Nomura Capital that some Nomura Securities executives allegedly had illegally funneled money to some clients since 1995.
Nomura Capital manages a $740 million international equity portfolio for CalPERS. Nomura Securities owns a 5% interest in Nomura Capital and is a broker for CalPERS. The fund also holds 3.8 million shares of Nomura Securities.
The $8 billion San Francisco City & County Retirement System, San Francisco, is taking several steps toward boosting its risk management systems, said Carolyn Hamilton, chief investment officer.
Fund officials are installing the Alert compliance monitoring software offered by custodian Northern Trust; they are looking at doing mean variance semi-optimization studies that look at the fund's average deviation from a target; and they also recently tightened investment guidelines for domestic equity money managers, prohibiting them from investing in companies with headquarters in emerging markets. The fund does have emerging market managers.
Meanwhile, Frank Russell Trust, which manages $14 billion, probably will use Bankers Trust's new BT Sentinel to get information on its managers almost immediately.
Without monitoring software, it can take an investor weeks to get the information.
Mark Swanson, manager for finance and fund administration for Frank Russell Co., said money managers have exceeded Russell Trust's very strict international investment guidelines " in several instances."
"We've got some pretty tight guidelines" for minimum and maximum exposures to countries and industry exposures for global international managers, Mr. Swanson said.
Bankers Trust intends to offer BT Sentinel in the second quarter. The monitoring product is flexible in fashioning spot checks on money managers, said Mary Beth Philip, a senior product manager at Bankers Trust.
Northern Trust is releasing a second version of its Alert monitoring system.
The new version can drill down into portfolios to monitor bond portfolio durations, portfolio weightings in various industries and investment in particular categories, like "sin" stocks.
Plan sponsors want to avoid undue risk and protect their professional reputations. Also, many executives are worried about managers underperforming their performance targets, said Wilshire's Mr. Reynolds.
"Basically pension funds today have a big asset-liability mismatch," said Mr. Reynolds. He said that mismatch is the biggest risk funds face.