Federal Reserve Board Chairman Alan Greenspan today told lawmakers he expects inflation will rise next year, to between 2.5% to 3% and he anticipates the Fed will need to tinker with interest rates to keep inflation in check. He also anticipates the economy will slow down next year, to a 2% to 2.5% increase in the GDP from 3% to 3.25% now.
``With considerable momentum behind the expansion ... the Federal Reserve must be alert to the possibility that additional action might be called for to forestall excessive credit creation,'' he said.
Opening arguments were given today in Harris Trust and Savings Bank vs. John Hancock Mutual Life Insurance Co.
Harris, the master trustee for the Unisys Corp. pension fund, is trying to recover more than $50 million on behalf of the fund. Harris claims the insurer mismanaged millions of dollars in plan assets. The plaintiffs' attorney said they would prove that excess assets of a group annuity contract are plan assets and Hancock violated ERISA when it invested that money in ``loser investments.'' Hancock's attorney said the pension fund became an equity investor in Hancock when it bought the GAC and shareholders can't direct the use of their assets in an operating company.
ConAgra Inc., Omaha, Neb., is beginning asset-liability and asset allocation studies for its $1.2 billion pension fund, said Douglas Fehr, manager-short-term funding. Among issues, he said, ``We're trying to see if we need more small-cap exposure or more international exposure.'' But he noted the studies might point to other allocation areas as well.
The fund now has 55% in U.S. equities - including 5% in small-cap - 5% in international stocks, 30% in bonds, 5% in venture capital and 5% in cash. Mercer is assisting the studies, which the fund hopes to complete in the fall.
Pillsbury Co., Minneapolis, is considering adding investment options for its $600 million 401(k) plan, said John E. Bohan, vice president-pension investments. Among other possibilities, it is considering offering an international equity fund. The plan is looking at both American Express, which provides its investment funds now, and other providers. It hopes to make a decision by the end of the year. The plan has four funds now - fixed-income, S&P 500, growth equity, value equity - and also company stock and a self-directed brokerage option.
The median active stock manager in PIPER's commingled universe underperformed the S&P 500 index for the quarter and year ended June 30. The median fund returned 16.2% for the quarter and 29.4% for the year, compared to returns of 17.5% and 34.7%, respectively, for the index.
Among equity categories, value stocks did best for the 12 months, but worst for the quarter. Large-cap value stocks' median fund returned 30.4% and small-cap value's median fund returned 30.2% for the year. For the quarter, the median large-cap value fund gained 14.9%; the small-cap value median fund, 15.6%.
Among commingled bond funds, the median commingled overall bond fund returned 3.5% for the quarter and 7.8% for the year, compared to the Salomon Broad Bond Index, which returned 3.6% and 8.2% for the periods respectively. The median limited duration commingled bond fund fared the worst, returning 2.2% for the quarter and 6.6% for the 12 months. The median broad market bond fund showed the best performance with 3.7% and 8.3%, respectively, for the same periods.
The PBGC plans to take over two pension plans of Edgewater Steel Co., Oakmont, Pa., that cover about 1,000 workers and pensioners, and are underfunded by about $22 million. The plans have assets of about $28 million, and liabilities of about $50 million. Edgewater terminated its plans when it filed for bankruptcy court protection March 21.
Teamsters Negotiated Pension Plan, Local 688, St. Louis, restructured the external management of its $160 million pension plan, said Richard Diffley, union trustee. Hired were: Boston Co. for $21 million in large-cap value equity, Montag & Caldwell for $21 million in large-cap growth, and ARM Capital Advisors for $20 million in core bonds. Funding came from reducing Boatmen Capital's assignment to $28 million in dedicated bonds, and $14 million in active duration bonds.
Trade Street, the NationsBank unit that took over Boatmen's equity portfolios, was terminated; it ran a $15 million equity portfolio for the fund. Mississippi Valley Advisors, which ran $15 million in bonds for the fund, also was terminated. MVA was terminated because trustees wanted greater diversification, not for performance reasons, he said. Nicholas-Applegate and Investment Advisers Inc. were retained as small-cap and midcap managers, respectively. Asset Strategy Consulting assisted.
Northern Indiana Public Service Co., Hammond, Ind., hired Provident Investment Counsel to run $39 million in small-cap growth equities for its $870 million pension fund, said Gary Pottorff, manager-financial operations. Funding is from Investment Advisers Inc., also a small-cap manager, which was dropped. LCG assisted