HARTSVILLE, S.C. - The $500 million Sunoco Products Co. pension fund hired SEI Investments Co.'s Asset Management Group to manage all of the fund's active equities in a manager-of-managers program.
Sunoco will assign SEI more than $200 million, an amount that could increase depending on the outcome of a pending asset-liability study.
Among the changes to its pension fund, Sunoco:
Dropped its individual active equity managers - First Union National Bank of North Carolina Capital Management Group, Charlotte; Grantham Mayo Van Otterloo & Co., Boston; and Frank Russell Investment Management Co., Tacoma, Wash.
Switched passive equity and passive fixed-income managers, moving to State Street Global Advisors, Boston, and dropping Bankers Trust Co., New York.
Dropped Wachovia Corp., Winston-Salem, N.C., its master trustee, and Wachovia Asset Management, which handled cash and short-term investments. SEI will handle custodial services.
The fund will retain for now its three separate real estate managers and its enhanced index fund investment contracts, issued by two insurance companies.
Sunoco hasn't set its asset allocation yet. SEI, based in Oaks, Pa., is assisting Sunoco in preparing a major asset-liability study, according to Vicki Arthur, assistant treasurer. A decision on any changes could be made in October.
The fund likely will enter a new area - high-yield bonds - and expand its international equity allocation as a result of the study, Ms. Arthur said. SEI would control these new allocations, too.
Ms. Arthur declined to specify the fund's current allocation.
SEI has put the assets from Sunoco's previous active managers into various funds managed by managers in the SEI program.
"They are outsourcing responsibility for all active equity management to SEI," said Edward Loughlin, president of SEI Asset Management Group. "We will put them in global investments."
Edward J. Daly, Atlanta-based managing director of SEI Asset Management Group, said SEI "will have discretion in active management."
He said SEI will have complete discretion to hire and terminate investment managers for the Sunoco allocation.
The overall asset allocation, however, "will be set by a team approach" with Sunoco. "We will come to them with a recommendation (on allocation). Then we will work from there."
The ultimate asset mix of the SEI assignment could include some fixed income, such as high-yield bonds, depending on the allocation recommendation of the study.
Ms. Arthur said SEI will keep Sunoco's current equity style allocation for now, until the completion of the study. The styles are small-capitalization, growth, value and international. Some money also was placed temporarily by SEI into Standard & Poor's 500 futures contracts.
Sunoco's allocation to SEI came from First Union, a value manager; Grantham Mayo Van Otterloo, an international manager; and Frank Russell, a small-cap manager.
The asset-liability study also will determine how much of the fund will be divided between active equities and active fixed income under the SEI program and passive equities and passive fixed income managed by State Street.
State Street now manages four index funds for Sunoco: S&P 500; small-cap; Morgan Stanley Capital International Europe Australasia Far East; and a bond index fund.
The study also will determine how much the fund will continue to allocate to real estate. The fund has 5% in real estate equity, mostly with Equitable Real Estate Investment Management Inc. and smaller portions with Alliance Capital Management L.P. and NationsBank.
Sunoco likely will keep intact the enhanced index contracts until their expiration, at least one of which has two years until maturity. The contracts were issued by Pacific Mutual Life Insurance Co., Newport Beach, Calif., and Diversified Financial Products Inc., Louisville, Ky., a unit of the former Providian Corp., which recently was acquired by Aegon USA Inc., Baltimore. Some are tied to the S&P 500 index or to a Lehman Brothers bond index. The contracts provide a return that tracks an index plus a kicker over the benchmark. Further details were unavailable.
