NEW YORK - Texaco Inc. executives say they're happy with the early results of their highly publicized minority/women money manager program.
Shelby Faber, assistant treasurer, oversees the $1.6 billion defined benefit pension plan. He said the new minority managers' portfolios all have performed "consistent with their benchmarks or ahead."
Texaco now has eight minority/women money managers. Seven were hired after the oil giant settled a $176.1 million discrimination lawsuit last year. With much fanfare, the company announced a five-year diversity program, vowing to increase the amount of business it would contract to minority companies. The other manager, WR Lazard & Co. in New York, was hired in 1988.
As of Aug. 1, around 12% of the pension assets, or $192 million, was managed by the eight firms.
Including the minority firms, Texaco's pension fund uses 20 money managers.
"We're pleased so far," Faber said. "It's really only been four months, because we gave them January and February to get fully invested."
The managers were chosen to use strategies that would better balance Texaco's allocations, explained Mr. Faber.
In equities, Ariel Capital Management, Chicago, was selected for its small-cap value approach, and Brown Capital Management Inc., Baltimore, for midcap growth.
In fixed income, Texaco hired NCM Capital Management Group, Durham, N.C., to invest in an index fund that is measured against the Lehman Aggregate Bond Index. Fixed-income managers Payden & Rygel, Los Angeles, and Smith Graham & Co., Houston, are measured against the Morgan Stanley Global Government Index. Previously, decisions about global bond investments were made in-house.
Other fixed-income managers in the program include Hughes Capital Management Inc., Washington, and Utendahl Capital Management L.P., New York.
Texaco also hired Chapman Co. of Baltimore to make venture capital investments in women- and minority-owned businesses. Details on those investments could not be learned.
Managers' performances will be judged over a market cycle, which runs around three years, Mr. Faber said. "We expect them to match or outperform their benchmark."
At this time, there are no plans to give the eight managers more money, or to hire additional minority- or women-owned firms. But Texaco officials have interviewed several, to be prepared in case a change needs to be made.
Mr. Faber said the program likely will spur other pension funds to consider similar policies. "We have gotten good feedback from other firms about our approach, along with a number of inquiries about who we hired and how our review process worked," he said.
The managers, meanwhile, say Texaco is a great name to have on their client list, a name that could lead to more business.
Hughes Capital Management, which is managing $15 million for Texaco, has added $100 million in new business since getting that account, said Frankie Hughes, principal. Hughes now has $275 million under management.
"Every new relationship helps the business," said Ms. Hughes, who started her firm four years ago after running the asset management business at WR Lazard, where she worked on the Texaco account. New clients include the defined benefit plan of the Baltimore Retirement Systems.
By overweighting corporate BAA rated bonds of financial and industrial businesses, the portfolio she runs for Texaco is up 3.12%, or 40 basis points ahead of the Lehman Aggregate Bond index, for the first six months of the year, she said. Texaco is very easy to deal with, she said.
Mellody Hobson, senior vice president at Ariel, said: "Their example will provide for non-traditional thinking in minority purchasing where it's often overlooked. Even though there has been significant movement in minority hiring, there's still a ways to go. Texaco has become a leader in this."
Ariel, which has $1.7 billion under management, also invests for the pension funds of Ford Motor Co. and AT&T. All of its funds, which buy small- and midsized out-of-favor stocks, gained 15.1% for the first six months of the year through June 30, she said. The Russell 2500, its benchmark, rose 11.3% for the period, she said.
"Our strategy is to focus on 'consistent businesses,' which people buy over and over," said Ms. Hobson. Top performers in the group include Central Newspapers Inc., Herman Miller Inc. and Rouse Co.
Despite the success at Texaco, minority- and women-owned money management firms don't seem to be making much progress.
Only 3.2% of searches for U.S. defined benefit plan managers in the first half of 1997 involved minority firms, said David Eager, managing director of Eager & Associates, Louisville, Ky., which tracks money manager placements.
By contrast, 5.1% of the searches in the first half of 1996 involved such firms.