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October 13, 1997 01:00 AM

FRONTLINES: HITTING THE BOOKS: ABCS OF NYSE, NASDAQ, ETC.

Vineeta Anand
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    The state of West Virginia has permission, but not the know-how to invest in stocks.

    The passage of a statewide referendum Sept. 27 allows the state to invest in stocks for the first time. The new law permits the state to invest up to 20% of its money in stocks within the first year, up to 40% by the end of the second year, and up to 60% of all its money in stocks thereafter.

    But David H. Gardner, chairman of the investment committee for the West Virginia Investment Management Board, doubts the fund will be ready to move into equities within a year because state officials have a lot of homework to do.

    Of paramount importance, he says, is educating the 13-member, Charleston-based board - 10 elected members, as well as the state governor, state auditor and state treasurer - on equity investing, and what it entails. Then the fund needs to develop a framework for making those investments.

    The fund also will ask the state actuary to perform an asset-liability study to assess the state's pension liabilities, he said.

    The board is searching for an investment consultant to help the approximately $4.3 billion fund. Candidates will to be considered at the board's Oct. 14 meeting, Mr. Gardner said. He expects the initial consultant will be responsible largely for educating the trustees, and for drawing up an investment policy.

    The fund also will need to examine such issues as whether to hire outside managers to run the equity investments, or manage them internally; and whether to invest in actively managed portfolios or simply in the broad market indexes, he said.

    "The present structure of the staff is solely to act as a conduit for fixed-income managers," he said.

    Finally, the fund will need to conduct an asset allocation study to figure out how much to invest in stocks, and when, and to hire managers to make those investments. The fund also will look at establishing procedures for overseeing the performance of the managers hired to make the investments, he said.

    But Mr. Gardner anticipates the fund will hire a general assignment consultant first, and then hire a separate consultant to actually search for managers and evaluate their performance.

    "Remember that 49 other states have dealt with this a lot longer than we have, so it's prudent to look for a generalist."

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