COLUMBUS, Ohio -- The $7.2 billion Police and Firemen's Disability & Pension Fund of Ohio terminated its five active large-cap equity managers in a move to consolidate managers and bolster indexed equities.
The five terminated firms, which managed $1.35 billion of the fund's $3.1 billion domestic equity portfolio, are: growth managers Bond, Procope Capital Management, Atalanta/Sosnoff Capital and Value Line Asset Management, all of New York; value manager Lakefront Capital Investors, Cleveland; and value-oriented core manager Oppenheimer Capital, New York.
Searches are under way for an active large-cap growth manager, an active large-cap value manager, and domestic equity index and foreign equity index managers.
The large-cap managers will manage $500 million each; the Standard & Poor's 500 stock index manager, $1 billion; and the Morgan Stanley Capital International Europe Australasia Far East index manager, $290 million. RFPs are due March 13.
The fund now has $744 million in domestic index and $290 million in EAFE index funds with Bankers Trust. Bankers is expected to bid for the new indexed accounts.
Ohio Fire & Police's domestic equity mix before the changes take effect is 12% equal-weighted S&P 500 index, 12% cap-weighted S&P 500 index, 21% core active portfolio, 0.3% active large-cap value, 22% active large-cap growth and 32.7% small-cap equity.
The new portfolio structure will eliminate active core equity management and increase the indexed portion to 36% from 24% in a strictly cap-weighted portfolio.
Of the equity portfolio, large-cap active management will decrease to 34% from 43.3%.
The Plexus Group will be advising the fund on the transfer process.
Allen Proctor, executive director of the fund, said that after the changes, "we believe we will reduce our beta and raise our alpha."
Performance was the main reason the active large-cap managers were terminated, said Mr. Proctor, who joined the police and firemen's fund in May.
Oppenheimer's investment style also was a problem, Mr. Proctor said, because the firm was viewed as an enhanced core manager instead of a pure large-cap value manager.
Oppenheimer manages $640 million for the Ohio fund. Joe Rusbarsky Jr., director of client relations and marketing, said the firm did not perceive the termination as performance related, but more of a shift of investment policy. He did not comment on the firm's performance.
Mr. Proctor also cited "management-related issues" for the termination of Value Line.
Alan Hoffman, senior portfolio manager of Value Line, acknowledged performance was a problem, but said his firm's $325 million portfolio was hindered by the pension fund's restrictions on trading and purchasing of stocks in the late '80s and early '90s.
The fund started a review of the portfolio last month after approval of a new monitoring system. The new system was used in the decision to terminate the managers.
The investment managers attributed the move to turnover of the fund's board and to the fund's new administration, as well as to consultant Wilshire Associate Inc.'s overall emphasis on indexing of large-cap portfolios.
Mr. Proctor believes the board gave the managers the benefit of the doubt. He said most of the managers' performance records were not in the top half for the three-to-five-year period considered in the review. He added most of the board's turnover took place three years ago.
Dennis Sugino, vice president and principal at Wilshire, said "Our belief is that the large-cap segment is largely efficient. It's very difficult for managers to beat the index." The decision to terminate was based on the managers' failure to meet investment objectives and attain the performance of their peers, he said.
One money manager, who asked not to be identified, said it looked as if board members already had decided what they would do when they met with money managers Jan. 21: "We were never notified of performance concerns."
Nate Carter is president and chief investment officer of Lakefront, which manages $9 million for the Ohio fund.
"We are disappointed their decision was what it was, but we believe the day of the stock picker has come," he said, referring to his firm's investment approach.
Alan Bond, chief investment officer at Bond Procope, said his firm ranked in the second quartile for the past two years. The firm runs $94 million for Ohio.
Officials at Atalanta/Sosnoff would not comment on the termination.