NEW YORK -- General Motors Corp.'s in-house money manager has developed an unusual global tactical asset allocation program for part of the company's $70 billion defined benefit plan.
General Motors Investment Management Corp. so far has allocated $1.5 billion to global TAA. GMIMCo's investment strategy and asset allocation group, which manages the program, has:
* Hired four firms to manage global TAA portfolios and created a fifth to be managed in-house. Each portfolio was funded at $200 million, for a total allotment of $1 billion. Outside managers hired were: First Quadrant, Pasadena, Calif.; Goldman, Sachs & Co. Asset Management Division, New York; Mellon Capital Management, San Francisco; and Morgan Stanley Asset Management Inc., New York. Portfolio manager Paul Platkin handles the in-house fund.
* Added another $500 million global TAA portfolio that is managed collectively by the five managers.
* Begun to examine how much of this process can be more broadly applied.
"We're trying to see if there are ways we can leverage results of the program to benefit the entire $70 billion defined benefit fund," said R. Charles Tschampion, managing director of investment strategy and asset allocation group.
This third phase could be the most challenging, Mr. Tschampion acknowledged, since the fund invests in a number of asset classes less liquid than marketable stocks and bonds.
Nonetheless, expansion of the program carries interesting prospects. "To the extent that we get the process right, over time we will get value-added return," he said.
The company is exploring whether it's possible to make TAA decisions for the entire $70 billion fund, he said.
Already, global TAA has produced a "satisfying" outperformance above its designated benchmarks, Mr. Tschampion said. He would not specify results.
Compensation for the global TAA managers is based on their performance. The managers invest in the securities of developed markets around the world. Besides listed stocks and bonds, they can use futures contracts, a basket of country funds and forward contracts in the currency market. But they cannot take short positions in markets, and their allocations cannot stray far from those of designated benchmarks.
Their benchmark is 60% of the Morgan Stanley Capital International World index for equities and 40% of the Salomon Brothers Global Bond index for bonds.
Still, there are restrictions. For exposure to larger developed markets, for example, weightings cannot be more than 10 percentage points different from their benchmark exposure, and for smaller markets, no more than five percentage points different.
The process is "totally top-down," and the goal is to add value by "overweighting the markets that outperform and underweighting" the laggards, Mr. Tschampion said. He would not say how the portfolios are invested.
For the $500 million group portfolio, the strategy starts with a proprietary in-house process that combines views of the individual managers into what Mr. Tschampion calls "a starting point for investment." Then, in quarterly meetings, the five managers further discuss and refine the portfolio's strategy.
Mr. Tschampion acknowledges the use of global TAA by big corporate pension funds is not new. In 1995, GTE Investment Management, Stamford, Conn. -- manager of GTE Corp.'s pension plan -- created a much-talked-about variation it called a strategic partnership program, giving four money managers at least $1 billion to invest, using strategies customized for GTE.
But, Mr. Tschampion said, GMIMCo's approach is different. For instance, "We're only involving 3% to 4% of the fund's assets, whereas I understand GTE's program incorporated one-third of assets."
For GM, the global TAA program is intended to contribute to the overall strategy of lowering risk and costs, while providing more consistently positive returns, and to a more disciplined approach overall. Instead of looking for occasional home runs, the fund is seeking reliable, predictable singles and doubles from all its managers -- preferably with the best hits coming at different times, to smooth overall returns.
So far, GM is getting its wish. According to Mr. Tschampion, the global TAA specialists have "generated returns in different patterns at different times. However, that hasn't meant one manager's strategy has been consistently different from another."
"We had an idea for an amalgamation of external and internal management. It was an idea that Allen Reed (GMIMCo's president), myself and people on our team brought to a reality."
Mr. Tschampion also noted reducing GM's stable of managers was not one of the goals. "But there should be a reason for which each is employed," he said.