In your Feb. 23 edition, Joel Chernoff wrote in a page 1 story that an equity swap arrangement between the Ontario Teachers' Pension Plan Board of Toronto and Stichting Pensioenfonds ABP of the Netherlands is "believed to be the first ever direct equity swap between two pension funds."
In fact, we know of at least one previously announced equity swap, this one between pension fund managers in Quebec and France. In September 1996, the Caisse de dep"t et placement du Qubec publicly announced a $50 million equity swap agreement with the Paris-based Caisse des dep"t et consignations de France.
Under the terms of the agreement, each partner invested $25 million in small-cap equities traded respectively in Canada and in France and other European countries. The payout schedule called for disbursements to the opposite member at the end of 1997, 1998 and 1999.
Senior adviser, public affairs
Caisse de dep"t et placement du Quebec
TIAA-CREF on indexing
I read your Feb. 23, page 1 article about indexed assets with interest. Your efforts to tabulate the assets managed in this fashion are a great service to the investment community. I notice, however, we were omitted from the enhanced index listing. Undoubtedly we failed to let you know that most of what is indexed at CREF is enhanced indexed. As of the end of last year, in CREF's main account, the Stock Account, our enhanced index position on the domestic side came to $66 billion, plus $4 billion on the international side. The combination of these two would have handily placed us, I am delighted to point out, in the No. 1 spot.
We appreciate Pensions & Investments' continued excellent news coverage and commentaries, and look forward to being an even more helpful information source in the future.
Martin L. Leibowitz
Vice Chairman and Chief Investment Officer
Teachers Insurance and Annuity Association
College Retirement Equities Fund
401(k) employer stock
Regarding the corporate 401(k) plans special report story "Employer stock plays a big role in investment" (Pensions & Investments, March 9, page 19), consider the question: Would a fund sponsor or adviser recommend an allocation resulting in 28%, 33%, 45% or even 88% of its assets in a single stock for the defined benefit plan as some defined contribution plans are reported to be invested? Of course not.
In fact, sponsors have taken an increasingly activist role in matters related to participant investing. Witness the employee education programs that have been developed to teach about diversification, risk and return, volatility and other market precepts. These programs have largely succeeded in thinning the balances once amassed in stable value funds and now spread more evenly into equities. In this context, one suspects that, secretly at least, not many plan sponsors can be comfortable with participant overweighting in company stock.
So why is there no outcry over so obvious a skewed allocation? Our discussions with sponsors point to a reluctance to appear disloyal to the company by suggesting that employees limited their holdings. Afterall, in almost all cases the CEO's compensation is heavily tied to the performance of the stock. Furthermore, the concept of aligning interests with shareholders down to the shop floor level has inherent appeal. Employees will be motivated to work harder, the argument goes, if they have a financial stake in the company.
How then to explain to employees, the markets irrationality? Reporting on third quarter 1997 financial results for Ford Motor Co, the Wall Street Journal headline of Oct. 16, 1997, read: "Ford's profit soared 64% in third period to record levels, beating expectations." Sorry employees, reading further finds that Ford stock dropped in heavy trading. Huh? Unfortunately, the financial resources of the CEO and the average employee to weather a downturn in the company's share prices are vastly different.
Quoted in your article, David Wray says that workers in larger plans that have used company stock have been "tremendously rewarded" and the company stock should be viewed in the same manner as other selections in 401(k) plans. Come again? While the rewards may, in fact, have been there, it is patently obvious that the risk profile of a single stock is simply off the charts.
But, of course, a booming market hides many sins. In the long run, prudent diversification is probably not something that plan sponsors or employees should bet against.
Jeffrey B. Norris
Guaranteed Products Marketing
Metropolitan Life Insurance Co.
Small plans: We want you
While large defined contribution vendors may be turning their backs on new business (Pensions & Investments, "Tiny DC plans go begging," April 6, page 3), there are some who actually welcome the new plan startups. The new plan market is, in fact, very different. It does require more patience, more availability and the answers to many, many more questions.
Magna Trust in St. Louis specializes in new 401(k)s. Approximately 45% of new business results are new 401(k)s. We do not charge startup expenses of any kind.
If the folks at Sundt Corp. had asked about our Smart K, they would have learned about our alliance of 16 (and growing) mutual fund families, our state of the art record-keeping platform with voice response system and our formalized and ongoing commitment to employee education. All at no startup cost!
We see most corporate startups with 50 to 500 employees, as well as many unions initiating plans. If the large providers don't want to dabble in this market, that's fine; many of us do. And we even like plans with existing assets! Meet us in St. Louis!
Joseph W. Delleville
Vice President-401(k) Product Manager
Oppenheimer and Babson
In the April 6 issue featuring full-service defined contribution providers, MassMutual Retirement Services' profile was missing two key components: our highly regarded investment subsidiaries OppenheimerFunds Inc. and David L. Babson & Co. Inc.
While MassMutual Retirement Services has established alliances with several of the industry's top fund companies, we mistakenly omitted -- but are no less proud of -- our two proprietary investment companies.
OppenheimerFunds is one of the nation's largest money managers, currently offering more than 40 mutual funds, and has extensive experience in managing mutual fund assets for individuals and institutions. David L. Babson & Co. is a well-known institutional money manager specializing in managing assets for some of America's largest pension funds.
By combining the strength of our alliances, OppenheimerFunds and David L. Babson & Co., and MassMutual's own expertise in fixed-income money management, we believe our Concert Investment Program is one of the most diversified and sound in the business.
Director, Public Relations
MassMutual Retirement Services
In the special report on software and other technology solutions used by investment manager (Pensions & Investments, April 20), we were pleased to see that the BondEdge system from Capital Management Sciences was cited more often than any other software product as the preferred tool for fixed-income portfolio analysis.
We also appreciate the opportunity you reporter gave us to respond to a criticism of the Help Desk which provides technical support to our clients. The article accurately reflected the fact that we have recently expanded our Help Desk to include not only assistance with technical issues, but also to support clients in using and interpreting the analytical functions in the system.
However, we would like to clarify an important point about the issue of client support. In addition to the Help Desk, each one of our BondEdge clients always has been assigned a senior client support representative who makes on-site visits regularly to ensure that our clients have access to all of the analytical expertise they require.
We believe that our newly-expanded Help Desk, along with continued hands-on support from our senior client staff, will provide our clients with the best of both worlds -- a fast, complete response to telephone inquiries and personalized assistance from the senior members of our team.
Laurie S. Adami
Chief Operating Officer
Capital Management Sciences