CASH FLOWS SLOWING TO STABLE-VALUE FUNDS
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December 14, 1998 12:00 AM

CASH FLOWS SLOWING TO STABLE-VALUE FUNDS

Susan Barreto
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    After a brief moment in the sun, stable-value managers are once again seeing cash flows heading south in the shadow of a rising stock market.

    But even as the market hit new highs last month, the managers still see a silver lining for their accounts.

    Firms that experienced as much as a 30% boost in transfers to stable-value accounts in August and September are now reporting flat or negative cash flows as participants apparently regain confidence in the U.S. stock market.

    At PRIMCO Capital Management, Louisville, Ky., the amount of cash flow as a percentage of total assets moved from 2% in August to -0.3% through Nov. 11. The firm manages a total of $21 billion.

    "It's a big enough slice that we can see a shift," said Kim McCarrel, portfolio manager for the firm.

    Kathleen D. Rooney, vice president and stable-value portfolio manager at New York-based J.P. Morgan Investment Management, said it's not the severe negative cash flow managers have seen in other times. It's more rationalized, she said, adding that right now it's hard to say which individuals are doing the moving.

    "You probably aren't going to see the decline we have seen in the past because that was due to employees adding options and education," Ms. Rooney said.

    She and her colleague Alexander Y. Fitzburgh, vice president and head of the stable value team, agree movement in cash flows is a reflection of the equity market.

    In an analysis of the firm's clients, one plan that had positive inflows to its stable value option of 3.94% at the end of August had a -0.75% cash flow as of Nov. 20.

    Another plan also illustrated a drop in stable value transfers from 0.62% in October to -0.82% in November. The plan had been posting positive numbers in August and September.

    When looking at individual plans it's important to note the number of retirees in the plan (because they are less likely to chase equity returns) and whether the plan offers a stock option, Ms. Rooney added.

    In both plans, there were positive inflows in the month of October. Ms. Rooney said this could be due to participants reacting to their account balances at the end of September.

    J.P. Morgan manages $10.7 billion in stable-value products.

    Smaller firms also noted a shift.

    Galliard Capital Management, Minneapolis, has seen virtually flat cash flows and, with several clients, slightly negative cash flows, said Karl Tourville, managing partner. Of the $3 billion Galliard manages in stable value, the firm saw net inflows of about $3.5 million from the end of September through Nov. 14.

    Peter Bowles, president and chief investment officer of Fiduciary Capital Management, Woodbury, Conn., said that even though cash flows have flattened, they still are better than six months ago. "As maturities come due we know we will have money to reinvest, and that wasn't the case six months to a year ago," he said.

    FCM, with $1.3 billion under management, has flows ranging from flat to moderately positive. Mr. Bowles declined to give specific numbers.

    Participants simply had their confidence shaken with the downturn in the market in August and September, Mr. Bowles said.

    New York-based Bankers Trust Co.'s Eric Kirsch agrees. As managing director overseeing stable value, Mr. Kirsch has noticed participants "are not running back into equities."

    Bankers Trust's stable-value cash flows have been flat the past month to month and a half, which still remains better than flows earlier in the year, he added. Bankers manages $12.5 billion in stable value.

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