NEW YORK -- General Motors Corp. is launching new models in both its defined contribution and defined benefit plans.
GM has restructured and expanded its $16.6 billion 401(k) plan for salaried employees, adding 15 investment options managed by General Motors Investment Management Co., which oversees the company's pension funds, supplementing those offered by Fidelity Investments, and raising the total to 71.
At the same time GMIMCo, which oversees the $73.3 billion in defined benefit assets, is increasing its exposure to international private equity, and might double it.
The new defined contribution program, which took effect Jan. 11, offers a range of choices created by GMIMCo. The new options are being marketed under the name Promark Funds. The program also includes an improved Web site, and increased communication and investment education.
Mike Klehm, managing director in charge of 401(k) programs at GMIMCo, said the options have been reorganized as Pathways One, Two and Three, to simplify participants' investment decisions.
Pathway One is a series of lifestyle funds designed for participants who don't want to spend much time on their investments or who might not have much confidence in their investment abilities.
Pathway Two is geared to people who want to be more involved, offering a range of more specialized options under the name Promark (e.g., Promark Large Cap Index, Promark Large-Cap Growth, Promark Mid Cap Growth), and including international and real estate options.
Pathway Three consists of the 49 Fidelity funds GM has been offering employees since 1995, but they have been re-grouped according to investment style. Pathway Three requires more active involvement by participants, who would need to keep up with changes that might occur at Fidelity, Mr. Klehm said.
"We wanted to make our manager expertise and ability to select managers available to our defined contribution participants," he added. To do that, GMIMCo took the Promark fund portfolios in which the defined benefit assets are invested and unitized them, so the options could be offered to other clients such as 401(k) participants.
Each fund has several outside managers, which are selected and monitored by GMIMCo officials, Mr. Klehm said. "We set the asset allocation in each strategy. In a large-cap growth fund, for example, we may use three or four managers who invest in that style. The asset allocation is based on how the returns of the various managers will interact over time, while also paying attention to risk." GMIMCo also manages $7.8 billion in defined contribution assets for hourly employees. The new program will be offered to hourly employees when the next contract is negotiated, Mr. Klehm said. The enhanced 401(k) program now covers 113,000 participants, including salaried employees and retirees.
GMIMCo is also considering whether to offer its new funds to outside clients, Mr. Klehm said.
Fidelity Investments is an important partner in the new 401(k) program, Mr. Klehm said. In addition to continuing to provide investment management services on its funds, it will handle all record keeping for both Promark funds and Fidelity funds and all communications.
GM also is revamping its communications program, with the help of consultant Optima Group, Fairfield, Conn., and Fidelity. This includes the launch of a new quarterly magazine, Pathways, to explain the investments and the philosophy behind them. The Web site also is undergoing a redesign, using a format consistent with the magazine.
More investment education is also in the works for employees through on-site workshops. But there are no plans to increase advice to employees beyond what is currently available as general financial planning through AYCO, for which employees pay a modest fee.
Private equity boost
In the defined benefit area, GMIMCo, which manages a total of $100 billion in pension and insurance assets, has more than $300 million in international private equity, or about 10% of the $3.2 billion in private equity commitments, according to John Clark, alternative investment portfolio manager.
One intention is to "diversify geographically," Mr. Clark said.
Speaking earlier this month at a San Francisco conference sponsored by the Association for Investment Management and Research, Mr. Clark said GMIMCo is "looking to grow the (international) portfolio over time" to 20% to 25% of the total private equity commitment.
Most of GMIMCo's international private equity investing is done through funds, he said. But there are direct investment opportunities in Europe.
Mr. Clark concedes GMIMCo isn't alone in its attention to Europe.
"The large players in the United States -- KKR and Warburg Pincus -- are setting up shop in Europe. They think Europe will replicate the U.S.," he said.
Target Asia, Latin America
GMIMCo has set its sights also on Asia and Latin America.
So far, it has invested $100 million in private equity in Latin America and Asia, with "only a couple" of deals in each region. That could soon total between $150 million and $200 million, with the number of deals doubling, Mr. Clark said.
Economic trouble in Asia has led to changes in private equity deals there, he said. There's "a drop in valuations in public and private markets. Now fund sponsors can have majority control over companies."
Whether at home or abroad, GMIMCo is attracted to the returns private equity has to offer, Mr. Clark said. "The growth in private equity has been dramatic in recent years because of the returns."
GMIMCo's returns between 1992 and 1996 "consistently outperformed by a few hundred basis points" the benchmark provided by the industry publication Venture Economics, Mr. Clark said. Over that five-year period, private equity returns ranged between 20.3% and 21.4%, he said. He would not comment on more recent returns.
GMIMCo committed $1.3 billion in 1998 to private equity partnerships, he said.
"We can grow to $4.5 billion, but there's no rush. We'd like to grow it north of $4 billion."
About 30 domestic and international private equity deals currently are under consideration, "20 with funds, and 10 direct," he said.
GMIMCo is "increasing exposure to venture capital," he said, although he stressed this was "difficult because deals and funds aren't there." GMIMCo has more than 100 venture capital "relationships" in its portfolio, Mr. Clark said.
By contrast, GMIMCo wants to "decrease its exposure to large buyouts," he said. "We're concerned we're overweight there." It would do more with smaller buyouts, he said.
GMIMCo will most likely add to its private equity staff, he said. It currently has eight investment professionals in private equity and, "over time," may add two more. It has one staff member in Europe.