SEATTLE -- Staff at The Casey Family Program outsourced management of $1.4 billion of the foundation's assets to Frank Russell Co.
The $2.2 billion Seattle-based foundation gave Russell control and responsibility for the selection, hiring, firing, monitoring and day-to-day management of outside managers for domestic equity and fixed income assets.
This frees staff to concentrate on the foundation's mission: assisting children who need out-of-home foster care in 13 states, mainly in the western United States.
Russell has been the foundation's investment management consultant for some time, assisting with investment policy, asset allocation and manager search and selection.
But board members decided that managing the managers was taking up too much staff and board time and "the board realized it could be more effective looking at returns, rather than mechanics. The board is taking a higher-level view now of the investment management process," said Katherine K. Anderson, chief financial officer.
"We're holding Russell totally accountable for the returns on the portfolio," Ms. Anderson said.
Russell should be able to get economies of scale with the managers it selects for the Casey foundation because it works with so many other pension fund clients, Ms. Anderson said, and can improve the returns and efficiency of the fund.
Manager of managers
In managing the $1.4 billion Casey Foundation domestic equity portfolio, Russell consultants are using some of the managers and styles from Russell's well-known manager-of-managers funds.
The board retained control of asset allocation and oversight of the managers of international equity, real estate and private equity.
The foundation was started by Jim Casey, founder of United Parcel Service, and holds a large percentage of UPS stock, which is classified as private equity.
Ms. Anderson said Russell has terminated a number of managers since it took over management of the domestic equity and fixed-income portfolios in July. Ms. Anderson stressed that managers were not terminated for performance reasons.
She deferred to Russell consultants when asked about both the new and terminated money managers.
Russell consultants declined to identify the managers "because we have to continue to work with them," said Kelly Haughton, director of client services at Russell.
Bryan Weeks, managing director of Russell strategic account services, said Russell's primary goal was to enhance the Casey foundation's manager lineup and to improve risk control of managers vs. their respective benchmarks.
Some of Russell's structural work included:
* Adding substyle diversification to the fund, such as adding consistent growth and earnings momentum within the growth portion of the portfolio and adding a small-cap value manager);
* Reweighting manager assignments to control key portfolio risks vs. the benchmark in areas relating to capitalization size, sector weights, style characteristics and volatility;
* Changing manager assignments and some manager benchmarks to achieve risk controls;
* Changing the benchmark for the passive portion of the domestic equity portfolio to the Russell 1000 Value index from the Standard & Poor's 500 index.
The broad asset class weightings were barely changed. The foundation's asset allocation is 42% U.S. equity, 8% non-U.S. equity, 25% UPS stock, 5% private equity, 19% fixed income and 1% real estate.