Money managers running global balanced and global tactical allocation strategies are having mixed success in 1999 keeping -- and finding -- U.S. pension fund clients.
UBS Brinson, Chicago, for example, is losing two sizable global balanced accounts, a $1.4 billion portfolio from the California Public Employees' Retirement System, Sacramento, and a $1.3 billion portfolio with the Teachers' Retirement System of the State of Illinois, Springfield.
J.P. Morgan Investment Management Inc., New York, has seen a $2 billion drop this year in the total assets in its global balanced fund for U.S. retirement plans, endowments and foundations, said Christopher Durbin, chief global investment strategist. The firm now runs $16 billion in global balanced funds for U.S. institutional clients.
(In a global balanced portfolio, the manager controls the underlying assets, such as stocks and bonds. In global TAA, the manager runs an overlay on assets using futures and derivatives.)
But other managers have seen some gains. Mellon Capital Management Corp., San Francisco, has won two global balanced mandates and one global TAA mandate totaling $750 million from U.S. corporate pension plans, said Tom Hazuka, chief investment officer.
Bridgewater Associates Inc., Westport, Conn., also has seen greater interest in global TAA from corporate pension fund clients, said Bill Mahoney, director of global marketing. It has won three accounts totaling more than $600 million during the past 12 months, and now has $2 billion in assets in its "pure alpha" strategies, which are asset overlays on top of equity and fixed-income indexes, he said.
Global funds in general, from balanced to global stock and bonds, are proving a hard sell to U.S. tax-exempt investors.
Searches for global managers of any stripe have dropped substantially, according to Eager Manager Advisory Services, Louisville, Ky.
In the first three quarters of 1998, Eager tracked 24 hirings for global managers. For the same period this year, Eager recorded 14.
And consultants at Watson Wyatt Investment Consulting and BARRA RogersCasey Inc. said they had not handled any searches this year by U.S. pension fund clients for global balanced or global TAA managers.
A key problem for global balanced managers is they can't match the high-flying returns of the Standard & Poor's 500 index, which was up 27.8% for the 12 months ended Sept. 30.
For the same period, Brinson's global securities portfolio returned 8.2%; J.P. Morgan's global balanced portfolio was up 12%; Mellon's global TAA portfolio was up 21.6%; and Bridgewater's pure alpha strategy increased 26.9%, according to the Pensions & Investments Performance Evaluation Report.
Large pension funds such as the $156 billion CalPERS and the $22 billion Illinois Teachers don't want their managers to make asset allocation bets. Dropping Brinson as global TAA manager "was a philosophical decision," said Keith Bozarth, executive director for the Illinois fund. "We feel like we ought to make the asset allocation decision."
Gary Brinson, chairman and chief investment officer at UBS Brinson, would not comment specifically about CalPERS or Illinois Teachers. Both funds are in the middle of broad restructurings, with CalPERS focusing on its international program (Pensions & Investments, Oct. 18) and Illinois Teachers hiring and firing a spate of managers following new asset allocation targets in many asset classes (P&I, Nov. 1).
Mr. Brinson said that, at this stage in a bull market, it isn't surprising for U.S. pension funds and other institutional investors to put returns over risk management, which is one of the key elements of a global balanced portfolio.
Mr. Brinson also said foundations and families with $100 million or more in assets are more interested in global balanced investing than are pension funds.
Money managers are having much greater success selling global balanced funds and global TAA funds to institutional clients overseas, consultants and money managers said.
While J.P. Morgan Investment Management has lost U.S. clients, it has seen net increases this year in Europe and Asia for global balanced funds, Mr. Durbin said. At the end of 1998, the firm ran $16 billion in balanced funds for European clients and $12 billion for Asian clients. Those assets have climbed to approximately $19 billion and $16 billion, respectively.
Brinson's global balanced assets under management for U.S. clients were $6.5 billion on Sept. 30, the same total as the end of last year. The firm, however, had lost about $3.8 billion in global balanced assets of non-U.S. clients since the end of 1998. It ran $20.3 billion at the end of September, a spokesman said.
In the past, many managers haven't been fully equipped to handle global balanced portfolios, said Patrick Rudden, managing director, director of equity research for BARRA RogersCasey in Darien, Conn. In the past, managers usually segregated their equity and fixed-income analysts by region, he said. A manager typically would have an analyst covering oil companies in the United States and another covering the sector in Europe. Now, those teams of analysts are more integrated by sector and region.