NEW YORK -- General Motors Investment Management Corp. is gearing up to market its specialized investment strategies to other pension funds.
It plans to begin selling its products in the third quarter, W. Allen Reed, president and chief executive officer of GMIMCo, said in a joint interview with B. Jack Miller, vice president business development for GMIMCo. Mr. Miller is in the process of recruiting three sales executives for the new effort.
The investment strategies that will be offered at first have been culled from the numerous investment programs GMIMCo uses for the $128 billion in assets it has under management, mostly General Motors Corp. pension assets. Investments for outside clients will be made alongside those it makes for GM.
Initially, GMIMCo will offer outside clients:
* Eight "specialty funds," each to be structured as a commingled fund that will pool GM pension money with that of other clients. The funds are: high-quality fixed income; high-yield fixed income; international fixed income; emerging debt; international equity; emerging markets equity; global tactical asset allocation; and income. The income fund will be available only to defined contribution plans; all other funds will be available to both defined benefit and defined contribution plans.
* Limited partnership investments in venture capital and buyout funds.
* Limited partnerships in core real estate, opportunistic real estate and real estate investment trusts.
GMIMCo has not set a target for the amount of assets it hopes to capture. It eventually will add more strategies such as domestic equity funds.
Mr. Miller said he expects the typical client would be a midsized pension fund. But large state funds also are likely to be interested in some of the enhanced return opportunities GMIMCo is offering, he said.
As of Dec. 31, GMIMCo managed $76.8 billion in defined benefit assets for General Motors; $26.8 billion in GM defined contribution assets; and $7.6 billion in pension assets for Delphi Automotive Systems Corp., Troy, Mich., which hired GMIMCo in May after it spun off from GM. GMIMCo also manages $16.8 billion split between foreign GM pension money, GMAC Insurance funds and retirement health funds.
Around 10% to 15% of assets are internally managed. The management company has approximately 70 external managers for public market accounts and 45 partnerships divided between real estate and private equity, Mr. Miller said.
GMIMCo uses a multimanager strategy for its public securities portfolios, which will be applied to new clients' accounts. Such a strategy results in economies of scale that Mr. Miller and Mr. Reed said will give GMIMCo an important competitive edge in building the asset business. Every strategy has several external managers, and at least one internal manager, while the international equity fund has two internal managers, Mr. Miller said. The REIT portfolio is completely managed in-house.
Worked hard to keep Delphi
He noted Delphi is actually GMIMCo's first outside client. "Even though we managed their assets before the spinoff, we didn't take them for granted at all. We had to work extra hard to keep them. We had to be superior, and made a huge effort so they would hire us," Mr. Miller said.
"From a fiduciary standpoint, we can offer a lot. We're not just working with other people's money. Because the GM pension money will be in every product we offer, we have an alignment of interests which should give potential clients confidence."
Messrs. Miller and Reed believe the economies of scale achieved at GMIMCo will be a major selling point. "It would take a fund a lot of time, money and effort to duplicate what we do," Mr. Reed said.
Added Mr. Miller: "We're really offering a basket of services. Each of our products already has our own risk management control program figured into the investment product."
Industry experts were upbeat about GMIMCo's plan, saying that given its depth of experience and the size of its operation, GMIMCo should do well with its new program.
Ezra Zask, managing director at Berkshire Capital Corp., New York, said: "The fact that they already have set up the economies of scale and built the infrastructure makes it compelling economically. They should be able to manage outside assets at a competitive price."
Other people's money
On the downside, however, Mr. Zask noted, it is different when you're managing your own money vs. other people's money. "There is a difference in accountability -- more outward accountability will be needed. Accounts will get reviewed more often. There is just another level of scrutiny that adds pressure. And the portfolio managers will have to interact with the clients. There will be a level of public exposure they didn't deal with before."
GMIMCo is one of the biggest asset managers around, Mr. Reed said. "Since beginning in 1982, we have been building our capability."
Of the $128 billion under management, $122.8 billion is tax-exempt, which would have put GMIMCo at No. 10 among the investment managers included in Pensions & Investments' May 17 survey of the largest money managers.
The staff of 100 employees at GMIMCo's New York headquarters handle a wide range of tasks. In addition to portfolio managers, chartered financial analysts and investment managers, GMIMCo has its own legal staff to run due diligence on real estate and private equity deals and its own risk management team. And as an incentive to keep staff, GMIMCo's internal managers are paid on a one-year and three-year performance basis, the same as any investment manager, Mr. Miller said. "That approach allows us to retain our key people and should assure future clients that we'll be here," he said.
Judging from preliminary talks with pension funds and a survey GMIMCo commissioned, Mr. Reed said, there seems to be a fair level of interest, even from $10 billion and $15 billion pension funds. Potential clients have expressed particular enthusiasm for the private equity partnerships and the emerging markets equity, international markets equity and high-yield bond funds, he said.
Interest in private equity
In private equity, clients will be able to invest through a partnership program. GMIMCo has run a co-investment program since the late '80s, through which it invests as a limited partner with the right to co-invest.
"When a general partner needs more money for an investment, we look at those deals and often participate both as a co-investor and as a limited partner," Mr. Reed said. "It leverages those relationships in an efficient way outside the partnerships. It lets us cherry-pick our investments when analyzing the deals. Meanwhile, we learn a lot about the deals and get to know the general partners better, all of which is very helpful."