STAMFORD, Conn. - Move over, General Motors. Make room for General Electric.
After holding the title of sponsor of the nation's largest corporate pension fund for six years, General Motors Corp. is about to be supplanted, just barely, by General Electric Co.
It is the pending purchase of Honeywell Inc., announced Oct. 22, that will permit GE to wrench the crown from GM. GE had about $85 billion in employee benefit assets as of June 30. Adding Honeywell's assets as of Sept. 30 assets to the mix brings the total to $106.5 billion, vs. $105 billion for GM as of June 30.
On the pension investment side, the biggest beneficiary of a GE-Honeywell merger is expected to be GE Asset Management, the investment management subsidiary that manages 95% of GE's pension assets; Honeywell internally manages about $2 billion. GE officials, however, wouldn't comment on how the Honeywell pension assets might be handled.
Honeywell, meanwhile, merged with Allied Signal Inc. last December. The larger Allied Signal pension operation prevailed in the aftermath of that deal.
Management of the pension fund was consolidated at Allied Signal's Morristown, N.J., headquarters. Allied Signal Chief Investment Officer Edward Tokar became CIO of the merged plan, whereas former Honeywell CIO Deborah Ververka and the rest of the then-Minneapolis-based Honeywell investment staff moved on to other jobs. In addition, a majority of the money managers that were retained had been Allied Signal's.
Beth Comstock, GE spokeswoman, said nothing has been determined as to how the Honeywell and GE plans will be combined. As of Sept. 30, GE has $90 billion in employee benefit assets.
"There's a lot of integration that needs to be done," she said. And Mr. Tokar at Honeywell's pension fund wouldn't comment.
But David Brief, analyst at Capital Resource Advisors, Chicago, doesn't think merging GE's and Honeywell's assets necessarily means all of Honeywell's investment staff and money managers will be terminated.
Transitioning a $21.5 billion plan is "not something you do overnight," said Mr. Brief, adding that integrating the plans into a single investment portfolio could take up to a year, or longer.
For that reason, he doesn't think there will be immediate investment staff upheaval at Honeywell.
"I don't think GE is foolish enough to clean house and pick up the pieces themselves," he said. "There's certainly some good people at there (at Honeywell) and I'm sure they could make use of them."
Still, he added: "If I were one of the managers on the Honeywell roster, I'd be a little nervous right now. GE is pretty well committed to their way of doing things."
William Katz, research analyst covering asset managers for Merrill Lynch Asset Management Group, New York, said he wouldn't be surprised if a lot of the Honeywell mandates eventually were managed in-house by GE.
Ultimately, said Mr. Katz, when two large pension funds merge, it comes down to investment performance.
"Mediocrity is going to be less tolerated," he said. Plan sponsors tend to consolidate mandates with managers that are historically producing strong, low-risk returns.
If there is a good deal of turnover of managers, Sue Rutherford, consultant with Ennis Knupp + Associates, Chicago, said, there are other issues to consider as well, such as transition management.
With a merger of this size, the trading costs of replacing one manager with the next can be significant, said Ms. Rutherford. Even if just 1% of the portfolio is moved, "1% percent on a portfolio of this size can become disruptive," she said.
Consultants said the plans could operate separately for some time before being merged into one overall investment portfolio.
Before managers are sorted out, officials at the new GE-Honeywell fund will have to deal with issues related to plan design and liabilities.
