Ontario market neutral
I was really surprised to read your article (Sept. 4, page 1) in which you explained that CalPERS is the first organization to consider overlaying a market-neutral portfolio on top of a passive portfolio.
The Ontario Teachers' Pension Plan Board has been using this strategy since 1999. Some time ago, we converted our C$3.5 billion (U.S.$2.3) active equity portfolio to a market-neutral portfolio that is run as an overlay to our C$12 billion Canadian TSE300 equity index fund. We also have set up a market-neutral global equity portfolio that we run as an overlay to our S&P Global Index holdings.
You might be interested to know that in recent months Leo de Bever, our senior vice president of research and economics, met with William Sharpe to update him on our changed approach to managing active equity portfolios. We employ a lot more risk in our implementation than appears to be the case for CalPERS - we have an advanced value-at-risk system that enables us to maximize returns for a targeted level of risk. We normally achieve an "alpha" of 2% to 5% over market returns. We also use a risk optimizer to ensure that we have the right blend of stocks in our market-neutral portfolios.
We did not experience any implementation problems. Our portfolio managers and analysts like the market-neutral approach because it lets them focus on stock selection, reduces the average transaction size compared to a "long only" portfolio, and lets them take advantage of overpriced securities. Being able to go both "long" and "short" effectively doubles our investment opportunities.
We can not understand why every investment manager does not use an enhanced index strategy - it is an easier way to achieve superior results. We are glad to see that CalPERS is considering following our lead in this area.
Brian J. Gibson
senior vice president-
Ontario Teachers' Pension
North York, Ontario
In the Oct. 2 special report on defined contribution record keepers, The Principal Financial Group reported zero Taft-Hartley clients in its profile on page 51. The Principal actually services 40 defined contribution Taft-Hartley clients, putting it in the top five of those reporting in terms of number of Taft-Hartley plans served.
Clark Buss Sr.
Principal Financial Group
I am writing to you with regard to the 2000 Defined Contribution Service Provider Survey that appeared in the Oct. 2 Pensions & Investments.
Scudder Kemper Investments provided incorrect information concerning the provider rankings by total plan participants and total assets, which appeared on page 23 of that issue.
The correct information for Scudder Kemper, as of June 30, is as follows: total participants 794,338; total amount of assets $13.965 billion.
manager, proposal services
Scudder Kemper Investments