STAMFORD, Conn. - Xerox Corp. is poised to move its $9 billion in pension assets - and pension chief Myra Drucker - to General Motors Asset Management, sources say.
After considering other firms, including J.P. Morgan and State Street Global, as well as the pension fund investment arms of IBM and GE, the sources said Xerox officials are completing their due diligence on GM's New York money management unit.
Once the deal is done, Ms. Drucker would oversee General Motors Asset Management's new outsourcing business. Ms. Drucker is assistant treasurer and chief investment officer at Xerox.
Indeed, sources say Ms. Drucker will work closely with GMAM President and Chief Executive officer W. Allen Reed as GMAM, New York, forges ahead with its plan to manage pension assets for external clients.
The Xerox board is supportive of the move, according to sources who did not wish to be identified. These sources said the board has approved the deal, which is expected to close by the end of the second quarter.
Uncertain future
Meanwhile, the rest of the staff might not be included in the move. Knowing that, two key professionals - Mary Cahill, deputy CIO, and Albert Hsu, principal-trust investments - left. Ms. Cahill is now CIO of the $5 billion endowment at Emory University, Decatur, Ga.; and Mr. Hsu is director of investments at the $1.1 billion Ludwig Institute of Cancer Research Foundation, New York.
Industry experts praised Ms. Drucker's talents, calling her one of the most respected pension executives in the industry. They said she has a "marquee" name, which probably was one of the deal's major attractions for GMAM.
In addition, Ms. Drucker and Mr. Reed take a similar approach to pension fund management. "They have the same investment philosophy and the same fiduciary perspective. It would be a powerful combination," said one industry observer who declined to be named.
"It's positive for everyone involved. It opens up GM's whole money management business and immediately doubles their external assets under management," he said.
GMAM manages around $130 billion in pension assets; $9 billion of that for Delphi Automotive Systems Corp., Troy, Mich., which hired GMAM as its manager after it was spun off from GM in 1999. With the Xerox assets, GMAM would have $18 billion in external assets.
Calls to Ms. Drucker were referred to Christa Carone, Xerox spokeswoman, who said she couldn't comment on rumors. Jack Miller, vice president business development at GMAM, also declined to comment, and Mr. Reed did not return phone calls.
Bruce McIver, president of Berkshire Capital Corp., a New York investment banker, said the combination sounds like a great deal. "Outsourcing is the wave of the future and could be very efficient. ... It makes a lot of sense if the group that's doing it has great skills. When you have people like the Commonfund or GM running these pensions, why not reproduce it for others? It can also mean great economies of scales."
Exploring other options
After Xerox began dealing with liquidity problems, layoffs and a high-profile investigation into its accounting practices last year, executives began exploring other options, particularly outsourcing, which would allow Xerox to reduce the costs of running the pension fund.
Of the three business models Xerox officials considered - investment management firm, bank and pension fund - outsourcing to another pension fund made the most sense, experts said.
In addition to GMAM, they also considered outsourcing to two money managers - J.P.Morgan Fleming Asset Management, New York, and State Street Global Advisors, Boston - and to two other pension funds, sources said.
Sources said Xerox executives considered International Business Machines Corp., Stamford, Conn., but decided against it because IBM's pension unit operates too differently from that of Xerox. General Electric Asset Management Inc., Stamford, was another possibility, but the cultures were too different, said a source.
"Xerox runs an unusually sophisticated plan with a wide array of investment options (in its 401(k) plan), through different funds the pension fund staff put together," explained an industry expert.
"With Myra's senior managers gone, she wouldn't have been able to run it by herself. And with the need to reduce costs, outsourcing is the logical way to go, even though it will involve management fees. It will probably be less expensive to pay the fees than to pay a staff."
Both the GM and Xerox plans are unitized, but they have had different focuses. Xerox concentrated first on its profit-sharing plan, which had much of its assets in Xerox stock. It then changed to a 401(k) structure. The defined benefit plan was added later. As of Dec. 31, Xerox had $5.4 billion in defined benefit assets and $3.5 billion in defined contribution assets, according to Ms. Carone. GMAM, by contrast, used a defined benefit structure from the beginning.
