WASHINGTON - Pension plan sponsors tread a fine line in reaching out to minority- and women-owned investment managers and securities firms. Choosing investments based on any criterion other than rate of return puts plans at risk of running afoul of federal pension law, which requires them to invest pension assets solely in the best interest of participants.
Hilton Hotels Corp., Sempra Energy, Southern California Edison Co., BellSouth Corp. and Lucent Technologies Inc. are among the companies that are working it out. They are among the companies rated the most friendly toward minorities by Fortune Magazine in its annual survey.
Just this year, Hilton placed 10% of its $300 million in pension assets with RhumbLine Advisers, a black-owned money manager. "We made a decision to do that as one of our diversity initiatives," said Bill Holland, vice president of work-force planning and analysis at Hilton in Beverly Hills, Calif. RhumbLine manages Standard & Poor's 500 stock index and an S&P 400 equity portfolios for the firm, said J. D. Nelson, RhumbLine's chief executive officer.
The situtation at Sempra
Meanwhile, for San Diego-based Sempra's $2.8 billion pension fund, minority- and women-owned money managers handle a total of $125 million in assets.
Also, Sempra's directed brokerage program encourages its money managers to buy and sell 35% of the plan's stocks and bonds through one of three brokerage firms, one of which, Magna Securities Corp., New York, is woman-owned, said Brian Chew, director pension and trust investments. The other two firms on the list, Frank Russell Securities and BNY ESI & Co., are not women- or minority-owned.
Sempra uses Progress Investment Management Co., a minority-owned firm that runs a fund of funds that has been invested in four other minority- and women-owned emerging money managers. Seix Advisors, which is owned by a woman, also runs a core bond portfolio for the energy producer.
Southern California Edison, Rosemead, Calif., also gives its money managers a list of minority- and women-owned brokerage firms to use, providing they can ensure "best execution," said David Ertel, manager of investments.
The energy producer has an elaborate companywide diversity program under guidelines set up by the California Utilities Commission, he said. The $2.9 billion pension fund has about 4.6% of its total assets managed by minority- or women-owned firms Payden & Rygel Investment Counsel, Progress Investment, and three alternative investment managers, Syncomm II LP., Fairview Capital LP, and Sit-Kim International Investment Associates Inc. The company's post-retirement health-care fund has 20% of its $1.1 billion in assets with Payden & Rygel in a fixed-income portfolio, Mr. Ertel said.
"Being subject to ERISA (the Employee Retirement Income Security Act), we need to make sure we do the best thing for plan participants; but that being said, there are a lot of good (minority- and women-owned) firms out there, and we will consider them if they are a good fit," he said.
Meanwhile, BellSouth Corp., Atlanta, has little opportunity to use minority- or women-owned firms because two-thirds of its $18 billion in pension assets is passively managed.
"The turnover (of active managers) is not that frequent," said Kincaid Patterson, managing director of trust asset management. "I suspect as we go forward in time we will be adding firms that are minority or owned by women, or both."
BellSouth does run a program aimed at discovering new or emerging money managers, many of which are also minority- or woman-owned, said Mr. Patterson. The company has 11 emerging managers, six of which are owned by minorities or women, managing a total of $100 million in assets. BellSouth also uses minority-owned Peachtree Capital Management to run $100 million in active domestic large-cap equities. The company would not give out the names of the other managers.
And Lucent, Murray Hill, N.J., prides itself on having ethnic minorities and women on its investment staff.
"We place a high value on the benefits of diversity, and that is consistently reflected throughout our business units, including pensions," said a company spokeswoman.
One-fourth of the embattled telecommunications firm's investment staff is a "diverse racial group," and two-thirds of the top investment executives are women, although she declined to say how many.
Lucent also has a portion of its $45 billion in pension assets invested with women- and minority-owned firms, but she declined to say how much or to identify the firms.