STAMFORD, Conn. - GE Asset Management flourished in 2001.
The asset management unit of General Electric Co., Stamford, Conn., won 23 new institutional clients and raked in $10 billion in new external assets last year - $7.9 billion of which was institutional assets, said Jack Boyce, senior vice president of institutional investment services. The bulk - $6.8 billion - came from new U.S. institutional client assets; the remainder came from pension funds in Canada, the United Kingdom and Europe.
As of Dec. 31, GEAM managed $112 billion in total assets, with $35 billion of that, or about 31% of that, in external assets.
In an interview, Mr. Boyce attributed the strong growth to GEAM's initiative of building relationships with consulting firms: "We got to know them so that we would be on their radar screens and be included in manager searches."
Best-selling strategies were an enhanced equity index fund known as a broad U.S. research fund and an active international equity fund.
The $147 billion California Public Employees' Retirement System, Sacramento; the $12.8 billion Public Employees Retirement System of Nevada, Carson City; and the $9.7 billion Indiana Puiblic Employees Retirement Fund, Indianapolis, all hired GEAM for the first time to invest $605 million, $309 million and $250 million, respectively, in the core international equity strategy.
The $16.7 billion pension fund of DaimlerChrysler Corp., Auburn Hills, Mich., increased both its international and private equity portfolios with GEAM; fund officials declined to provide the amount of the investments.
In addition, the US$1.24 billion Shell Canada Pension Trust, Toronto, hired GEAM for the first time to manage $23 million in a U.S. select equity fund that invests in a concentrated number of growth stocks. And, the $85 billion pension fund of Hitachi Ltd., Tokyo, added $125 million to GEAM's global equity portfolio, which invests in both developing and fully developed countries, excluding Japan.
On the retail side, GEAM was hired as a subadviser for Prudential Mutual Funds' Prudential Equity Fund and its variable annuity equivalent, totaling $2 billion. GEAM is using the same strategy it employs in its broad U.S. research fund.
"The U.S. research fund is unique among enhanced index funds," Mr. Boyce explained. "It is qualitative, using a bottom-up approach to choose stocks that will enhance the index." In contrast, most enhanced indexed funds are quantitative and rely on screens to make their choices, he said.
The large-cap value strategy also was popular with GEAM clients last year. First-time clients who signed on for it include the $5.5 billion Indiana State Teachers' Retirement Fund, Indianapolis, which put $30 million in the strategy and the $543 million pension fund of Westpoint Stevens, Inc., Westpoint, Ga., which invested $20 million.
Although GEAM has been investing for external clients since 1989, in the last few years it has made the expansion of its asset management business a priority, increasing the number of employees to 442 as of Dec. 31 - more than doubling in five years.
"We have also continued to drive home the message that we have transitioned from being the asset management group of a pension plan to becoming a world-class asset management firm that has the GE pension fund as a client. The strategy is working," said Mr. Boyce.
Alignment of interests
GEAM also has benefited from its connection with the pension fund and its management team. "Every strategy we sell is one that is also used for the pension fund, so our clients are assured there is an alignment of interests," observed Mr. Boyce.
The defined benefit pension plan stood at $45.2 billion as of Dec. 31, said Gene Bolton, executive vice president domestic equity at GEAM.
He noted the biggest change at the pension fund in 2001 came from an increased allocation to domestic and international equities. Domestic equities were raised two percentage points to 47% of total assets, which is the fund's long-term target; and international equities were raised one percentage point to 15% of assets, three percentage points below the target.
"We added most of that after Sept. 26, when the market bottomed sharply," Mr. Bolton said. GE pumped up its U.S. equity portfolio mainly by buying beaten-down tech stocks, which had been significantly underweight compared to the Standard & Poor's 500 index.
The $21 billion equity portfolio is evenly balanced between growth and value so it's style neutral, he explained.
Funding for the increase in equity came from fixed income, which had been overweight, and as of Dec. 31 accounted for 24% of assets.
The active international equity strategy, like its U.S. counterpart, uses bottom-up stock selection instead of making macro bets, Mr. Bolton said. Japan and Latin American are underweighted, while Europe is overweighted.