College Retirement Equities Fund, of TIAA-CREF, celebrates its 50th anniversary this year. The pioneer in pension fund equity investing has grown to be the "largest single managed equity fund in the world," now with about $95 billion in assets under management. TIAA-CREF in total has about $300 billion.
The Teachers Insurance and Annuity Association, which began in 1918, investing solely in fixed income, opened the CREF Stock Account July 1, 1952. It was the first pension program to give individual investors direct exposure to equities, according to Patrick Connor, media relations, and the only equity fund offered by TIAA-CREF until the 1980s.
The amount its participants could place in the stock account initially was limited to half of their TIAA-CREF assets. The limit was raised to 75% in 1967 and eliminated entirely in 1971.
The initial limit was supported strongly by college faculty and administrators and by economic studies as a good balance between the greater volatility of stocks and the greater risk of inflation for fixed income, according to a 1990 published history of TIAA-CREF written by William C. Greenough, former chief executive officer. Plus, he added, it was unlikely the necessary public authorities would have approved the creation of CREF without the limit.
CREF is bigger than Vanguard Group's S&P 500 index fund and Fidelity' Investments' Magellan fund, the two biggest mutual funds. And unlike mutual funds, the CREF Stock Account continues to be available only to people in education and research institutions; it is not open to the public.
At the time of its inception, the CREF Stock Account was the first variable annuity, according to Eugene H. Fram, professor of marketing, and Chun Keung Hoi, assistant professor of finance, both at the Rochester Institute to Technology, Rochester, New York, who did a study in 2001 of CREF.
"When the CREF Stock Account was created, it was considered kind of revolutionary," Mr. Connor said. "The thinking (by TIAA officials) was that long-term exposure to stocks would be good for people saving for retirement. It was a pretty pioneering move. We were still living in the shadow of the Depression and World War II." The Depression sent stocks tumbling, while "coming out of World War II there was concern about inflation. There was discussion about finding a way to help people overcome inflation, and a fixed-income product (which was all TIAA offered then) could not do that. It took a while to come up with that (the CREF Stock Account)."
The CREF Stock Account has returned about 11% a year on average since inception. It uses what TIAA-CREF calls a "dual investing approach," using both indexing and active management. "The percentage of indexed and actively managed stocks changes over time, depending on opportunities in the market," Mr. Connor said. "The active portion can range from 30% to 80%."
CREF didn't offer other equity portfolios until almost 40 years after its creation.