HONOLULU - The $8.4 billion Employees' Retirement System of the State of Hawaii has placed four firms on watch and terminated a fifth.
Placed on watch by the fund for various reasons were:
* 3Bridge Capital LLC, San Francisco, a domestic large-cap value equity manager;
* CIC/HCM Capital Management Inc., a core fixed income manager;
* Bishop Street Capital Management, domestic large-cap growth equity; and
* Clarion Partners, a real estate manager.
Daiwa SB Investments Ltd., which managed Pacific basin equities, was terminated because of style drift.
Except for 3Bridge, which runs $165 million for the system, portfolio sizes for the firms could not be learned.
The shifts came less than two years after the fund made a rash of money manager changes that affected 13 firms; in all, $1.4 billion changed hands.
David Post, managing partner and chief executive officer of 3Bridge, declined to comment for this story.
Gerry Keir, executive vice president, corporate communications with Bishop Street's parent, First Hawaiian Bank, declined to comment. Officials with CIC/HCM, Clarion and Daiwa all were unavailable for comment at press time.
In February, fund trustees voted to put 3Bridge on watch and cut its portfolio in half, despite a recommendation by the fund's consultant, Callan Associates, San Francisco, to terminate the firm.
David Shimabukuro, administrator, acknowledged that 3Bridge's performance since the beginning of 2000 has been disappointing, but he said the system has good reason to stick with the firm: The investment team "almost tripled our money."
Mr. Shimabukuro said the fund has worked with the 3Bridge team, headed by Mr. Post, since 1995. At that time, Mr. Post's team was part of the now-defunct Hanson Investment Management Co., and the team ran $160 million for the pension fund. The portfolio eventually would grow to more than $350 million in 1999 without an added investment from the system, said Mr. Shimabukuro. In 2000, the system followed Mr. Post and his team as they left to form 3Bridge.
Record is mostly positive
In discussions at the February board meeting, trustees decided to retain 3Bridge based on its mostly positive track record. In the five-year period ended Dec. 31, 1999, Hanson Investment reported a 25.5% compound annualized large-cap value equity return, according to the Pensions & Investments' Performance Evaluation Report. The return placed the portfolio in the second decile of large-cap value portfolios in the managed PIPER universe for that time period.
3Bridge is not in the PIPER database, but according to the Hawaii fund's website, the 3Bridge team had an annualized -13.2% return for calendar 2001. That return would have placed the portfolio in the 95th percentile for separately managed large-cap value accounts and the seventh decile of all PIPER equity accounts. The team's three-year annualized return for the period ended Dec. 31 was -5.7%, placing it below any account reported in PIPER for that period and 732 basis points behind the second-lowest performing domestic large-cap value manager employed by the system.
One of 3Bridge's partners is Stanley Siu, former administrator of the system, who now does marketing and client service duties. He resigned from the system in 1998. Mr. Siu said he is not involved in 3Bridge's dealings with the fund to avoid the perception of improprieties. Mr. Shimabukuro also said Mr. Siu's employment with 3Bridge had no bearing on the trustees' decision to stay with the firm.
Ronald Peyton, president and chief executive officer of Callan, and Toby Martyn, chairman of the system's board of trustees, declined to comment for this story. Kimo Blaisdell, the system's chief investment officer, did not return repeated phone calls.
The continued employment of 3Bridge Capital has drawn the attention of state legislators, who in April authorized a legislative audit of the fund, which began this month.
"There were concerns about the system," said Marion Higa, state auditor. She began her investigation into the plan at the beginning of June; it is to be completed before the opening of the next legislative session in January. Ms. Higa would not comment further.
Between June 2000 and December 2001, the system's assets dropped $1.4 billion; Mr. Shimabukuro noted the system made $807 million in retiree payouts during those 18 months. Actual investment losses in that time were 8.7%, said Mr. Shimabukuro, who added that performance was good, considering the stock market's performance at that time.
The median return for a public fund in the Trust Universe Comparison Service was -4.4% for the June 2000 to Dec. 2001 time frame, said Kim Shepherd, a spokeswoman for Wilshire Associates Inc., Santa Monica, Calif.
As of June 30, 2001, the plan was 91% funded. Another actuarial study will be conducted at the end of this month by Gabriel Roeder Smith, San Diego, the fund's actuary.