Taft-Hartley pension funds are showing increased interest in international investments and are increasing their allocations.
Bruce Dereschuk, president and CEO of Sierra Investment Partners, which works exclusively with Taft-Hartley pension funds, estimates that in 2002 approximately $500 million from Taft-Hartley funds went into international equity investments and expects that $1 billion from Taft-Hartley funds could flow into international equity investments in 2003.
Union funds that have increased their foreign investments recently include:
* The United Mine Workers of America Health and Welfare Fund, Washington, recently increased its international equity allocation to 10% from 8% of assets. John Adams, director of investments at the $6 billion fund, said, "We increased international equity as a diversification move."
The UMWA is unusual because it does not use a consultant, as most Taft-Hartley plans do, and has an in-house staff of 10 that focuses on its investment decisions.
* The 1199 Health Care Employees Pension Fund, New York, increased its international equity allocation by 1.1 percentage points and its international bond allocation by 3.4 percentage points for the year ended Sept. 30, according to Pensions & Investments' largest 200 pension funds survey. Lorraine Monchak, chief investment officer of the 1199 fund, said the shift was due to a combination of the decline in the stock market and an increase in the international allocation. The fund increased its combined allocation of international stocks and bonds to 15% of assets in 2002.
"Our experience has been excellent with our international investments," she said. She said the fund's international equity allocation outperformed its U.S. equity allocation during the past year, although she declined to give specific return figures.
Ms. Monchak said the fund had restructured its international equity allocation last year by moving to a capitalization and style structure from a core manager and regional mandate structure.
"Our international fixed-income strategy has done exceptionally well this year as well," she added. Ms. Monchak said the fund had indexed its international fixed-income assets last year.
* The Bakery & Confectionery Union and Industry International, Kensington, Md., increased its international equity allocation by 0.6 percentage points and its international bond allocations by 5.4 percentage points for the year ended Sept. 30, according to P&I's data.
* The San Diego Electrical Pension Trust raised its international equity allocation by $10 million in April and now has $21 million, or 11% of assets, invested in international equities, according to Ken Stewart, administrative manager for the $188 million fund.
"We're seeing more searches this year than ever before," said Bill McCormack, head of Taft-Hartley marketing at Delaware Investment Advisors, Philadelphia, which has about $500 million in international equity investments under management. He said because of the poor returns in domestic equity markets over the past three years, many Taft-Hartley funds are now willing to consider international investments.
"We have seen increased interest for international investments as several consultants pushed their clients into international," said Patrick O'Brien, head of institutional sales with Evergreen Investment Management Co., Boston.
Richard Charlton, president of New England Pension Consultants, Cambridge, Mass., said his firm has been advocating increased international equity investing to its Taft-Hartley clients for several years. He said that across the firm's Taft-Hartley client base the funds have an average of 6.6% of assets invested in international equities, while Taft-Hartley funds in the data base of the Independent Consultants Cooperative, a group of independent benefits consultants, have an average of 3.3% invested in international equities.
Union pension funds in the P&I top 200 pension funds for 2002 had 7.9% of their assets in international equities, up 1.3 percentage points from 2001.
The union funds had 1.5% of their assets in international fixed-income, up 0.4 percentage points from 2001.
Marco Consulting Group, Chicago, also has promoted international investing to its clients. Chairman Jack Marco pointed out that in 1996 his firm published a paper saying Taft-Hartley funds could do international investing without sacrificing their principles. He said getting Taft-Hartley funds comfortable with international investments "has been an evolutionary process."