News Briefs

CHICAGO — CalPERS won't add more than $1 billion to its hedge fund allocation, said Sean Harrigan, president. "Our board is a little nervous about it."

"The $1 billion (CalPERS now has invested in hedge funds), out of $150 billion (in total assets), isn't much. But I don't think it will go much higher." He didn't elaborate.

Mr. Harrigan, president of the California Public Employees' Retirement System, Sacramento, spoke at a National Association of Securities' Professionals forum in Chicago on Sept. 18.

Lehman Brothers adds Crossroads fund-of-funds firm

NEW YORK — Lehman Brothers Holdings Inc. is buying The Crossroads Group, a Dallas-based private equity fund-of-funds manager. Terms were not disclosed. Crossroads will become part of Lehman Brothers' Private Equity Division, headed by Michael Odrich. Brad K. Heppner will remain Crossroads chairman and CEO. The acquisition will increase Lehman Brothers' private equity assets under management to $7 billion from $5 billion.

Most of Crossroads' 55 employees are expected to stay on.

NEW YORK — Pension expenses for state and local governments will rise sharply over the next several years, helping to spur ratings downgrades of the debt they issue, unless stock markets sustain a 1990s-style boom, according to a new Fitch Ratings report.

"Reversal of Fortune: The Rising Costs of Public Sector Pensions and Other Post-Employment Benefits" looks at the credit considerations pertaining to pension liabilities and praises the role pension obligation bonds can play for public funds — while also warning of their pitfalls.

"A failure to follow balanced and prudent investment practices with respect to pension obligation bond proceeds could expose the sponsor to market losses," said Joseph Mason, director.

TRENTON, N.J. — The New Jersey Division of Investment revised its shortlist RFP for a full-time investment consultant to the $62 billion pension fund, easing requirements in order to "allow us to attract a greater number of responses," said Tom Vincz, spokesman.

The changes were not related to the state-sponsored report that was issued on Sept. 18 by Independent Fiduciary Services, the fund's consultant. The report listed 79 recommendations for improving the fund's performance and operation, he said. "We were making changes concurrently with what the IFS report was going to be addressing," Mr. Vincz said.

Proposals are due Oct. 3; no timeframe has been established for making a selection.

HARRISBURG, Pa. — Pennsylvania State Employees' Retirement System, Harrisburg, sold its 70% interest in Willow Grove Park mall in Willow Grove, Pa., to Pennsylvania Real Estate Investment Trust for $45.5 million in cash. Pennsylvania REIT had owned 30% of the mall.

As part of the deal with the $20.9 billion system, Pennsylvania REIT assumed $76.8 million in debt which matures in 2006, said Erica Pettit, PREIT spokeswoman.

Pennsylvania SERS has an 11.6% allocation to real estate, worth about $2.43 billion, said Sean Sanderson, system spokesman.

NEW HAVEN, Conn. — Yale University and two of its labor unions reached a tentative agreement that soes not include any specific references to financial disclosure by Yale endowment or pension funds.

A spokeswoman for the Federation of Hospital and University Employees, an umbrella group of Yale unions, which represent nearly 4,000 workers, said disclosure issues were not discussed during talks between the two sides, but union leaders remain hopeful that additional disclosure will be made in coming months.

The federation has been critical of Yale's investment staff for its lack of disclosure about private equity holdings in the university's $11 billion endowment and $500 million pension fund.

NEW YORK — TIAA-CREF cut its work force by 8%, laying off around 500 employees, primarily in back-office and information technology operations, said Stephanie Cohen Glass, spokeswoman for the firm. No layoffs were in investment management, she said.

BALTIMORE — Maryland State Retirement & Pension System removed three money managers from its watchlist. Edgar Lomax, which runs $196 million in domestic large-cap equities for the fund; J.P. Morgan Fleming, which runs $209 million in a strategic property fund; and LaSalle Investment Management, which handles $709 million in REITs, all had improved performance, said Joe Coale, spokesman for the $27.4 billion system.

SALEM, Ore. — The state of Oregon is set to issue $2 billion in pension obligation bonds the week of Oct. 20. The bond issue was approved by voters on Sept. 16 as part of the state's efforts to reduce the $17 billion unfunded liability of the $37 billion Oregon Public Employees Retirement System, Salem, said Todd Jones, communications director for Randall Edwards, state treasurer.

WILTON, Conn. — U.S. endowments had an average annual investment return of 2.9% for the year ended June 30, compared with a 5.9% loss for the same period a year earlier, according to a study from the Commonfund Institute. Institutions that had less than $10 million in assets returned an average of 4.7%, while those that had more than $1 billion in assets returned an average of 2.3%.

The survey also found that 51% of endowments changed their allocations over the past year; domestic equities were up to 50% of total assets, from 47%; and fixed income and international equity were unchanged at 29% and 10%, respectively. Alternative assets, including hedge funds, were down to 11% from 15%, according to Commonfund.

The web-based survey polled 122 educational institutions.

Another institute study showed health-care organizations' defined benefit plans returned -6.4% in 2002. Their average asset allocation was 60% equities, 32% fixed income and 8% alternatives. Most organizations had small internal staffs, with an average 1.7 full-time professionals managing investments.

The Commonfund Benchmarks Healthcare Study, covering December 2001 to December 2002, included 152 public and private hospitals and health care systems with total assets of $78.4 billion.

HOUSTON — Fulbright & Jaworski LLP is conducting a shortlist search for a hedge fund manager to run about $20 million for its $170 million pension plan, said Kevin Miller, chief financial officer. Funding will come from reducing the plan's $40 million investment with current hedge fund manager Carlson Capital, Mr. Miller said. A selection is expected in six months. Madison Portfolio Consultants is assisting.

COLORADO SPRINGS, Colo. — El Paso County Retirement Plan will conduct a shortlist search for a real estate manager to run $9 million, said Dave Klemmer, plan administrator. Funding will come from reducing the $180 million pension plan's fixed-income allocation to 30%, from 35%, but plan officials have not yet decided which portfolios will be reduced, Mr. Klemmer said. Manager interviews are planned for October.

Summit Strategies is assisting.

MIAMI — Lennar Corp. at the end of the year will review the 13 investment options in its $200 million 401(k) plan, said Jeri Dixon, director of compensation and benefits. Investment committee members are concerned about overlapping options, particularly the American Century International Growth, Bank of Ireland Stock and Janus Worldwide funds; and if any funds are dropped, the committee probably won't replace them, she said. Bundled provider CIGNA is assisting.

EAGAN, Minn. — Northwest Airlines Inc. contributed 11.4 million shares of stock of subsidiary Pinnacle Airlines Corp. and $60 million in cash to Northwest's three pension plans, said Bill Mellon, Northwest spokesman. In August, Northwest received Labor Department approval to contribute the Pinnacle shares instead of cash; in January, the company contributed 1.9 million shares of Pinnacle common stock to the three plans. The latest total contribution, equivalent to $369 million, fulfills Northwest's contribution obligations for the 2002 plan year and the 2003 calendar year, Mr. Mellon said. The three plans have $4.38 billion in defined benefit assets.

NEW YORK — MJX Asset Management is acquiring the Venture CDO 2002 and Venture II funds, with combined assets of $550 million, from the New York branch of Barclays Bank. MJX executives expects to begin fund raising before the end of the year, said Hans Christensen, managing director of MJX. The transactions are expected to be completed in the fourth quarter, subject to customary closing conditions, including the consent of the funds' investors.

MJX, a new firm, is owned by affiliates of Robert F. X. Sillerman and members of the funds' management team, including Mr. Christensen and Martin Davey, who will continue to manage the funds.

NEW YORK — YMCA Retirement Fund plans to invest in REITs for the first time, said Everett "Skip" Miller, vice president of alternative investments.

The $3.4 billion plan will initially put around 2% of total assets into real estate, with some of the allocation going into a direct investment program; plan officials will talk to direct real estate managers later.

The split between REITs and direct investments has not been determined. Funding will come from reducing fixed income, which is now targeted at 39% of assets. An invitation-only search for a REIT manager is expected to begin early next year.

STERLING HEIGHTS, Mich. — The $90 million Sterling Heights General Employees' Retirement System named Goldman Sachs and J.P. Morgan Fleming as finalists in the search for its first hedge fund of funds manager, said Rick Sanborn, pension administrator. Trustees will also interview one or more firms, yet to be named, at their Oct. 9 meeting, and a selection could be made that day, Mr. Sanborn said. The new manager will run $4.5 million, which will come from a $38 million Lehman Aggregate index fund run by State Street Global Advisors.

Separately, the system on Oct. 9 will also select candidates for interviews in the plan's shortlist search for its first real estate manager, to run $4.5 million, said Mr. Sanborn. Interviews will take place Oct. 23. Trustees have not yet decided whether to invest in REITs or real estate pools, and no timeframe has been set for a decision. Funding will also come from the same SSgA fund.

Merrill Lynch is assisting.

MEMPHIS, Tenn. — The Shelby County Retirement System postponed an asset allocation study and a review of the $750 million system's managers until late January, said David Pontius, manager of pension investments. The study and review had been scheduled for this month, but fund officials want to return to their regular schedule of doing annual reviews in the first quarter, Mr. Pontius said. The plan's asset allocation is 60% equity, 40% fixed income. Consulting Services Group will assist.

ALBANY, N.Y. — The New York State Teachers' Retirement System bought a 49% interest in 245 Park Ave., New York, from Brookfield Properties, said NYSTRS spokesman Dave Daly. The $72.4 billion system will pay $195 million in cash and assume $243 million in property-level debt. Funding will come from cash. Brookfield will retain the remaining 51% of the 45-floor skyscraper, tenants of which include J.P. Morgan Chase and Major League Baseball. ING Clarion assisted.

WAUKESHA, Wis. — Wisconsin Centrifugal will begin an annual review of its $60 million 401(k) plan next quarter, said Paul Crook, vice president-finance. Plan officials might drop the Fidelity Aggressive Growth fund as an investment option, pending the result of the review; if so, another midcap growth option would be sought to replace it, Mr. Crook said. No timeframe has been set for completing the review.

The plan offers 12 investment options. Fidelity is the bundled provider.

CLEARWATER, Fla. — Clearwater Employees Pension Fund named Dodge & Cox, Western Asset and PIMCO as finalists in a search for a core fixed-income manager to run $75 million, said Stephen Moskun, cash and investment manager. Officials at the $439 million system are expected to make a selection by the end of October. Funding will come from reducing a Lehman Aggregate index fund run by Northern Trust to about $30 million, Mr. Moskun said; investment committee members wanted more active management. Callan is assisting.

The plan's asset allocation is 60% equities, 40% fixed income.

KANSAS CITY, Mo. — The Kansas City Employees' and Police Retirement System might be ready to invest in alternatives by next spring, said James Pyle, pension systems manager.

Trustees for the $588 million system are learning about alternative investments; presentations on hedge funds and private equity have been made, and real estate, stable value and high-yield fixed income have yet to be presented, he said.

The system's asset allocation is 66% equity, 34% fixed income. DeMarche Associates is assisting.

ATLANTA — Fulton County School Employees' Pension Fund plans to issue a shortlist RFP by the end of September for an investment consultant for the $135 million plan, said Harold Grindle, treasurer. It does not have a full-time consultant, he said. Fund officials have not set a deadline for responses.

The selected firm will conduct an asset allocation study and performance review of the plan's managers, which officials hope will be completed by the end of the year, he said. Manager changes are possible, along with an increase in the plan's equity allocation, Mr. Grindle said. The plan's asset allocation is 88% fixed income and 12% equity.

WHEELING, Ill. — The Wheeling Police and Firefighters' pension funds may look into searching for the plans' first investment consultant, said Michael Mondschain, village finance director and the plans' treasurer. The two plans, each with $20 million in assets, are managed internally, although they may search for an external money manager if a consultant is hired, Mr. Mondschain said. No time frame has been set for the potential searches, he said.