Credit Suisse Group to combine myriad business units into 3 separate operations

NEW YORK — Credit Suisse Group announced Dec. 7 it will combine the various business operations of its investment banking and asset management units into three separate operations — asset management, private client services and corporate and investment banking — during the next 18 to 24 months.

As part of the asset management restructuring, Credit Suisse will spin off but retain a significant ownership stake in its private equity business, DLJ Merchant Banking, led by Tom Dean. Two hedge funds, the Credit Opportunities Fund, managed by Bennett Goodman, and the Diversified Credit Strategies Funds, managed by Jack DiMaio, will also be divested in early 2005, though CSG will retain significant ownership in both funds. An internal memo to Credit Suisse staff obtained by P&I Daily explained that the private equity and hedge fund vehicles have grown to the point that they are competing with major investment banking clients of the firm. The funds are being spun out to minimize competition.

Global alternative investment management strategies will be expanded, including hedge funds of funds and real estate, according to the company's public statement.

ALBANY, N.Y. — New York state Comptroller Alan G. Hevesi filed a securities fraud lawsuit against Merck & Co. Inc. The $120 billion New York State Common Retirement Fund, Albany, suffered a $171 million loss on its investment in Merck shares when the company pulled its arthritis drug Vioxx off the market Sept. 30 because of safety concerns, according to John Chartier, a spokesman for Mr. Hevesi.

In addition, Mr. Hevesi, who is the pension fund's sole trustee, is seeking to consolidate all other pending lawsuits against Merck and to be named lead plaintiff in a class action. Mr. Chartier said Mr. Hevesi had not determined an exact restitution amount he would seek.

"We haven't put an exact number on it because if Mr. Hevesi is granted lead plaintiff status, there's a class of plaintiffs whose losses could be in the billions," Mr. Chartier said. "The reason we filed this lawsuit is we believe there was evidence a long time before Merck pulled Vioxx off the market that there was a problem and that they continued to sell it."

The lawsuit was filed in U.S. District Court in New Jersey. Merck spokesman Tony Plohoros was not available for comment.

NEW YORK — Dow Jones and Wilshire Associates plan to launch U.S. equity indexes in early 2005 covering five investment styles: large-cap growth, large-cap value, small-cap growth, small-cap value and microcap, according to Kim Shepherd, Wilshire spokeswoman. The launch date is not firm, she added. The companies use six factors for style classification: five-year average earnings growth and sales growth; price/book value ratio; dividend yield; forecasts of price/earnings ratios; and long-term earnings growth.

NEW YORK — Celestar Capital Advisors hired Bear Measurisk to provide risk measurement and monitoring, confirmed Farzine Hachemian, co-founder and managing partner of Celestar. Celestar is a hedge fund and fund-of-funds advisory firm launched in September 2003. The firm also plans to launch a hedge fund of funds, Mr. Hachemian said.

"Very early on in the process we identified the need for a risk aggregator," he said. "As an advisory firm, we'd rather have a third-party provider," even though some hedge fund managers are willing to provide information on their funds.

Mr. Hachemian and Barry Seeman, Celestar's other co-founder, launched the firm after jointly running AXA Alternative Advisors, the AXA Group subsidiary specializing in hedge funds. Celestar has a multiyear agreement to provide AXA with investment advisory services, Mr. Hachemian said.

FRANKFURT — Deutsche Asset Management instituted a new organizational structure, parent Deutsche Bank announced Dec. 6. DeAM will have three distinct global business lines: institutional fixed income and equity; mutual funds, including DeAM's European mutual fund business, DWS and Scudder mutual funds; and alternative investments, including hedge funds, quantitative strategies, real estate and structured products. DeAM will also move its European headquarters to Frankfurt from London.

Paul Manduca, Deutsche Asset Management's CEO for Europe; James Goulding, CEO for Asia; and Josh Weinreich, global head of absolute-return strategies, are leaving the firm to pursue other opportunities, said Judith Inosanto, Deutsche Bank spokeswoman. Their duties will be assumed by members of DeAM's Global Operating Committee, she said.

SACRAMENTO, Calif. — CalPERS may press the automotive industry on potential plans to block California's new auto emissions standards. On Dec. 7, the Washington-based Alliance of Automobile Manufacturers, which comprises nine major auto manufacturers, joined a lawsuit filed by California automobile dealers challenging new state requirements requiring a 30% reduction in greenhouse gases by 2016. A draft letter to major automakers from the $177.8 billion California Public Employees' Retirement System, Sacramento, will ask each company's view on reducing emissions and a detailed explanation on how a litigation strategy would benefit long-term stockholders.

CalPERS will take up the matter on Dec. 13. The issue was spearheaded by California Controller Steve Westly and CalPERS President Sean Harrigan. Mr. Westly also raised the issue with the $118.7 billion California State Teachers' Retirement System, Sacramento.

ZURICH — UBS will acquire the $4 billion North American private client and business banking operations of Julius Baer. Terms were not disclosed. The deal is expected to close in the first quarter, pending regulatory approval.

"We will continue to expand both our institutional and mutual fund asset base in the U.S. market, and in addition to the existing expertise in international equities, further diversify our product offering to U.S. clients," said Walter Knabenhans, CEO of Julius Baer, in a statement. Julius Baer's U.S. assets under management currently total $18 billion, including $14 billion invested in non-U.S. equities. Mr. Knabenhans said the firm's trading and sales operations for institutional investors will remain based in New York.

Christine Walton, a UBS spokeswoman, said UBS will integrate the 55 Julius Baer staff members affected into its existing wealth management and business banking team, which managed about $74 billion for North American and Latin American clients as of the end of 2003.

WASHINGTON — The 100 largest U.S. mutual funds haven't followed pension funds in using the shareholder proposal process to encourage companies to reduce climate-related risks to shareholder value, according to a study. The study, written by Doug Cogan, Investor Responsibility Research Center deputy director of social issues service, examined the funds' 2004 proxy voting records and found that few voted in favor of global-warming resolutions. Most of the funds followed the lead of company management, according to a statement previewing the study.

"By contrast, a growing number of major pension funds and individual leaders in that industry sector have voluntarily disclosed their deliberate decision to support global warming resolutions, due to the financial risks posed by unmitigated climate change risks," the statement said.

LONDON — Pension fund deficits for 44 British firms in the FTSE 100 index fell to a combined £34.5 billion ($66.9 billion) last month, compared with £41 billion in March, said Stephen Baker, consulting actuary at Aon Consulting. He attributed the deficit reduction mainly to "largely favorable equity returns" and increased plan contributions.

Aon's research projected the total pension deficit of those 44 firms will drop to £23.1 billion in five years and to £8.6 billion over a decade. On average, the firms should have no pension shortfall and no surplus by 2016, he said.

Mr. Baker also noted that the companies allocate an average 60% of their pension assets to equities, 33% of assets to bonds and 7% to real estate or other investments.

The firm collected data on U.K. plan sponsors that had pension benefit obligations of more than £1 billion.

ALBANY, N.Y. — New York State Common Retirement Fund, Albany, posted a 28.8% return for the year ended March 31, the end of the fund's fiscal year, according to a news release from the fund. Since that date, when the fund was valued at $119.2 billion, it has slipped 1.7% and was valued at $117.2 billion on Sept. 30. Alan Hevesi, sole trustee of the fund and New York state comptroller, said local governments' pension costs will decline to about 10.7% of payroll in fiscal 2006 from 12% in fiscal 2005 because of the strong performance.

"Last year's returns were outstanding," Mr. Hevesi said in the news release. "However, this year was highly unusual, and the stock market remains volatile. We cannot expect these kinds of returns to continue."

NEW YORK — Asset Management Finance Corp. completed its first "unintrusive" financing deal, acquiring the right to "less than 15%" of the revenues of ACM Acquisition LLC, the holding company for real estate securities investment firm Adelante Capital Management for a 10-year period in exchange for "more than $10 million," said Norton Reamer, AMF's president and chief executive officer. Adelante CEO Michael A. Torres, who led a management buyout of the firm from Australia's Lend Lease in August, said while options such as selling a stake to a private equity firm were available, AMF offered a source of finance that was much less disruptive for the firm, its clients and its employees. Adelante has roughly $3.3 billion in assets under management.

GREENWICH, Conn. — European institutional investors are more focused on increasing fixed-income returns than an uncertain regulatory environment, according to a new report from Greenwich Associates. Because of low interest rates, institutional investors are using complex fixed-income investments such as credit and interest-rate derivatives to boost returns and lower risk, the report said. In addition, new financial regulations, including mandated changes in pension accounting in the United Kingdom, are creating incentives for institutions to shift assets into fixed income from equities.

"The expected returns on core fixed-income holdings like government and investment-grade bonds fall short of the basic needs of pension funds and other institutional clients," Greenwich Associates consultant Andrew Awad said in the report. "As a result, European institutions are increasingly looking for alternatives with the potential for incremental returns."

TALLAHASSEE, Fla. — The Florida State Board of Administration sued Bristol-Myers Squibb Co., New York, eight current or former officers, non-employee director Louis V. Gerstner Jr. and auditor PricewaterhouseCoopers, claiming the fund lost more than $240 million as a result of accounting fraud.

"This case involves one of the largest and most clear-cut instances of wholly fraudulent ‘earnings management' by a corporation ever uncovered by the United States," according to the lawsuit, filed in New York State Supreme Court by the board, which oversees $100.4 billion in pension assets. The company's accounting practices resulted in $1.844 billion in overstated pretax income between 1999 and 2001, and PwC certified misleading financial statements and was a direct participant in the fraud, the suit states.

The suit calls Mr. Gerstner the "most influential member" of Bristol-Myers Squibb's board of directors.

The board bought 9.43 million shares of the company between 1999 and 2003 for a total of $454 million, the suit notes.

Brian Henry, Bristol-Myers Squibb spokesman, didn't respond to a request for comment.

PINELLAS PARK, Fla. — Officials of the Pinellas Park Firefighters' Pension Plan are considering replacing PEA Capital, a PIMCO group unit that runs a $3.8 million active domestic large-cap growth equity portfolio for the $25 million plan, for performance and organizational reasons, said Denise Cowdrick, pension specialist. Consultant Merrill Lynch assembled a list of possible replacements and presented it to the pension board, which could decide later this month or in January whether to select a replacement. She would not say which firms are being considered. There is a "remote possibility" that PEA Capital could be retained, Ms. Cowdrick said.

Phil Neugebauer, PIMCO spokesman, did not return a call seeking comment by press time.

RICHMOND, Va. — Circuit City Stores Inc. will freeze its $194.3 million pension plan on Feb. 28, according to a filing with the Securities and Exchange Commission.

The company will also increase its matching contribution to its $262 million 401(k) plan to 4% from the current maximum of 1.25%, effective Jan. 1. Participants within three years of retirement can remain in the pension plan; all other participants will have the option of enrolling in the 401(k) plan.

Steve Mullen, spokesman, said company officials decided to freeze the pension plan to reallocate assets to the 401(k) plan, addressing participants' requests for improvements to that plan. The 401(k) offers 11 investment options; Wachovia is bundled provider.

NEW YORK — Institutional investors expect their benchmark returns to increase by up to 6% in the first quarter of 2005, according to a survey of 68 institutional investors surveyed by Lehman Brothers' U.S. equity strategy division. Roughly 61% of the respondents expect earnings-per-share growth of 5% to 10% in 2005, and just more than half predicted inflation of 2% to 3%.

WASHINGTON — The District of Columbia Retirement Board put Bank of Ireland Asset Management on watch for performance, said Sheila Morgan-Johnson, chief investment officer. The firm manages a $303 million active international equity portfolio for the $2.7 billion fund. The board will evaluate BIAM, along with other managers, on at least a quarterly basis. Ms. Morgan-Johnson did not provide further information on the matter. Watson Wyatt is consultant.

Anne Banks, spokeswoman for BIAM, declined to comment on client relationships as a matter of policy.

MORRISTOWN, N.J. — Hampshire Cos. closed the $235 million Hampshire Partners Fund VI, a commingled, discretionary value-added private equity real estate fund, said John P. Lonsdorf, spokesman for Hampshire. The firm has a $10 million co-investment; the fund's 15 investors include endowments, foundations and public and private pension funds. The $11.7 billion Los Angeles Fire & Police Pension System is an investor.

NEW YORK —Standard & Poor's launched the Indices Versus Active Funds Scorecard, providing quarterly performance data on actively managed Canadian mutual funds compared with their relevant benchmarks, confirmed Steve Rive, vice president of Canadian index services at S&P.

SPIVA data show that during the last year, 17.5% of actively managed Canadian equity mutual funds outperformed the S&P/TSX Composite index, while 25.3% of U.S. equity mutual funds outperformed the S&P 500 index, according to Mr. Rive. More than 71% of actively managed Canadian small-cap mutual funds outperformed the S&P/TSX SmallCap index in the same period.

"The idea for SPIVA is to provide an objective, scientific comparison of the performance of active managers against their relevant benchmark," Mr. Rive said, adding that SPIVA corrects for survivorship bias.

Separately, Standard & Poor's and the Moscow-based RTS Stock Exchange plan to develop a group of Russian equity indexes, according to a news release from S&P. The new S&P/RTS indexes are scheduled to be launched in the first half of 2005.

NEW YORK — Commitments to venture capital funds increased to $5.5 billion in the third quarter, up from $4 billion in the third quarter of 2003, according to a survey by Thomson Venture Economics and the National Venture Capital Association. Investors committed $14 billion to buyout and mezzanine funds in the third quarter of 2004, up from $5.3 billion in the third quarter last year.

Forty-two percent of the venture capital money was invested with 28 early- and seed-stage funds in the third quarter. The quarter's largest venture capital fund was the $1.5 billion Oak Investment Partners XI, primarily a technology fund.

The largest leveraged buyout fund raised for the year ended Sept. 30 is the $4.25 billion Providence Equity Partners V. In the same period, investors committed $11.2 billion to 125 venture capital funds and $32.4 billion to 75 buyout and mezzanine funds. Of the 125 venture capital funds raised in the year, 33 were new and 92 were follow-on funds.

NEW YORK — Sixty-four percent of mutual fund directors cited oversight of service providers — including investment advisers, fund administrators and shareholder servicing agents — as the aspect of compliance they find most difficult to monitor and assess, according to a survey by the investment management group of PricewaterhouseCoopers. The Nov. 12 survey of 70 mutual fund directors was taken a little more than a month after the SEC's new compliance requirements took effect. Another 15% of respondents cited securities trading and brokerage practices as their most vexing compliance issue, and 9% pointed to principal underwriter activities.

NEW YORK — Banyan Fund Management will close its hedge funds at the end of the year so its founders can pursue other interests. Robert J. McCreary and S.P. "Wije" Wijegoonaratna started the firm seven years ago to invest in Asian equities outside Japan. The firm has close to $200 million under management and nine employees. Both founding partners plan to start new hedge funds early next year. Mr. McCreary said he will use a more bottom-up stock selection process, while Mr. Wijegoonaratna will use a more top-down approach.