CalSTRS considers shift in fixed income

SACRAMENTO, Calif. — CalSTRS' staff is recommending shifting the target asset allocation for the system's $31.6 billion fixed-income portfolio to 70% internally managed core and 30% externally managed opportunistic over the next three years, from 95% and 5% respectively, according to a staff memo to the system's board. Staff of the $129 billion California State Teachers' Retirement System also endorsed expanding the portfolio's investible universe to include assets within the Lehman Brothers Universal index. It was not known if the changes would lead to searches for new managers; Sherry Reser, CalSTRS spokeswoman, could not be reached by press time for details.

Separately, CalSTRS' alternative investments program returned 26.3% for the year ended March 31, vs. its custom benchmark's 6.2% return, according to the staff memo. The real estate portfolio returned 18.3%, gross of fees, for the year ended March 31, compared with 15.5% for the NCREIF Property index.

The CalSTRS board will consider the staff recommendations at its Sept. 7 meeting.

BALTIMORE — Some of the market-timing claims against Janus Capital Group in a class-action lawsuit brought by its mutual fund shareholders have been dismissed by a U.S. District Court judge in Baltimore. Plaintiffs are "entitled to no further recovery" if previous settlements provide full restitution to those that were harmed, U.S. District Judge J. Frederick Motz ruled Aug. 25. As a result of settlements reached in 2004 with the SEC and the state of Colorado, Janus put $100 million into escrow to compensate potentially affected shareholders, John Bluher, Janus general counsel, said in a statement. "This ruling is a very positive signal from the federal courts," he said.

RICHMOND, Va. — Virginia Retirement System is looking for opportunities to manage more of its assets in-house, said Charles Grant, chief investment officer. The $44 billion system manages a total of $11 billion of its fixed income, domestic equity and domestic real estate investment trusts internally, as well as selective currency hedging. "We see continued opportunity to add assets in each of those areas." Mr. Grant said.

The system recently created a formal investment research program and hired three researchers to assist investment staff with portfolio management.

OAKS, Pa. — Company officials must align pension plans with overall corporate strategies and manage pension plans as integral parts of corporate finance, according to an SEI Investments white paper released Aug. 22.

Problems within pension plans are "no longer only an investment problem; it's a corporate finance problem," wrote Jim Morris, senior vice president of SEI Investments' Integrated Retirement Solutions unit and author of the paper. Company officials should manage pension-related risk the same way they manage other financial risk: actively and "more dynamically," according to the paper.

STOCKTON, Calif. — San Joaquin County Employees' Retirement System put INVESCO on watch for performance of a $193 million active international equity portfolio, said Robert Palmer, retirement administrator.

Consultant Strategic Investment Solutions was asked by the plan to "look at some options" regarding INVESCO and Capital Guardian, an international manager on watch since May for performance of a $163 million portfolio. SIS will present its recommendations to the $1.7 billion fund at its Oct. 28 meeting, Mr. Palmer said.

Bill Hensel, spokesman for INVESCO parent AMVESCAP, said the firm does not comment on clients' activities.

NEW YORK — Nearly half of U.S. multinational corporations that expect to make changes to their defined benefit plans over the next 12 months are considering dropping their plans, according to a survey by PricewaterhouseCoopers. The survey, based on interviews with 147 CFOs and managing directors, found that 54% of companies with a defined benefit plan have recently changed it or are considering a change, driven mainly by cost of maintaining the plan and funding volatility.

"Volatility jumped out more than I expected," said Steve Metz, a principal in PricewaterhouseCoopers' human resources services group. "That resonated with me because the fact is that everybody who wants to change the rules for pension plans wants to increase cost volatility. They might not realize it, but that's where it's going."

The other top drivers of plan changes were accounting requirements, competitor actions and government regulations, according to the survey.

The survey also found that 67% of defined benefit plan sponsors that made changes over the past three years closed the plan to new hires, while 63% froze the plan entirely.

"The key is this: People who want to keep pension plans alive, like unions, some employers, etc. … need to make sure they're heard" by regulators and legislators, Mr. Metz said. "Yes, it's important to re-examine the pension rules, but if the reaction is too strong, you take away virtually every tool the employer has to manage the pension plan."

NEW YORK — Lehman Brothers was to remove 14 Ford Motor Co. bonds with a market value of about $8.5 billion from its Aggregate Bond index at the end of August because Moody's Rating Services downgraded Ford debt to junk status. According to a Lehman report issued to money managers, bonds of Dearborn, Mich.-based Ford represent about 1.61% of the long-duration portion of the index, and 0.10% of the overall index. One money manager, who asked to remain anonymous, said the removal of Ford bonds "probably will cause yields to tighten a bit in the long duration part of the index."

SANTA MONICA, Calif. — Wilshire Associates announced that 34 foreign-based companies considered by the investment community to be based in the United States will be added to the Dow Jones Wilshire 5000 stock index effective Sept. 19. The market capitalization of the companies totals $148 billion. Last month, the number of firms to have been added was 32.

The largest of the companies, based on market cap, are: Tyco International Ltd. at $61.6 billion; Ace Ltd., $13.2 billion; Accenture Ltd., $11.5 billion; XL Capital Ltd., $10 billion; and Marvell Technology Group Ltd., $9.6 billion.

The index had 4,939 companies as of July 29, the latest date available.

INDIANAPOLIS — Indiana Public Employees' Retirement Fund disclosed its board made an illegal confidential payment of $212,000 two years ago in a settlement with Patricia J. Gerrick after she left as chief investment officer, said Jeff Carter, external affairs director of the $12 billion fund. The board voted to make the payment in a closed meeting in 2003, instead of in a public meeting as required by state law, Mr. Carter said.

The payment was a settlement in part over a discrimination case with the state civil rights commission, claiming "part of the reason she was terminated was she was a female," Mr. Carter said. Ms. Gerrick agreed to accept the payment in exchange for her resignation and dropping her complaint, he added. "She had a very respectable track record with the fund," Mr. Carter said.

The payment was made public when the State Board of Accounts criticized the secrecy of the payment. After the matter came to light in the audit, the board subsequently approved the payment in a public vote.

"No one has threatened any action" over the illegal voting because "the board went ahead and took action to correct it," Mr. Carter said.

Ms. Gerrick was CIO from April 1, 2001, to Oct. 16, 2003, and was paid $150,000 a year, Mr. Carter said. She is CIO of the $60 billion North Carolina Retirement Systems, Raleigh, which she joined last year. She didn't return a call for comment.

PORTLAND, Ore. — Oregon state Treasurer Randall Edwards and Attorney General Hardy Myers filed lawsuits against Merck & Co. Inc. and Marsh & McLennan Cos. Inc. to recover $25 million in losses incurred by the Oregon Public Employees Retirement Fund, Salem, which invested in both firms, according to a news release.

The suit against Merck and eight current and former company officials seeks more than $15 million in damages, alleging the failure to disclose important information about the firm's prescription drug Vioxx cost the $46 billion Oregon fund. It had purchased more than 1 million shares of Merck stock at "inflated prices, before the truth was revealed," the news release said.

The suit against Marsh & McLennan and two of its former officials — Jeffrey Greenberg, former chairman and CEO, and Ray Groves, who was chairman and CEO of subsidiary Marsh — seeks $10 million in damages. It claims the Oregon fund, which invested in the stock beginning in 2003, "paid an inflated price for Marsh stock based on Marsh's false statements, misleading financial reports, and the belief that Marsh operated according to a strict code of ethics," according to the release.

Both lawsuits were filed in Multnomah County Circuit Court in Portland.

Barbara Perlmutter, spokeswoman at Marsh, said it is company policy not to comment on lawsuits. Susan Case, Merck spokeswoman, was not immediately available for comment.

OKLAHOMA CITY — Oklahoma Firefighters Pension & Retirement System terminated Holt-Smith & Yates Advisors from a $40 million active domestic large-cap growth equity portfolio for performance, said Herb Bradshaw, deputy director of the $1.4 billion pension fund. The money was added to a $46.9 million active domestic large-cap growth portfolio managed by Chase Investment Counsel. Claire Lawrence, marketing administrator with Holt-Smith & Yates, said the firm had no comment on the matter.

Separately, Grosvenor Capital Management, Ironwood Partners, Lazard Ltd., Private Advisors and Union Bancaire Privee were named finalists in the plan's search for its first low-volatility hedge fund, Mr. Bradshaw said. The board will interview the five managers at its Oct. 21 board meeting and could make a selection that day.

Asset Consulting Group is assisting.

LONDON — Fifty-six percent of U.K. corporate pension trustees and officials have taken actions to prepare for added responsibilities associated with a new British pension law, according to a survey by Mercer Human Resource Consulting. Under the Pensions Act of 2004, most of which will be in effect next April, trustees are being asked to work "independently and robustly," said Gordon Clark, a principal at Mercer in London.

Pension trustees will also need to manage conflicts of interest such as trustees who also sit on their company's board and can view an issue as either a trustee, company director or a pension plan participant. Thirty-four percent of respondents have considered conflicts but do not see a need to change their trustee boards, while 8% have talked about the issue and documented an approach to managing conflicts.

The legislation places additional personal liability on the trustees, who will become more responsible for understanding the laws governing pensions as well as investment principles. The survey found 29% of respondents have discussed or implemented changes to the trustee board, and 29% have not yet considered the issue. Also, 39% of those polled are still discussing actions to address added responsibilities under the legislation; the remaining 5% have not yet considered the matter.

The survey of 130 pension officials and trustees was conducted in June and July.