At Deadline:Bear crisis knocks stocks

Stocks plummeted March 14 after Bear Stearns announced it reached an agreement with JPMorgan Chase to receive temporary funding to address the firm's liquidity crisis.

The Dow Jones industrial average closed below the 12,000 mark, down 1.6%, at 11,951.09; the S&P 500 fell 2.08%, ending at 1,288.14; and the Nasdaq composite closed down 2.26%, at 2,212.49.

The news of the bailout drove Bear Stearns stock down more than 50% in morning trading to $26.85; the stock closed at $30, down $27 from the previous day. The stock hit at 52-week high of $159.36 on April 25, 2007. The news also pressured the financial sector and the broad market amid renewed credit crunch fears.

CalPERS could stop investing in private equity if the California Legislature passes a bill banning the fund and CalSTRS from investing in firms that are at least partially owned by sovereign wealth funds whose countries do not honor human rights, according to a CalPERS staff memo.

Staff at the $240.6 billion fund said the bill, endorsed by the Service Employees International Union, could scare off already jittery private equity firms that worry having CalPERS as a limited partner will subject the funds to political interference.

“If CalPERS loses access to top-quartile private equity funds, the expected returns of the (alternative investment management) program would not justify continuing to invest in the asset class, because the lower expected returns would not compensate CalPERS for the greater level of risk associated with private equity,” the memo said.

About $9 billion of CalPERS' $23 billion private equity portfolio is managed by private equity firms that are partly owned by sovereign wealth funds. Staff recommended the board oppose the bill at its March 17 meeting. CalSTRS' board already has voted against it.

Ford Motor's pension fund hired Lehman Brothers to manage at least $3 billion in alternatives, with hedge funds, private equity and real estate each reportedly getting $1 billion.

Randall B. Whitestone, Lehman Brothers' vice president of corporate communications, confirmed that Ford had entered into “a strategic relationship with Lehman Brothers to grow the alternative asset allocation of its pension plan over time.” Mr. Whitestone said he could not provide more details.

Bill Collins, a Ford spokesman, confirmed “a business arrangement” had been made with Lehman Brothers, but declined to provide further details.

Kathleen Gallagher, director, asset management, of Ford's $46 billion U.S. defined benefit plan, did not return a call.

IBM has adopted an LDI strategy for its $57 billion in defined benefit assets, according to P&I sister publication Financial Week.

The company froze its defined benefit plans at the end of last year.

According to IBM's annual report, the fund increased its fixed-income holdings to almost 45% of total assets at the end of 2007 from roughly 31% a year earlier.

At the same time, the fund increased the duration of the bond portfolio and increased its use of derivatives, particularly interest rate swaps, “to further mitigate the effects of future interest rate changes” on its overfunded status, the annual report said.

Meanwhile, the fund lowered its equity allocation to 47% from roughly 64% a year earlier. Real estate and “other” investments increased slightly as well.

“Blank check” company Alternative Asset Management Acquisition's first acquisition will be Halcyon Asset Management, which manages $11.5 billion in hedge funds and other alternative investments. The offer values Halcyon around $974 million.

Under the terms of the agreement, Halcyon employees will receive up to $505 million and will retain interests in their firm that can be exchanged for shares of Alternative Asset Management, according to a news release.

Halcyon employees will initially own 43.6% of the new entity, which will be renamed Halcyon Management.

Dorset County Council Pension Scheme hired Record Currency Management and Auriel Capital Management to run a combined £35 million ($70 million) in active currency pooled funds, confirmed Nick Buckland, investment management of the £1.4 billion fund.

Record will manage a £20 million portfolio and Auriel, £15 million.

Funding came from cash, Mr. Buckland said. Consultant bfinance advised.

The Chicago Board of Education filed suit against the state of Illinois over its “unconstitutional funding scheme” for the $12.8 billion Chicago Public School Teachers' Pension and Retirement Fund, according to a CPS statement.

The lawsuit, filed in Cook County Circuit Court, “seeks to end the inequitable system the state has used to provide funding” to the Chicago teachers fund, compared with the funding for the $41.7 billion Illinois Teachers' Retirement System.

Canada Pension Plan Investment Board announced it will buy 39.2% of Auckland International Airport, ending speculation over the C$119.4 billion (US$120.6 billion) plan's partial takeover bid, according to a CPPIB news release.

Its offer, a 31% premium on the share price from the day before the offer was first made in December, was approved by 58% of the shares voted as of 5 p.m. New Zealand time March 14.

CPPIB will voluntarily reduce its voting power and limit the number of directors it will nominate as a way of allaying concerns over foreign ownership of the airport.

Senate Finance Committee Chairman Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, the committee's ranking Republican, want the congressional Joint Committee on Taxation to analyze how U.S. tax rules apply to sovereign wealth funds.

The U.S. exempts passive income from U.S. investments made by foreign governments from taxation because of sovereign immunity and the desire to keep the U.S. economy open to foreign investment.

The $37.4 billion Alaska Permanent Fund terminated SSgA, which ran $487 million in its International Alpha Select fund, because of personnel changes, confirmed spokeswoman Laura Achee.

The money was distributed to the fund's other international equity managers: active managers Acadian, Dodge & Cox, GE, Goldman Sachs, Julius Baer, Morgan Stanley and Principal Global; and passive manager Mellon, Ms. Achee said.