Tulare County picks enhanced index finalists

VISALIA, Calif. — Tulare County Employees Retirement Association named INTECH and Quantitative Management Associates as finalists to manage $90.5 million in an enhanced U.S. large-cap domestic equity index portfolio, said David Kehler, retirement administrator. The portfolio could be run by both managers, Mr. Kehler said. Funding is coming from terminating SSgA, which had run the portfolio in a similar style, for performance, he said; the assets are parked in an S&P 500 index fund also run by SSgA until a replacement manager is found, Mr. Kehler said. Officials at the $1 billion pension fund will likely make a decision at a May 28 board meeting, Mr. Kehler said. Marie McGehee, spokeswoman at SSgA, declined to comment.

SAN DIEGO — San Diego City Employees' Retirement System's board expanded the investment guidelines of Rogge Global Partners, which manages $204 million in active international core-plus bonds, said Doug McCalla, chief investment officer of the $4.9 billion system.

Rogge's new guidelines reduce the minimum credit quality rating of some of its bond investments, including reducing developed market corporate debt to BBB from AA, emerging market sovereign debt to C from B-minus and emerging market corporate debt to BBB-minus from B-minus. In addition, Rogge can now invest in new frontier countries such as Vietnam and Ghana/Gabon and countries that are between emerging market and developed market benchmarks.

The guidelines were changed after a review process by the fund and Rogge.

ALBANY, N.Y. — New York hired N.M. Rothschild & Sons, a financial advisory firm, to study the potential of privatizing the state lottery to finance creation of a $4 billion higher education endowment fund, said Matt Anderson, spokesman for the state division of budget. Gov. David A. Paterson authorized the hiring of Rothschild to evaluate selling future proceeds of the lottery in exchange for the $4 billion, said Mr. Anderson, whose division is part of the governor's office. Mr. Anderson said which state office would oversee investment of endowment assets would be part of the governor's evaluation of structuring the endowment.

No timetable has been set for Rothschild's report, Mr. Anderson said, although he noted the firm's contract expires in June. After expenses and payouts, the lottery netted $2.6 billion last year, Mr. Anderson said.

Creation of the endowment was approved as part of the state budget adopted earlier this month, but no funding source was designated, Mr. Anderson said.

PHILADELPHIA — Beneficial Mutual Bancorp on June 30 will freeze its Beneficial Bank defined benefit plan and another plan it took on when it merged with Burlington, N.J.-based FMS Financial Corp. in October 2006, a Beneficial spokeswoman confirmed. The company will enhance its 401(k) plan; the spokeswoman would not provide further details.

“By implementing this change, we are able to provide our employees with a competitive retirement benefit, while remaining consistent with cost control initiatives undertaken in 2007,” President and CEO Gerard P. Cuddy said in a news release.

Beneficial Bank's pension plan had $45 million in assets as of December 2006, according to Money Market Directory.

SACRAMENTO, Calif. — CalPERS and Strategic Investment Group sold their joint minority interest in U.S. equity manager Smith Asset Management Group back to the firm, said Deborah D. Boedicker, Strategic principal. Terms were not disclosed.

The $240.1 billion California Public Employees' Retirement System, Sacramento, and Strategic held a minority interest through their joint manager development program, Strategic Investment Group Ventures. Smith wanted to broaden ownership among its key personnel. The sale closed April 1. The CalPERS/Strategic venture retained a contingent interest in Smith's future revenue growth for a period of time. Size of the minority interest and other details were not available. The venture bought the interest in 2003.

Smith, which has $6.3 billion in assets under management, will continue to run $169 million in active domestic large-cap equity for CalPERS as well as $56 million in active domestic smidcap equity, said CalPERS spokesman Clark McKinley.

The CalPERS/Strategic venture has remaining stakes in four investment management firms out of the eight in the initial manager development program. CalPERS and Strategic recently started a second manager development program, making their first joint minority investment in money manager Quotient Investors, Ms. Boedicker said.

AMR Corp. — the Fort Worth, Texas-based parent of American Airlines Inc. — contributed $25 million to the airline's defined benefit pension plan in the first quarter and another $50 million on April 15, said Thomas W. Horton, AMR executive vice president-finance and planning and chief financial officer, in an earnings conference call. The DB plan had $9.2 billion in assets as of Sept. 30, according to information provided to Pensions & Investments.

AK Steel Holding Corp., West Chester, Ohio, will make a $75 million contribution to its $2.9 billion pension trust fund in the second quarter, according to the company's website. The contribution is expected to meet the company's 2008 funding obligation. Following the contribution, AK Steel will have made more than $750 million in pension fund contributions since 2005, according to the website.

BOSTON — State and local municipal pension plans are generally funded as well as private plans, despite the lack of federal legislation governing their funding status, according to a new issue brief by the Center for Retirement Research at Boston College. Between 2003 and 2006, funding levels averaged about 88% for the public sector and 86% for the private sector, according to the brief, “The Miracle of Funding by State and Local Pension Plans.” The result is surprising because public plans tend to pay larger benefits, use a more stringent funding yardstick and are not covered by ERISA, the brief said. Smaller public plans had more instances of underfunding, CRR said. It did not give more specifics. The full brief is available at http://crr.bc.edu/images/stories/Briefs/slp_5.pdf.

GREENWICH, Conn. — A Greenwich Associates study found that municipal pension plan officials expect their investment portfolios to outperform the market by 146 basis points on an annual basis over the next five years — an unrealistic expectation, according to Greenwich consultant Rodger Smith. “Few individual investment managers have ever generated 100 bps of annual alpha on a consistent basis,” Mr. Smith said in a news release, adding that a fund would have to shift “a big chunk of assets” to alternative investments to approach the 146-basis-points mark.

The most recent Greenwich Associates U.S. Investment Management Research study found the average funding ratio of public pension funds in the U.S. increased to 87% in 2007 from 86% in 2006. State funds saw average funding ratios increase to 85% from 79% while municipal fund funding ratios declined to 87% from 89% over the same period.

WASHINGTON — The Securities and Exchange Commission is stepping up its inquiry into auction-rate sale of debt issues to institutional investors. “While we cannot disclose specific matters, we are looking at representations made to investors when they purchased auction rate securities,” in coordination with the Financial Industry Regulatory Authority, said SEC spokesman John Heine, who declined to disclose further details of the inquiry by the SEC's Office of Compliance Inspections and Examinations. FINRA oversees about 5,000 brokerage firms in the U.S.

The SEC is pressing its own inquiry as nine states are coordinating efforts to find out whether brokerage firms failed to accurately represent the risk inherent to the debt investments. New York Attorney General Andrew Cuomo has also subpoenaed a number of Wall Street firms on the matter.

For the past two months, investors have failed to find takers at daily auctions for the securities they bought from the brokerage firms.

OKLAHOMA CITY — Oklahoma Police Pension and Retirement System returned -1.10% on investments in March and -4.69% for the first quarter, according to the $1.73 billion fund's website. The quarterly loss was still ahead of the fund's custom benchmark return of -5.59% for the period. Equities dropped 7.62% since Jan. 1, while fixed income slipped 0.26%. Real assets rose 4.28% in the quarter, despite a -3.04% setback in March. At the end of March, the fund's asset allocation was 19.8% global fixed income, 18.9% large-cap equity, 14.5% long/short equity, 12.5% low-volatility fixed income, 12% international equity, 9.2% private equity, 8% smidcap equity, 4.9% real assets and the rest cash.

NEW YORK — This year likely will be the most challenging for asset managers since the market downturn in 2000-'02, according to a new report by Moody's Investors Service. The report's authors expect global equity markets to remain down between 10% and 20% from September 2007 levels. The drop, combined with potential outflows, could be a “double whammy” for asset managers, said Matthew Noll, Moody's vice president and senior credit officer, in an interview. “What we don't know is how badly flows are going to be impacted,” said Mr. Noll, an author of the report. Retail managers will be hurt by investors who flee higher yielding funds in search of safe havens in cash accounts, he said. Institutional managers will have to contend with alternatives managers, like private equity and hedge fund managers, as investors seek higher returning strategies, according to the report, “Global Asset Management Industry Outlook.”

CHICAGO — The median foundation and endowment returned -4.7% for the quarter ended March 31, while corporate pension plans returned -5.7% and public funds returned -5.1%, according to the Northern Trust universe of institutional investment plans.

“Virtually all plan types were negatively impacted to some degree by the turbulent market and economic conditions experienced in the first quarter of 2008,” Craig Tome, product manager, Northern Trust Investment Risk & Analytical Services, said in a news release. “For plan sponsors, this was the worst-performing quarter since the third quarter of 2002.”

Annualized median returns for the three-year period ended March 31 were 8.5% for foundations and endowments, 8.3% for corporate plans and 8.4% for public plans. One-year median returns ended March 31 were 1.3% for foundations and endowments, -0.1% for corporate plans and 0.6% for public plans.

The Northern Trust universe comprises 300 institutional investment plans worth a combined $700 billion.

WESTPORT, Conn. — Rogge Global Partners is acquiring ING Ghent, the high-yield boutique owned by ING Investment Management Americas. The deal is expected to close May 31; terms were not disclosed, said Tracey Gordon, ING spokeswoman. ING Ghent, which manages $1.7 billion, is being sold because ING Investment Management Americas is moving to an integrated approach from a boutique model, according to a news release. ING Ghent will take the Rogge Global Partners name but continue to operate independently from its New York offices, said John Graham, a Rogge senior partner and portfolio manager. Kenneth J. Monaghan, now an ING managing director and senior portfolio manager, will continue to lead the Ghent investment team and report to CEO Olaf Rogge, said Mr. Graham.

“This is a strategic opportunity for our firm to broaden its fixed-income capabilities to include below-investment grade securities,” said Mr. Rogge in the ING news release. Rogge Global, a subsidiary of Old Mutual Asset Management, manages $37 billion in global fixed income.

NEW YORK — Milliman Inc. on April 16 unveiled its first pension funding index, based on its research and analysis of the 100 largest defined benefit plans of publicly traded companies. The Milliman 100 Monthly Pension Funding index is based on data from the companies found in regulatory filings and annual reports. John Ehrhardt, a principal and consulting actuary at Milliman, said at a news conference that the firm will project the index level every month based on benchmark returns of equities, fixed income and other asset classes. Monthly calculations will be made using annual asset allocations reported in regulatory filings.

CHARLOTTE, N.C. — Wachovia Corp., which cut its dividend after reporting a $393 million subprime-related loss in the first quarter, April 14 said it will raise $7 billion from two separate stock offerings that the fourth-largest U.S. bank immediately priced. Wachovia, with $808.9 billion in assets, priced a $3.5 billion issuance of common stock, 145.8 million shares, at $24 a share. Wachovia also priced a $3.5 billion issuance of convertible preferred stock, 3.5 million shares, at $1,000 a share.

“We're gratified by the significant oversubscription led by strong support from our existing investors for the equity capital” Ken Thompson, chairman and CEO, said in a statement. Following the news, Standard & Poor's maintained Wachovia's AA credit rating but lowered its outlook to “negative” from “stable.”