The United Auto Workers VEBA executives plan to weed through more than 75 investment managers the fund inherited from the Detroit Three automakers to decide which ones to retain or replace once they complete an asset allocation/liability study in late March or April.
Eric Henry, chief investment officer of the nearly $45 billion Ann Arbor, Mich.-based voluntary employees' beneficiary association fund — formally the UAW Retiree Medical Benefits Trust — said there's no timetable for when officials would begin searches for managers it decides to replace.
Consultant Ennis Knupp & Associates Inc. is assisting in the study, designed to develop a conservative investment strategy to be used until VEBA officials decide on a strategic long-term allocation.
Work on the long-term asset allocation is expected to begin late this year, after Ennis Knupp and VEBA executives — working also with Ennis Knupp's own actuary plus actuarial consulting firm Milliman Inc. — complete a separate study of the benefit obligations to have a better understanding of the fund's cash-flow needs, Mr. Henry said.
The trust, which officially started Jan. 1, was created under a court settlement to end the automakers' obligations to finance retiree health care for UAW-represented participants. General Motors Co., Chrysler Group LLC and Ford Motor Co. transferred assets from their own VEBAs, as well as stock and other securities issued by the automakers. Those securities are not yet included in its $44.4 billion valuation.
“Because of the uncertainty over the value of the holdings and the uncertainty of the benefit payment projection schedule, we will do another asset/liability study later this year ... when we have better clarity of the value of the assets,” Mr. Henry said. VEBA officials plan to have Ennis Knupp assist in that study, too.
So far, the only new money manager hired was BlackRock Inc. in January to manage $2.2 billion in cash stemming from preferred stock dividends paid by GM and Ford notes.
“We didn't want the money sitting in cash, so we hired BlackRock” as a result of a search conducted by Ennis Knupp, he said.
For now, VEBA officials plan a 50/50 split between equity and fixed income, except for existing alternatives allocations. The VEBA's assets include $2 billion in five hedge funds of funds, $380 million in equity real estate and $375 million in private equity.
The study under way is designed to come up with suballocations within the equity and fixed-income allocations and to recommend how to implement the strategy.
“We are waiting for the (UAW VEBA) investment subcommittee, staff and Ennis Knupp to build out details of the safe/growth budget (50% fixed income and 50% equities) which we expect to implement over time,” Mr. Henry said.
“We have not picked a pace” for implementation, he said, adding fund executives don't “want to make huge moves in the market.”
“While we have not ruled anything out yet (in terms of asset classes), we do not expect to commit additional money to funds with ... liquidity restrictions,” such as private equity or hedge funds, Mr. Henry said.
He declined to list all of the VEBA's existing managers and their investment assignments, naming only a few.
In domestic equity, managers it inherited from the auto companies' transfer of assets include State Street Global Advisors, AllianceBernstein LP, Mellon Capital Management Corp. and the former Barclays Global Investors, which is now BlackRock.
“We have not changed any mandates yet that came over,” Mr. Henry said.
The trustees — five appointed by the UAW and six public members approved by the U.S. District Court in Detroit — set the investment policy and asset allocation, while delegating implementation to the investment subcommittee and staff. Staff has the authority to hire and fire managers, reporting its actions to the investment subcommittee.