INDIANAPOLIS -- The $8 billion Indiana Public Employees' Retirement Fund continued its shift to equities, picking four managers to run a total of $2 billion in indexed and enhanced indexed U.S. equities.
The focus next will shift to a search for active equity managers to run another $2 billion, said Garth Dickey, executive director.
In the latest round:
* Barclays Global Investors, San Francisco, was hired to run $700 million in passive large-capitalization equities.
* Existing manager J.P. Morgan Investment Management Inc., New York, was allocated $350 million for enhanced large-cap equities and $200 million in enhanced small-cap stocks. J.P. Morgan already manages $200 million in fixed income for the fund.
* Brinson Partners Inc., Chicago, also was hired as an enhanced large-cap manager; it was given $350 million.
* Dimensional Fund Advisors Inc., Santa Monica, Calif., also was tapped for enhanced small-cap stocks, with an allocation of $400 million.
Northern Trust Quantitative Advisors Inc., Chicago, was a finalist in the passive large-cap and small-cap searches. The other finalists for enhanced large-cap were BGI and Goldman Sachs & Co. Asset Management Division, New York.
Brinson's and J.P. Morgan's enhanced styles complement each other, Mr. Dickey said. Brinson starts with the entire index and takes stocks out, while J.P. Morgan focuses more on replicating index characteristics and tracking error with more concentrated portfolios.
Mr. Dickey said the new assignments will be funded over time, as the fund continues with its plan of putting $100 million a month into the stock market. Funding comes from cash flow generated from fixed-income assets.
The fund currently has $1.3 billion in a large-cap index fund managed by Northern Trust. Northern was selected to manage the money temporarily after the Indiana fund got approval from voters in November 1996 to invest in equities.
Indiana received 40 responses to its requests for proposals; it picked 22 semifinalists.
Because the fund started with a clean slate, Mr. Dickey said, choosing managers was difficult.
"The challenge is winnowing it down to the best," he said.
The fund's target allocation is: 35% large-cap U.S. equities; 15% small cap; 10% international equities; and 40% U.S. fixed income. Half of the allocations eventually will be invested in passive or enhanced mandates, and the other half in active mandates.
Next up will be a series of searches to allocate about $2 billion to active equity managers within a number of investment niches, Mr. Dickey said.
"We're continually looking at how to define the active manager niches," he said.
Indiana will select at least two managers for each strategy.
Active management niches could fall into traditional categories that combine large-cap, midcap and small-cap equity mandates into growth and value styles, he said.
Most likely, some type of midcap searches will come first, with all of the searches taking about 18 months to complete, he said.
Searches for the fund's 10% allocation to international equities won't begin until 1999, he said.
Burnley Associates Inc., Naperville, Ill., and William M. Mercer Investment Consulting Inc., New York, are the two
consultants assisting with the searches.
