IRVING, Texas - Succeeding where others have not, Exxon Corp. has created a commingled investment pool used by a number of its non-U.S. pension plans and extensively shares one money manager among overseas plans.
For these and other successes, Exxon has become a recognized leader in the efficient management of its worldwide pension assets.
The company scored a breakthrough some 10 years ago when it created an indexed U.S. equities investment strategy applicable to the defined benefit funds of its U.S. and foreign units. The program created two pools with common in-house management - one for the U.S. pension assets and the other that commingles assets of non-U.S. plans. Together, the pools total more than $1 billion.
The oil giant also was able to find one money manager - BZW Barclays Global Investors, then Wells Fargo Nikko Investment Advisors - that could handle one or more indexed equity portfolios for its foreign units. In some cases, these are local domestic equities assignments, but BZW Barclays also manages broad international indexed equities for some plans.
BZW now manages Exxon pension assets in nine non-U.S. countries; its allocation from Exxon totals "several billion dollars," said James E. Bayne, Exxon's manager-benefits finance and investments. He declined to be more specific.
Mr. Bayne also expects BZW to be managing indexed assets for funds in "a couple of more countries" within the next few years.
Exxon has $8.3 billion of defined benefit assets worldwide, including $3.8 billion in the United States. And it has in excess of $15 billion of retirement assets worldwide, including defined contribution assets. Exxon has pension funds in a dozen countries, including the U.S.
The company also has converted its Norwegian division's pension fund from insurance contracts to a separate trust. The company is now "looking to make similar changes in a number of other countries around the world," Mr. Bayne said, without elaborating.
Exxon's broad pension mission is fourfold: to create a central set of principles for the funds worldwide; to devise and maintain an equity orientation; to invest passively to the extent possible; and to pursue diversification of assets.
Exxon established these principles 10 years ago when Mr. Bayne joined the headquarters' pension department. Previously, he had been treasurer of Exxon Chemical Co. in Europe.
Upon arriving at headquarters, Mr. Bayne was directed by Treasurer Ed Robinson to begin sharing with foreign affiliates the company's pension investment expertise.
"We realized that we didn't need to reinvent the wheel in every country around the world," said Mr. Bayne. "So what we did was to set up a centralized resource" at the world headquarters that non-U.S. units could tap. Day-to-day implementation would remain decentralized.
From the four principles came Exxon's emphasis on indexing and equity investing.
Today, Exxon's U.S. fund is nearly 75% invested in equities, while the U.K. fund has an even higher stock allocation. Mr. Bayne wouldn't specify the stock allocation or overall size of the U.K. fund. (According to "Pension Funds & Their Advisers, 1995-96," Esso U.K. PLC Retirement & Death Benefit Plan, London totaled 879 million, or $1.329 billion).
Moreover, 83% of the stock and bond holdings of Exxon's non-U.S. defined benefit plans are now indexed - up from 43% in 1990. In the U.S. plan, 95% of the publicly traded securities are indexed.
The introduction of indexed investments has taken place "wherever the company has funded plans of sufficient size and where regulations permit," said Mr. Bayne.
Exxon's dual strategy of widely indexing equities and using a manager with a global presence to handle multiple portfolios has spawned numerous benefits, he said.
As what Mr. Bayne called an unintentional fallout, Exxon has been able to reduce its overall stable of managers worldwide, although he couldn't provide exact numbers. Moreover, pension department staffing has been substantially reduced and investment performance abroad improved, "in some cases dramatically," said Mr. Bayne. He wouldn't elaborate.
But to some observers, Exxon's biggest accomplishment was creating the in-house managed U.S. equities pool for the foreign funds.
One plan sponsor who asked not to be named cited regulatory problems overseas as a major obstacle to pooling pension assets. Some European countries, he said, have rules requiring the custodianship and management of local pension assets be handled by local companies. Overcoming such hurdles can be costly and time consuming, he said.
But Mr. Bayne said Exxon had not encountered such major problems: "We started in a couple of countries, the U.K. and the Netherlands, and we were able to build quickly from there."
But participation was not done by fiat. All of the sharing "has been done in a collaborative way, where everyone sees it as a win-win situation," said Mr. Bayne.
Exxon's achievements have kept it on the cutting edge of developments, a place the company hopes to remain. "Right now, we are where we want to be. But as the world changes, we hope to be in the forefront," he said.
One possibility: more "commonality" of investments.
Sandy Chotai, global asset consultant with Towers Perrin in New York, is among those who see Exxon as a leader in pension developments globally. Mr. Chotai recently surveyed 30 large U.S.-based multinationals (not including Exxon) on their approach to managing foreign pension assets. Most of the companies are just now gathering information on how to implement best pension investment practices overseas, or in a few cases are seeking ways to consolidate service providers, he said.
As a more advanced step, "some companies are trying to commingle assets across borders," Mr. Chotai said.
Exxon, he said, is "the farthest along the curve in the global asset management process."
