PHILADELPHIA - Bell Atlantic Corp.'s pension fund has pared its roster of money managers by more than half and doubled its exposure to international stocks.
These are two of the key changes the regional telephone company's pension fund has made since it embarked on a total quality improvement program in 1991. In the process, Bell Atlantic's pension fund has trimmed costs by 60%, improved active returns and kept the risk level about the same.
The $11.8 billion pension fund now has 20 managers, down 60% from three years ago, and has 20% in international stocks, up five percentage points since the early 1990s, said Thomas J. Cowhey, assistant treasurer.
As part of its streamlining, the pension fund now has only three actively managed foreign equity portfolios, compared with five in 1992.
"The trend has been to consolidate money managers and consultants to deliver more returns with comparable levels of risk in a more cost-efficient manner," Mr. Cowhey said.
Bell Atlantic doesn't have a target number of managers. Instead, officials carefully analyze the need for additional managers beyond the core index managers in each class. "We add managers ... as long as they are incrementally adding returns," Mr. Cowhey said.
The pension fund's quality improvement program focuses on strategic asset allocation.
Thus, in 1992 Bell Atlantic's pension fund officials discovered international stocks could boost long-term returns while helping to hedge risks, and they realized they could achieve this primarily through passive management. Consequently, the pension fund now has half of its foreign equity assets in an index fund run by State Street Bank & Trust Co.,
Boston. The pension fund also uses Capital Guardian Trust Co., Los Angeles,, Northern Cross Investments Ltd., Boston, and the Capital Guardian Emerging Markets Fund to actively manage foreign stocks.
Company officials last changed the fund's long-term asset allocation in 1992. It is, however, rebalanced frequently.
"International equity has done very well (in 1994), and got out of bounds in the second quarter, so we had to bring it back in a few points," Mr. Cowhey said.
As part of the periodic review of the asset allocation, company officials last year brought in five of its money managers to assess market conditions and the outlook for different asset categories and how those mesh with the fund's long-term asset allocation.
"With having fewer relationships, our aim is to have better relationships with the money managers," Mr. Cowhey said.
The fund's goal is to have 35% to 45% in domestic stocks (of which 70% is passively managed) and 20% to 30% of total assets in domestic bonds, although bond managers may invest part of the money in foreign bonds.
The fund also tries to keep up to 5% in venture capital and between 5% and 10% in real estate.
Finally, Bell Atlantic's pension fund aims at investing up to 10% in a global tactical asset allocation mix of stocks and bonds proportionate to their percentage of the total asset mix.
The pension fund's changes are part of a companywide quality improvement program under the aegis of"The Bell Atlantic Way," adopted by the pension fund in 1991 (Pensions & Investments, Aug. 3, 1992).
Under that program, the pension fund compares its money managers' costs and returns against an internal index and funds of comparable size. The Bell Atlantic pension fund also provides data to and participates in cost effectiveness studies by Keith P. Ambachtsheer & Associates Inc., Toronto.
The fund aims to log higher returns and lower costs than the benchmarks.
"We've done a lot of benchmarking to get benchmarks that are best suited for the asset class and the money manager, to make sure we are fairly evaulating them," Mr. Cowhey said.
But performance should be measured over a two- or three-year period, not just a one-year horizon, Mr. Cowhey points out.
This is how Mr. Cowhey describes his pension fund's quality improvement efforts: "It's hire a manager, leave them in place, and let them do what they do."
