Magazine article Global Finance

Avoiding the Hiring Hassle

Magazine article Global Finance

Avoiding the Hiring Hassle

Article excerpt

Multimanager funds help plans avoid the money manager merry-go-round.

Five years ago Kaiser Aluminum's pension fund decided it had a real problem. "We found we were frequently engaging and disengaging money managers," says John La Duc, vice president and CFO. "It was just not our core competence, we weren't good at it." In 1993 the Houston, Texas-based company placed its $100 million of defined contribution plan assets in multimanager funds run by the Frank Russell Trust in Tacoma, Washington, and a year later followed with its $500 million of defined benefit assets. Russell is still managing both plans, which together now amount to more than $1 billion, and La Duc is well satisfied.

Through these funds, essentially institutional mutual funds, pension funds avoid the hassle of repeatedly hiring and firing money managers-and engaging the services of consultants that assist in this process. What some have termed "the money manager merry-go-round" is a major problem for pension funds. In 1997 47% of pension funds hired at least one manager; 37% terminated at least one.

Of course, a plan sponsor can always engage one of the large multimanager firms such as J.P. Morgan, Merrill Lynch, and Morgan Stanley. But Russell believes it has one clear edge over these firms: an armslength relationship with the many managers that run each of its funds. It uses independent rather than in-house managers, and its funds have 1 5-40 different managers, including some of the larger asset managers themselves. Among those handling a portion of Russell fund assets, for instance, is J.P. Morgan itself. Manager-ofmanager funds like Russell's remain a small segment of the pension fund market, but it is becoming more competitive. SEI in Wayne, Pennsylvania, began three and a half years ago and now runs $7 billion in such funds. Russell manages $9.5 billion and plainly has the longer track record-17 years in the business. …

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