Pension Fund Will See Shift of $12 Million
Jul. 1–The Chester County Retirement Board authorized yesterday moving $12 million in its pension fund from three of its underperforming money managers into a large-cap growth index fund.
The sector “is beginning to accelerate,” said Vincent T. Lowry, of VTL Associates Inc., the board’s adviser. He said the shift will help balance a portfolio that at this point is overweight in large-cap value stocks.
The board’s decision is a first step in what will likely become a major shift to lower-cost index funds if it follows Lowry’s long-range plan.
It also should trim expenses for the $197 million pension fund, whose returns over the last decade have barely kept pace with such well-known barometers as the Standard & Poor’s 500.
Managers losing money are CIM Investment Management Inc., of Pittsburgh; Chartwell Investment Partners, of Berwyn; and Dearden, Maguire, Weaver & Barrett Investment Advisors, an affiliate of First National Bank of West Chester.
Since the three firms were hired in February 2001, they have earned at least $730,000 in fees and none of them have met their performance benchmarks, according to county records.
The $12 million, which Lowry said represents about 12 percent of the domestic stock portfolio, will be invested in the iShares Russell 1000 Growth Index Fund.
He said he wants to create for the pension fund “custom index funds” that would be cheaper to manage and that would allow more flexibility than the present lineup of fund managers.
He also said he would like to hire managers that are more “focused” with portfolios holding no more than 40 stocks. “I don’t want a closet indexer,” he said.
“Active management has to be a part of every portfolio,” Lowry said after the meeting. “You can’t index everything.”
According to the most recent actuarial study of the county’s pension plan that was released in June, liabilities exceed assets by $41.6 million. Taxpayers will have to contribute $8.2 million this year toward that unfunded liability, said Mark Rupsis, the county’s director of administration.
Lowry said his plan, if adopted by the retirement board, could help the county exceed what the actuary says is the minimum rate of return needed, 7.5 percent, for the plan’s assets and liabilities to match up.
As of the end of last year, 701 people were receiving benefits from the plan, and another 88 former employees were entitled to benefits but not yet receiving them. The plan has 2,474 active members.
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