News: 2003 12 December

IFS has recently added several Retainer Clients. Among them are:

• SEIU Local 32-BJ North Pension Fund
  The Fund represents building service and janitorial workers in the Bronx and Westchester County who became part of the New York City local's membership when another local was merged into Local 32-BJ. IFS has assisted the Trustees in selecting its first custodian bank and is presently reviewing the Fund's managers.
• National Pension Fund
  IFS was hired by the National Pension Fund of a national union and national employer's association to provide investment advisory services on an ongoing basis, including advice on its real estate program and performance benchmarking.
• Apogent Retirement Security Plan
  The Fund of this public company hired IFS as its ongoing investment consultant, beginning in August 2003.

IFS has recently added two additional Operational Review Clients:

• San Antonio City Public Service Employee Benefit Plans
  IFS was hired in October 2003 by the $940 million San Antonio City Public Service Employee Benefit Plans to perform a comprehensive, independent review and evaluation of their governance structure. The work will document the existing governance structure, compare the governance structure of the other public plans, and give the Plans' Administrative Committee alternatives for possible modifications to the current governance.
• Western State Office & Professional Employees Pension Fund
  This Fund hired IFS in November to evaluate the administrative and professional services provided by its counsel, third party administrator, actuary and outside auditor. The Fund covers participants employed in the region from Northern California to the Canadian border.

IFS recently added or completed several fiduciary transactional projects, including:

• Laborers' International Union of North America (LIUNA)
  The General Executive Board of the Laborers' International Union of North America (LIUNA) hired IFS to analyze LIUNA's possible purchase of some portion of a $50 million offering of ULLICO preferred stock.
• The pension plans of several different companies hired IFS to act as an independent fiduciary decisionmaker in connection with real estate transactions. These include proposed sales and/or leasebacks of company property to various pension plans and preparing reports to the Labor Department, if we decide the transactions would be in the financial interest of the plans' participants.

In September 2003, IFS completed a wide-ranging Operational Review of the New Jersey Department of the Treasury Division of Investment. The Report was commissioned by the State Treasurer. The Division internally manages all $73 billion of the assets under its purview using active management. The Report was presented to the State Investment Council on October 1, 2003 and addressed a range of subjects, including governance, asset allocation, risk controls, and staffing.

In October, IFS completed a comprehensive management study and operations review of the New York City Office of the Comptroller's asset management function. The study provided an independent evaluation of the asset management polices processes and procedures related to the investment advisory services the Comptroller provides to the five New York City Retirement Systems. The Systems in the aggregate total more than $75 billion in assets and are considered one of the 10 largest pension funds in the country.

New Jersey Division of Investment, Trenton, .....Last month, a report by Independent Fiduciary Services recommended the state turn over some investment management to external firms for diversification. Tom Vincz, spokesman for state Treasurer John McCormac, said, "We have said all along in reviewing all recommendations from the IFS report that if there is need for legislation to implement any of the recommendations, we will seek it." .....

In this era of corporate reform, it's important that some pension funds scrutinize their own operations. The problems at the New York City Retirement Systems and the New Jersey Division of Investment are examples of what can be uncovered. Both were subjects of recent, separate critical reports by Independent Fiduciary Services Inc., which made valuable suggestions to improve the two systems...

... "We have seen it from a number of boards. It is not widespread, but it is hardly unheard of and is increasingly common as a stand-alone service," finds Samuel "Skip" Halpern when asked if pension boards are looking for outside advice on board governance or fiduciary education. Halpern is Executive V.P. and General Counsel at Independent Fiduciary Services in Washington, D.C. IFS provides pension funds with investment consulting and fiduciary audit services. ...

...Independent actuaries and fiduciaries can also monitor the work of plan investment consultants and investment managers, and make recommendations on funding and benefit issues.

Independent Fiduciary Services (IFS) in Washington, D.C., for example, provides independent fiduciary services on both an ongoing and transactional basis, serves as an investment consultant for retirement plans and conducts fiduciary audits. The audits, which take six months to one year to complete, are primarily for large public sector and Taft-Hartley retirement plans, according to Skip Halpern, executive vice president and general counsel at IFS.

"In addition to our other lines of work, serving as an independent fiduciary decisionmaker has grown increasingly important in recent years," Halpern says. "Post-Enron, general concepts of governance and conflict of interest are more apparent. People are more sensitive to the issues and more aware of the need for independent fiduciaries."

Plan sponsors seeking to put real estate or stock shares into their plans as in-kind contributions often hire independent fiduciaries to analyze and approve such transactions in order to protect plan participants.

"The concept is not to protect the interests of the company, but rather to ensure the interests of the participants and beneficiaries are upheld. A natural outcome of protecting participant interests is a reduction in the sponsor's exposure under ERISA," Halpern observes.

In June, PNC hired Independent Fiduciary Services Inc. of Washington, D.C., to represent employees of the company's 401(k) savings plan to ensure that they get their fair share of the restitution fund [established to compensate shareholders-including its 401K Plan-for claimed losses allegedly caused by securities law violations]. About 17,000 active employees participate in the savings plan....

IFEBP Annual Conference in San Diego:

• Edward (Ed) Patchett co-presented a session called "Valuation Forecasts and Asset Liability Modeling" on 11/10 and 11/11. The session contrasted traditional mean-variance asset allocation, valuation forecasts and asset-liability modeling, highlighted the objectives of each type of analysis and described ways Trustees can use the output
• Ed also moderated a session called "Are Hedge Funds an Appropriate Investment for Taft-Hartley Funds?" The session described what hedge funds and funds-of-funds are, highlighted key hedge fund strategies and described their risks.
• Frank Lilly was a panelist at the recent IFEBP Annual Conference in San Diego. The session was entitled "Internal Compliance Reviews" and his presentation was entitled "Operational Reviews- Fiduciary Audits".

Investment Management Network's Asset Allocation Summit:

• Lamont (Monte) Tarbox participated on a panel at the Investment Management Network's Asset Allocation Summit in October in California. Monte was joined on the panel by Mike McCauley, Director of Investment Services at the State Board of Administration of Florida and Peter Freilinger from JPMorgan Securities. Monte and his co-panelists discussed how pension funds and other institutional investors have used the concept of "risk budgeting" to change the way they make asset allocation decisions and organize their investment programs. Monte noted that while the concept has merit, it heavily depends on financial derivatives and requires great confidence in the ability of active investment managers. Ultimately, few pension funds take this approach because such techniques create a whole new set of risks and governance challenges

• Monte Tarbox also spoke in October at a Taft-Hartley Roundtable organized by the Investment Management Institute on how to develop an effective governance structure. Monte emphasized that good fund governance should lead to better investment returns, and that trustees are accountable to their participants and therefore trustees should hold their managers and advisors accountable as well.
• Monte explained to a group of pension fund officials from Croatia how U.S. pension funds coordinate the work of their accountants, attorneys, actuaries and investment consultants. The United States Agency for International Development (USAID) organized the tour to allow the Croatians to learn more about best practices in the U.S. and to help them develop their own pension system.