News: 2004 1st Quarter

SEIU Local 54 is located in NYC and represents the Theatre, Amusement and Cultural Service Employees. IFS has been hired to provide investment advisory services on an ongoing basis.

• Employees' Retirement System of Texas
  IFS was hired to perform a quality assessment of the ERS Internal Auditing department.
• The City of MobileAlabama Police and Firefighters' Pension and Relief Fund
  This Fund hired IFS to evaluate its retainer investment consultant.
• Ohio School Employees Pension Fund
  The Ohio School Employees Retirement System retained IFS to assist it in understanding the structure of several of its service providers, determine whether there are any interrelationships among the service providers which could create an actual or perceived conflict of interest, and if so, provide advice regarding controls, policies or procedures that could be adopted which are reasonably designed to prevent and/or mitigate the likelihood of conflicts.
• Oregon State Treasury
  The Treasury's Division of Investments oversees the $44 B Retirement System plus other assets. The Division hired IFS to evaluate staffing, workforce planning, use of external investment consultants and the compensation structure including incentive compensation for the Treasury's employees.
• Washington State Investment Board (WSIB)
  WSIB added IFS to its qualified pool of Specialty Consultants to provide Investment Personnel Salary Surveys on an as needed, project basis.

• Dayton Power & Light Plans
  IFS has been hired as an independent fiduciary to evaluate the Plans' position regarding a securities class action settlement with DPL.
• National Annuity Fund of International Association of Theatre and Stage Employees
  The National Fund of IATSE hired IFS to assist in a search for a turnkey 401K service provider. This is a joint project working with the Plan's retainer investment consultant. IFS' focus is on all administrative and operational aspects.
• Sale Leaseback Transactions
  IFS continues to work with the pension plans of several different companies, acting as an independent fiduciary decisionmaker in connection with real estate transactions. These include proposed sale-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

Andrew Irving, SVP & Deputy General Counsel for IFS, has authored an article titled "New DOL Rules Require Independent Approval of Benefit Plan Settlements" that is published in the Spring, 2004 issue of the American Bar Association’s Labor and Employment Law newsletter. Andy’s article describes the Department of Labor’s ruling requiring that plans use independent fiduciaries to decide whether to approve settlements of the plan’s claims against the plan’s sponsor or other ‘party in interest’.

"Updating The Garden State" is the title of an article in the February 2004 issue of Plan Sponsor Magazine. The article refers to the recent IFS Operational Review of the NJ Division of Investment, and highlights several of the recommendations IFS made and how the Division of Investment may implement them.

"Pension Consultants Need to Come Clean on Conflicts" discusses the need for full disclosure by consultants. The article explains.

"...Having conducted audits of 40 public and private pension funds ranging in size from $15 billion to $20 billion, Independent Fiduciary Services Inc., a Washington-based pension consultant that eschews soft-dollar practices, found that 'we often find (pension) funds using consultants affiliated with broker-dealers,' according to Samuel 'Skip' Halpern, executive vice president of the firm."

"'In several recent operational reviews (pension fund audits), the consultant advised on which money managers to use, the money managers paid 75 percent or more of the fund's total commissions to that consultant and the consultant provided poor securities execution -- meaning the fund's trading costs were unduly high,' Halpern said..."

"Not rolling over" is the title of an article in the February 2004 issue of Pensions & Investments. The article refers to the arguments that PIMCO Chief Investment Officer, William H. Gross, and his associates are putting forth in response to the recent New Jersey regulators accusations regarding "fraudulent market-timing arrangement" with a hedge fund, Canary Capital Partners LLC, Secaucus N.J. ... Many consultants have been receptive to the arguments put forward by Mr. Gross and his associates.

"Mr. Gross’ letter 'did not sound at all like something written by a corporate PR department. It was idiosyncratic, and hence a little more effective,' said Monty Tarbox, [of IFS], Washington. Mr. Tarbox’s colleague Edward D. Patchett, Said, 'We’re not recommending to any clients at this point in time, based on what we know today, that they take any action on PIMCO.'"

Andrew (Andy) Irving presented a session called "Protecting Your Plans in a Troubled Economy: Perspectives from an Independent Fiduciary" on January 4. The session summarized the challenges facing benefit plan fiduciaries: poor capital market performance, bad macro economic conditions, financial problems at the plan sponsor level, corruption and misconduct in the financial services industry. Andy then presented creative strategies to fund pension plans and how independent fiduciaries carry out their responsibilities when called upon to act on behalf of the plan in such transactions.

Steve Harding led a panel discussion on Operational Reviews and Fiduciary Audits at this summit on January 16. The panelists included Ms. Elizabeth (Betty) Martin, Alaska State Comptroller and Mr. Eric Henry, Executive Director of the New Hampshire State Retirement System. The panel focused on the expectations and results of the Operational Reviews performed by IFS for the Alaska and New Hampshire State Pension Plans.

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

IFS hosted its 2nd Bi-Annual client conference from March 31 to April 2, 2004 at The Westin Diplomat Resort and Spa, Hollywood Beach, FL. The Honorable William Thompson, Comptroller of the City of New York, was the keynote speaker.

Topics covered were:

• The Many Facets of Governance
  Presented by: Skip Halpern, Steve Harding & Monte Tarbox
• Active vs. Passive Investing – The Great Debate
  Presented by: Barney Buscemi & Adam Marks vs. Jack Johnson & Barbra Byington
  Moderator: Frank Lilly
• Key Investment Terms
  Presented by: Ed Patchett & Mike Johnson
• Current Issues in Fixed Income Portfolio Management
  Presented by: Barbra Byington & Marc Morlock
• Derivatives – “The Good, the Bad and the Ugly”
  Presented by: Mike Johnson & Adam Marks
• Implementing a Self-Directed 401(k) Plan
  Presented by: Richard Schmidt & Leslie Billet
• Equity Trading Costs and Portfolio Transitions
  Presented by: Jack Johnson & Mark Shankroff
• Proxy Voting
  Presented by: Jerry Carlisle & Monte Tarbox
• Hedge Funds 101
  Presented by: Ed Patchett & Mark Shankroff
• Inside the Investment Management Firm – An Insider’s View
  Presented by: Barney Buscemi, Jerry Carlisle & Leslie Billet
• Class Action Litigation – When Shareholders Challenge Good Companies Doing Bad Things
  Presented by: Jeanna Cullins & Andrew Irving

IFS recently hired Barnard A. Buscemi, CFA as a Vice President and Deputy Director of Operations. Formerly Chief Investment Officer of ASB Capital Management -- a Washington based money management firm -- he is a 25-year veteran of the financial services industry. Barney is involved with all major aspects of the firm’s work, including retainer consulting, Operational Reviews, fiduciary decisionmaker transactions, and internal operations.