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About The Oregon state employee news. (Salem, Oregon) 1959-1969 | View Entire Issue (Dec. 1, 1969)
DECEMBER, 1 969 Page 7 OREGON STATE EMPLOYEE NEWS Oregon's Investment Council ROBERT STRAUB HOWELL APPLING W. P. STALNAKER DON ELLIS Retirement Fund Investments Raising Financial Eyebrows (Editor's Note: Oregon's new program of investing a portion of the Public Employees' Retirement System fund in the stock market has received wide attention throughout the country. The following article appeared in the Los Angeles Times on Nov. 16 under the headline, "Oregon P e n s io n F u n d T rie s a L it t le S w in g in g ." I t w a s w r it t e n b y Ernest A. Schonberger, Times Staff W r ite r.) Although it's not in league w ith the go-go funds and undoubtedly never w ill be, the Oregon State Retirement Fund is raising a few eye brows—and dollars—w ith some aggressive ideas about stocks. Impact on Oregon state retirees would be small even if the stock market collapses, in as much as the state may put only 10 per cent of the fund into stocks. But Oregon's ideas might be the wave of the future and' ultim ately exert noticeable impact on some stock prices, industry experts say. If other states follow Oregon's manner of approaching stocks, it could push hundreds of millions of dollars annually into aggressive stocks ordinarily bypassed by govern ment pension funds. On July 1, the pension fund began buying common stocks fo r the first tim e—just as Calif ornia, New York and a number of state pension funds have done in recent years. But Oregon went one’ huge step further. It hired three different money managers, divided its money three ways and gave them total discretion in investing. In contrast, other government em ployee funds laid down certain ground rules and retained the right to screen and veto stock choices. In other words, in Oregon, any of the three money managers could conceivably go out to morrow and plunk his third on Pie-in-Sky Fran chise Systems International. Although such speculative froth has been avoided by all three outside managers, their operations do add up to a much "h o tte r hand" in the stock market than the old line pension funds. F or example, Capital Guardian Trust of Los Angeles, which runs one-third of the Oregon portfolio, has been in and out o f two stocks in the four months. One of them was National Homes which it bought "a t 19 or 20 and sold at 2 7." Says Robert Kirby of Capital, "W e'll buy some backbone stocks like Borden and Carna tio n —but there'll Homeses, to o ." be some more National Kirby says the Oregon fund is especially appealing to him "because we can set our own time horizons." Pension funds usually hold onto stocks, if they get into them at all, fo r a year or two and often longer. But there are times when a money manager feels he should get in fo r the shorter term only. Another manager may see it differently, but Kirby wants the right to move out of the market. And he happens to expect lower prices. "It's the way it should be," declares George Bjurman of Transamerica Management Co. which has one-third o f Oregon's stockmarket pie. (Transamerica also runs the Occidental Life Insurance portfolio). "You get a much better result if you give the investment manager full discretion. If he doesn't give good performance, fire him ." "It's so far ahead of any government pension fund th at there's no comparison," asserts Kirby. Some other states also are reportedly considering yielding the investment reins on stocks. The Idaho State Endowment Fund already has turned over its convertible bonds totally to outside managers. Other states, like California, are big enough to afford a staff of internal money managers—who do seek outside counseling but who keep the r ig h t to decisions. Certain governmental agencies—Los Angeles County is one—retain the decision but in effect adhere almost unfailingly to outside counsel. How does it look from inside the Oregon structure? James George, investment manager of the Oregon Fund, concedes: "There's no ques tion it's more aggressive than we ever expected." Says Steve Jones of Oliphant & Co., which counseled Oregon on its selection of money managers and which w ill help the state evaluate its performance: " A ll three showed gains between July 1 and th e en d o f S e p te m b e r. W e h y p o th e t ic a lly in v e s t ed in a select group o f mutual funds with similar objectives as the State o f Oregon. And we also hypothetically invested in bank-pooled funds and insurance company pool funds w ith similar ob jectives. The Oregon Fund also did better than our hypothetical investments." The absolute sums that the money managers are working w ith at this point are not great but more money w ill be allocated to them. Each money manager was given $2 m illion on July 1 and another $2 m illion on August 1. On the first day of each, month thereafter each manager w ill draw down another $1 million. The objective is to get approximately $45 m illion into the hands of the outside managers in 12 months. The three managers don't put cash into the stock market at the same rate, of course. As of Sept. 30 only $8.5 m illion of the $15 m illion allocated had been placed in equities. The rest was in commercial paper or similar fixed income investments—and these high-yielding instruments obviously helped the performance. The Oregon Fund intentionally chose managers w ith varied approaches. Their attitudes toward holding cash—as Oregon people had hoped—has been quite different. The third manager. Fayez Sarofim & Co. of Houston, is almost fu lly invested.The other two obviously are holding onto quite a b it of Cash. Robert Straub, Oregon treasurer, replies: "The program is going extremely well. Market values of the stocks bought are in excess of costs." The Texas company's approach, paid o ff in a few cases just as handsomely as the partial fixed-income bent o f the other tw o in the early stages. One of the first investments o f Sarofim was Hartford Fire Insurance Co. The Oregon Growth Fund—as this portion is c a lle d in contrast to the fixed-income portion—was up six per cent from July 1 through Oct. 31. In that span the Dow-Jones industrial average fell tw o per cent. Several weeks ago the stock of Hartford jumped from $48 to $62 a share, when a favorable court decision was announced involving the-Hartford-ITT merger proposal.
