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How funds handle billions.

Arkansas Teacher Retirement System Is Largest Plan in State With $2.61 Billion

BY MORE THAN $800 MILlion, the Arkansas Teacher Retirement System has the largest pension or retirement plan in the state.

According to the "1993 Money Market Directory of Pension Funds and Their Investment Managers," the Teacher Retirement System has assets of $2.61 billion as of June 1992. The Arkansas Public Employees Retirement System had $1.75 billion in assets in June 1992. No other retirement or pension plan in the state has as much as $400 million in assets.

Little Rock's First Commercial Trust Co. has been the fixed-income manager for the Teacher Retirement System since 1985. Oppenheimer Capital of New York is the value-equity manager for the fund, which has more than 65,000 participants.

Mavolene Booth, associate director for investments for the Teacher Retirement System, says the fund has had Oppenheimer Capital as an investment manager since 1977.

Shearson Lehman Brothers Inc., the consulting service for the Teacher Retirement System, recommended that the system add two growth managers two years ago. After reviewing several plans, Alliance Capital Management of Minneapolis, Minn., and Munder Capital Management of Birmingham, Ala., were added as investment managers, Booth says.

"We have a contributory and a non-contributory system," Booth says. "If you are contributory with the system, you pay 6 percent of your salary. If you are non-contributory, you don't pay anything from your salary, but you are required to be a member because the state puts in 12 percent of your salary."

First Commercial is the largest investment manager in the state, with $1.5 billion managed for 700 clients, according to the "1993 Money Market Directory of Pension Funds and Their Investment Managers."

Worthen Bank & Trust Co. manages more than $735 million, followed by Stephens Capital Management with more than $553 million, Meridian Management Co. with more than $191 million and Llama Asset Management Co., which manages more than $184 million. Llama, based in Fayetteville, is the only one with headquarters outside Little Rock.

Ellis Sloan, a vice president and portfolio manager with Meridian Management, says large pension funds employ directors who oversee the retirement or pension plans. Those individuals then usually hire consultants who help develop investment policies and assist in the selection of investment managers for the account.

Investment Guidelines

"Perhaps the single most important thing these plans have is written policies and guidelines that specify what their goals are and what asset classes they want to invest their money in," Sloan says. "Typically, the first step is these pension funds work with an actuary and come up with some investment assumptions and risk levels."

The investment directors determine what percentage of the assets are to be placed in stocks, bonds or cash investments. Then they search for investment managers who specialize in specific areas.

"The asset allocation is a decision that is based on the amount of risk that is appropriate for the money and the return that is desired," Sloan says. "The reason for that is that equities typically perform much better than bonds over longer periods, but equities also are volatile in that the returns swing to a greater degree."

The Arkansas State Highway Employees Retirement System, the third-largest plan in the state, added Meridian Management as an investment manager since Arkansas Business' 1992 ranking of the plans.

Booth says the Arkansas Teacher Retirement System recently has hired two more managers, Scudder Stephens Clark of New York and Brinson Partners Inc. of Chicago, to focus on international equity investments.

Booth says the system has $2.88 billion in assets as of May. The fund is required to make 8 percent annually, according to the actuarial assumption rate, Booth says.

The value-equity portion of the system's fund has been the most successful in recent years, Booth says. A value-equity manager invests in companies with stock prices considered to be lower than the value of the company.

The 10 largest value stocks in which the Teacher Retirement has ownership, Booth says, are General Electric Co., Mead Corp., Sprint Corp., Bank of America, American International Group, Honeywell Inc., Atlantic Richfield Co., Freeport-McMoran Inc., May Department Stores Co. and Warner-Lambert Co.
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Title Annotation:pension funds
Author:Smith, David (American novelist)
Publication:Arkansas Business
Article Type:Industry Overview
Date:Jun 28, 1993
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