WorldCom implosion won’t change pension strategies

By Simon Avery The Associated Press
Tuesday July 02, 2002

LOS ANGELES — Public pension funds across the country were stung by millions of dollars in losses from the recent debacles at Worldcom, Enron and other companies, but their managers say they have no immediate plans to change strategies. 

Those losses, while huge, represent a tiny portion of most funds’ well-diversified assets. But they show how even professional money managers were caught unaware of the fundamental problems underlying these once high-flying companies. 

Pension fund officials say there was no way they could have known that WorldCom, the nation’s second-largest long-distance telephone company, was hiding nearly $4 billion in expenses from the investing public. 

“We’re scrutinizing things closer than we might have,” said Gary Bruebaker, chief investment officer of the Washington State Investment Board. “The trouble is, all we can use is publicly available information.” 

Some experts argue that institutional investors must scrutinize more closely the information companies provide to them, as well as intensify their own research. 

“A good analyst has to go beyond what a company feeds them,” said Beth Young, a pension fund consultant in Takoma Park, Md. 

Professional money managers also need to be skeptical about “too good to be true” stories, she said. 

The California Public Employees Retirement System, the nation’s largest pension fund, said it has lost $235 million on WorldCom shares and about $330 million on WorldCom bonds — paper losses for now, since the shares haven’t been cashed in. That represents about 0.4 percent of the fund’s total assets of $150 billion. 

New York state’s pension fund, the nation’s second largest with assets of about $112 billion, suffered its biggest single loss in history through its WorldCom investment. The fund lost about $300 million on its holdings in the telecom giant, aides to state Comptroller H. Carl McCall said. 

The nation’s third largest pension fund, the California State Teachers Retirement System, estimates that it is looking at $99.4 million in losses on WorldCom stock and $9.2 million in losses on WorldCom bonds. 

That’s a fraction of the fund’s $100 billion portfolio. But it follows losses last fall on Enron investments of $47.5 million. 

The Florida State Board of Administration, which invests the state’s pension fund, said its losses in WorldCom are between $85 million and $90 million, about 0.1 percent of the $90 billion fund. It had taken a $300 million hit on Enron. 

The Washington State Investment Board, which manages $53 billion in assets, has lost $75 million in WorldCom bonds and stands to lose at least another $8.5 million in WorldCom stock, Bruebaker said. That’s on top of a $97.5 million loss on Enron stocks and bonds. 

From Oregon to South Carolina, fund officials say none of the losses will affect their ability to pay pensions. But that hasn’t stopped a flurry of calls from members who worry what impact WorldCom, Enron, Global Crossing and other disastrous investments will have on their benefits.