Nov. 13–RALEIGH, N.C.–State Treasurer Richard H. Moore said he may cancel the state’s contracts with Alliance Capital, which is being investigated by state and federal regulators for possibleimproper trading.
Alliance, the nation’s largest publicly traded money manager, oversees $6.43 billion of the state’s $56 billion public employees pension fund, which provides retirement benefits to 680,000 current and future retirees.
“It is my responsibility to ensure … that Alliance is taking all appropriate steps to maintain its investment, compliance and related responsibilities,” Moore wrote in a Nov. 6 letter to Alliance chairman Bruce Calvert.
Moore sent his letter four days before Alliance requested the resignations of two senior executives, saying they failed to prevent improper trading in its mutual funds.
Alliance, which is based in New York, is accused of engaging in market timing — the rapid buying and selling of mutual fund shares in an effort to profit from short-term market moves. Though not illegal, the trading violated Alliance’s stated policies and can drive up a fund’s costs.
Alliance confirmed last week that it received a notice from the U.S. Securities and Exchange Commission that the commission’s staff was preparing to act against the company. Company spokesman John Meyers declined to discuss the company’s relationship with North Carolina.
Eric W. Zitzewitz, a professor of economics at Stanford University, said he expects more public pension funds to review their contracts with Alliance. “The stuff that went on is serious, very serious,” he said. “The question investors have to ask is, `Can we trust these guys?’ “
So far, North Carolina has not determined what action, if any, it will take.
In his letter, Moore said he instructed his investment division to undertake a “thorough review” of each of the state’s contracts with Alliance. The review’s primary goal is to determine whether the allegations against Alliance are distracting the company’s money managers, which could affect the performance of North Carolina’s public pension fund.
Moore said that none of North Carolina’s investments are in Alliance mutual funds, which is where the market timing is said to have occurred. The state treasurer’s office hired Alliance to manage individual pools of money on behalf of the state pension fund. None of the people who manage North Carolina’s accounts have been implicated in the trading scandal, said Andrew Silton, Moore’s chief investment adviser.
Still, Moore isn’t ruling out the possibility of canceling the state’s contracts with the firm. “If they don’t live up to our threshold, which is very high … then we will go elsewhere,” Moore said. “This is a free marketplace.”
Silton said the treasurer’s office hopes to complete its review of its contracts with Alliance by mid-December, and a final decision on whether to retain the firm will not be made before then.
Among the investment firms that manage North Carolina’s public pension fund, Bank of America is the only other company that has been accused of improper trading. In September, New York Attorney General Eliot Spitzer said the Charlotte bank and three other companies permitted a large hedge fund to engage in trades that were off-limits to smaller investors.
Moore said he recently questioned Ken Lewis, Bank of America’s chief executive, about the improper trading, but decided not to drop the bank as a manager. Bank of America oversees $2.39 billion in North Carolina’s pension fund, but all that money is invested in “passive” index funds, which invest in all the stocks of a stock index.
“Right now, I have confidence that Bank of America has addressed the issue” of improper trading in its mutual funds, Moore said.
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(c) 2003, The News & Observer, Raleigh, N.C. Distributed by Knight Ridder/Tribune Business News.
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