Nov. 10–When the stock market was routinely registering double-digit gains in the 1990s, pension funds, college endowments and other large investors didn’t much question whether their success wasbased on the skill of the people they hired to manage their money or pure luck.
The subsequent market collapse brought that issue front and center, prompting many investors to re-examine who was managing their money and how it was being invested.
“The ’90s were tough on us,” says James Yanni, founder and chairman of Yanni Partners. “When stocks were flying high in the late ’90s, people were saying, ‘What do we need you guys for?’ “
The Downtown investment adviser helps more than 130 clients manage about $32 billion, determining investment strategy, designing customized portfolios, hiring investment managers to oversee the portfolio and evaluating the performance of the managers. About 40 percent of the firm’s clients are nonprofit organizations although 53 percent of the assets Yanni manages are in pension funds, said managing principal Terry Scotti.
In addition to nonprofits, its clients include labor union pension funds (including Teamsters Local 211, which represents Post-Gazette delivery personnel) and corporations.
“We touch a lot of money,” Yanni said.
The firm dates to the late 1970s, when Yanni established a consulting unit for Butcher & Singer. Yanni and associates acquired the business from Butcher in 1989. The firm employs 36, including nine certified financial analysts.
Chief Investment Strategist David Hammerstein said the demise of the bull market prompted institutional investors to take a harder look at the long-term implications of asset allocation, a portfolio’s mix between stocks, bonds, cash and other investments. Holding too many stocks, too few bonds or vice versa can dramatically impact how much a company has to contribute to its pension plan, how much a university increases tuition or whether a nonprofit research foundation has the money it needs to complete its mission, Hammerstein says.
Problems with retirement plans, notably 401(k) plans at companies such as Enron that were top-heavy with company stock, have made more retirement plan providers aware of the fiduciary responsibilities they have as trustees for their employees’ retirement money.
“Anyone with pension assets is taking a harder look,” Scotti said.
Yanni maintains a database of about 1,200 investment managers, measuring how well they do against market indexes as well as competing managers. The compendium also includes information on the manager’s investment style and personnel. The database is updated through interviews with about 400 managers annually.
With the market up 19 percent so far this year, pension and endowment fund managers are breathing a little bit easier. But Hammerstein warns they are by no means out of the woods. He predicted that funds could expect returns of about 7 percent in coming years, below historic averages.
Because of the meager stock market returns the firm is anticipating, Yanni is recommending that clients consider private equity, hedge funds, real estate and other less traditional investments as part of their portfolios.
“We hate to be purveyors of doom, but people have to be looking out for what could happen here,” Yanni said.
“The next 10 years are not going to give you what the last 10 years gave you.”
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(c) 2003, Pittsburgh Post-Gazette. Distributed by Knight Ridder/Tribune Business News.
