1st Maryland to Run Index Fund For a Big Union Pension Plan

First Maryland Bancorp has clinched a deal to manage an indexed equity fund for one of the country's largest union pension plans.

The fund, tied to the Standard & Poor's index of 500 stocks, will be offered to participants in the joint pension plan of the International Brotherhood of Electrical Workers and the National Electrical Contractors Association. The unions represent 800,000 and 14,000 members, respectively.

The IBEW-NECA Equity Index Fund will be launched April 1 with $2 billion in pension assets. It will be advised by Allied Investments Advisers and administered by FMB Trust, subsidiaries of First Maryland.

Allied already manages a "significant" amount of money for the two unions' pension plans, according to Walter R. Fatzinger Jr., executive vice president of Baltimore-based First Maryland.

The banking company currently manages $8.2 billion in client assets. This marks its first significant foray into indexed funds. Its executives hope that snaring the large index account will help them pick up other union clients.

"We'd be happy to have the $2 billion and nothing else, but obviously there are other opportunities here," Mr. Fatzinger said.

Indexed equity funds-portfolios that rely on computer models instead of stock-picking expertise-aim to keep pace with, rather than beat, a broad market gauge. Index funds have grown popular with institutional investors because they are less volatile and less expensive than actively managed funds.

"They are relatively easy to explain to people, because you get what the market gets," said Adele Heller, a director of RogersCasey, a Darien, Conn.-based consultant to institutional investors.

Ms. Heller added that index funds charge a lot less than actively managed assets - about 10 basis points of net asset value, versus 100 basis points.

At yearend there were 63 U.S. mutual funds tied to the S&P 500 index, with a combined $64.7 billion of assets, according to Lipper Analytical Services, Summit, N.J. That's up from 50 funds with $37.5 billion in 1995 and 46 funds with $20.7 billion in 1994.

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