NEWPORT, R.I. -- Public pension management took center stage at a regional conference of state treasurers that concluded here yesterday.
According to one speaker at the conference, a conflict has arisen between political interests of elected officials who oversee pensions and the rights of workers who expect to receive retirement money from them.
"Whose money is it, anyway?" asked S.Q. DellaGrotta, a senior vice president at the Anaheim, Calif.-based firm Meyer Real Estate Advisers Inc.
"Present employees and retirees have the perspective. 'This is my plan, my benefits.'" he said. "Everybody [else] seems to forget who really owns the money in the plan."
Pension fund managers, he said, have developed an attitude best summed up by the statement: "We put the money in this plan, and it belongs to us."
That firm sense of ownership, however, does not stand on solid legal ground, according to Mr. DellaGrotta.
"Courts have consistently held that pension funds belong to the beneficiaries," he said. "Investment decisions must provide the kind of prudency that will result in less risk, preserving principal invested, making that principal grow, and investing it at market rates."
The discussion comes in the midst of increasing questions over pension fund management.
Yesterday's Providence Journal-Bulletin, for example, carried a story describing a controversy raging over Providence's plan to give a $9.9 million pension fund infusion to a bedevilled nursing home project. And in Massachusetts. The Boston Globe has chronicled a spat between two officials of the state's Pension Reserves Investment Management agency.
"A pension fund is a business enterprise whose objective is to make money," Mr. DellaGrotta said.
He suggested that proxy voting by pension plan participants could help solve the conflict. Pension participants could vote on whether to invest the funds for purposes other than maximum return.
To be sure, fostering social good and attaining the highest yield need not be mutually exclusive.
Harold A. Mackinney Jr., chairman and chief executive of Fleet/Norstar Investment Advisers, said his firm had managed a fund for an animal rights group that wanted to avoid buying interests in companies that test their products on animals.
Mr. Mackinney said his firm managed to accommodate the group by devising a system for evaluating companies' use of animal testing.
But when divesting from firms with ties to South Africa became fashionable, Mr. Mackinney said he was daunted.
Managing a fund with stakes in 55 firms, he found that 33 had business relations with the racially segregated nation. Surprisingly, Mr. Mackinney discovered he could cash out of the South Africa-related firms without sacrificing yield.
A backlash to social investing developed last weekend, when Gov. Pete Wilson of California introduced state legislation that would allow him to use $1.6 billion of the California Public Employees Retirement System to help close a $14 billion deficit. Part of the measure would change the makeup of the pension's board of directors, a move widely interpreted as attempting to curb the fund's social investment policies.
For some treasurers, the conference provided a platform from which to trumpet their success in the field of social investment. Catherine Baker Knoll, treasurer of the commonwealth of Pennsylvania, said her decision to lend $200 million to the Pennsylvania Higher Education Assistance Agency had helped 66,500 students attend college this school year. Not only did the state receive yields 30 basis points above U.S. Treasury bill rates, but the move also helped "secure the future of Pennsylvania."
Student loans, especially for citizens with moderate income levels, have become increasingly hard to come by because of federal cuts in education lending programs. For the middle-income person," Ms. Knoll asserted, "the money is not coming from the federal government anymore." The state plans to lend $250 million more to the student loan agency this month, Ms. Knoll said.
Francisco L. Borges, Connecticut's treasurer, has led the charge to dedicate retirement funds to social goals. In 1989, he announced that this state's roughly $7 billion in pension funds no longer held any stock in firms doing business in South Africa.
Mr. Borges has not limited his social use of pension fund money to the "exclusionary" strategy of divesting to foster social change.
In 1988, the state established a fund to invest in Connecticut business. Its only investment to date was made last year, when Mr. Borges decided to give a $25 million shot of life to Colt Firearms, the legendary pistol manufacturing concern based in Connecticut.
The investment caused controversy not only because it was speculative, but also because Colt manufactured an array of assault weapons, such as grenade launchers and M-16s. But to Mr. Borges, the jobs saved by bailing the company out made the investment worthwhile.
He remains convicted that public pension funds -- with almost $1 trillion in assets -- remain a valuable source of funds to bolster industry and advance social goals. "Over the past two to three years," Mr. Borges said, "we have heard more and more discussion about what can be done with these funds."
Even since West Virginia Treasurer A. James Manchin's forced resignation for inept investing in 1987, the care of state funds has become an increasingly sensitive issue for treasurer.
The growing complexity of fund management has increased business for asset managers. Among the roughly 270 municipal finance professionals who attended, at least 70 represented firms vying to provide an array of investment advisory services to treasurers.
It has been a different story for municipal bond underwriters, though. With the public finance industry's repeated shakeouts since the Tax Reform Act of 1986, the number of underwriters attending conferences has declined, bankers here agreed.
"It's amazing how these conferences have changed since tax reform," said John F. Wallace 3d, a managing director at the Bank of Boston. He recalled a 1984 regional conference of treasurers in Santa Fe, N.M. Of the 400 who attended, Mr. Wallace said, "the majority were in public finance."
Only about 40 of those who registered beforehand work in public finance.
