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In fact, the stocks of several companies' have laid an egg for Florida's retirement fund this year.
By HELEN HUNTLEY, Times Staff Writer
© St. Petersburg Times, published March 15, 2002
WorldCom Inc. Tyco International. Computer Associates.
That's a short list of some of the stocks that have taken a beating this year after regulators or investors questioned their accounting. It's also a list of some of the not-so-profitable investments in the portfolio of Florida's state pension fund.
The $94-billion Florida Retirement System fund has been under intense scrutiny since it lost more than $300-million last year on investments in Enron Corp. But Enron, which is in bankruptcy reorganization, is far from the only investment the fund has had go sour.
The fund's investments in conglomerate Tyco International Ltd. lost $130-million in value during January and February In the wake of the Enron fiasco, analysts began asking questions about other companies' accounting practices, and Tyco became one of the first to go under the microscope. The stock plunged.
Computer Associates' stock suffered a similar fate after news came out that the business software company's accounting practices were under investigation. As the stock lost half its value, the Florida pension fund lost $75-million.
The most recent casualty is WorldCom Inc., in which the pension fund owns 9-million shares. The stock, which already had dropped substantially over the past two months, fell further this week after the telecommunications company announced that regulators had asked for information about its accounting.
Pension fund representatives could not provide an immediate accounting of the state's buying and selling of WorldCom stock in recent months. But the decline in market value since the first of the year would represent a loss of about $60-million if the state owned the 9-million shares the entire period.
State officials said they have been in touch with Wellington Management Co., the outside money manager that bought the pension fund's biggest chunk of WorldCom shares. Wellington officials said they believe the stock is underpriced and have accumulated 120-million shares for various clients, including the Vanguard Windsor Fund.
Last year the Board of Administration, which runs the pension fund, had conversations with Alliance Capital Management as it bought Enron stock for the state fund. However, the board never told Alliance to sell Enron, and state officials say they remain reluctant to dictate trades.
"We're not stock pickers," said Tom Herndon, the board's executive director. "We're not trained and educated to do that, and we don't have the resources to do that."
The fund has about $53-billion invested in U.S. stocks, about 60 percent of it in index funds tracking either the Standard & Poor's 500 Index or the Wilshire 2500 Index.
"We would own in the neighborhood of 3,000 stocks, plus or minus, just by virtue of the index process alone," Herndon said. The rest of the stock portfolio is in accounts in which managers have the discretion to buy stocks they think will perform the best. Sometimes they are wrong.
"You inevitably are going to own some stocks which are going to be losers and some of which are going to be winners," Herndon said. "If the portfolio has more gains than losses, that's what matters."
Last quarter when Enron filed for bankruptcy, the pension fund's U.S. stock portfolio gained 12 percent in spite of its losses on Enron. The portfolio was still down 12 percent for the year as a whole, but on average, it has gained 10 percent a year for the past five years and 12.5 percent for the past 10 years.
The state and local government retirees who participate in the Florida Retirement System have state-guaranteed benefits that do not change with the value of the pension fund's investments.
Board managers have discussed maintaining a "watch list" of retirement fund stocks that are in the news, but they haven't figured out what they would do with the information that would be collected. Professional money managers often disagree whether to buy, sell or hold when bad news breaks.
For example, nine of the board's money managers owned Tyco in their accounts at year-end. As the stock dropped over the next two months, three sold all their holdings, two sold some shares, two bought more shares and two left their positions unchanged.
-- Helen Huntley can be reached at (727) 893-8230.