|United Methodist pension board focuses on |
long term during down market
The financial crisis rocking Wall Street and global
markets is impacting the investment portfolio managed by the United
Methodist Board of Pension and Health Benefits, though not to the same
extent as the broad market averages.
A UMNS photo courtesy of Wikipedia.
A UMNS Report
By Marta W. Aldrich*
Sept. 19, 2008
Pension leaders for The United Methodist Church are assuring
participants that their accounts are well-funded through a diverse
portfolio of investments, despite losses of $1.5 billion during 2008.
Shaky U.S. and world financial markets have hurt investments of the
United Methodist Board of Pension and Health Benefits, the largest
faith-based investor in the United States. However, its leaders say the
losses are still less than the broad market averages, and they are
preaching a "stay-the-course" philosophy to the 74,000 clergy and lay
employees participating in their plans.
"We recognize and accept the cycles in the market, and right now the
markets are down," said David Zellner, chief investment officer for the
Evanston, Ill.-based agency.
Chief investment officer David Zellner addresses a January meeting in Fort Worth, Texas.
A UMNS file photo by
Marta W. Aldrich.
"But we have a disciplined investment process that we’ve had in place
for many years, and we stick with that process. We don’t waver, and we
do not panic. We take a very calm approach."
The board’s investments closed at $14.9 billion on Sept. 17—down from
$16.8 billion at the close of 2007—then increased to $15.2 billion the
following day when the market shot up 400 points. The rest of the
decrease in assets in 2008 is due to payment of monthly benefits and
This week's seesaw numbers follow another tumultuous week in the
financial sector that included the collapse of Lehman Brothers
investment bankers and the takeover of Merrill Lynch by Bank of America.
They are the latest U.S.-based financial institutions that, during the
past year, have failed or teetered on the edge of bankruptcy as a result
of losses related to risky home mortgages and loans, as well as other
Zellner characterized as "minimal" the board’s losses directly attributable to securities issued by those institutions.
"At the beginning of the week, we had $5 million directly invested in
Lehman Brothers, and that $5 million is now probably worth $2 million.
Three million dollars is a lot of money but, as a percentage of a $15
billion portfolio, it is relatively small," Zellner said in a Sept. 18
interview with United Methodist News Service.
In all, he said, less than 1 percent of the board’s portfolio was
invested in stock issued by Lehman Brothers, mortgage lenders Fannie Mae
and Freddie Mac, investment banker Bear Stearns and insurance giant
American International Group. All are among Wall Street icons involved
in the shakeup.
Zellner emphasized, however, that investments in Fannie Mae and Freddie
Mac bonds are safe because the U.S. government has taken over
responsibility for those liabilities.
As for AIG, the board suffered some investment losses and is in the
process of replacing the insurer with another provider to insure one of
the board’s seven investment funds.
Spreading the risk
The United Methodist pension fund ranks among the top 100 pension funds in the United States, according to Crain’s Pension & Investments.
Zellner spoke to UMNS one day after the board posted a question-and-answer report
on its Web site about its investment performance in the current market.
The report emphasized the board’s diverse portfolio that includes U.S.
and international stocks, bonds, real estate securities,
inflation-protected bonds, commodities futures contracts, private
equity, real estate, privately placed mortgage-backed loans through its
Positive Social Purpose investments program and other types of
The greatest losses in the past year have resulted from decreased
investor confidence in the U.S. and world economies as a result of the
failure of these institutions, causing a steady decline in stock and
some bond markets.
“The greatest challenge is assuring
participants that we have a disciplined process, that we’re adhering to
that process and that they should ignore short-term fluctuations in
stock prices.”"Because of the loss of
confidence in the U.S. financial system, as well as concerns about the
decline in the U.S. and world economies, investors have lost confidence
in not only corporate America but in corporations around the world that
they’ll be able to continue to be as profitable as they have been in the
past," Zellner said. "This has had an adverse effect on investor
psychology and has resulted in a decline in the value of stock prices
Zellner said the church’s pension funds are positioned to weather such
financial storms, however, because of its "long-term investment
philosophy of a measured, balanced, diversified approach to managing
"The greatest challenge is assuring participants that we have a
disciplined process, that we’re adhering to that process and that they
should ignore short-term fluctuations in stock prices," he said.
He also noted that clergy in the Ministerial Pension Plan (MPP) that are
nearing retirement should not be significantly impacted by the latest
market fluctuations as MPP balances are managed by the board's LifeStage
Investment Management Service. LifeStage places investments with higher
risk but the potential for greater return during early years of a
participant’s career and reduces exposure to higher-risk equities as
retirement approaches. "Although the recent decline in the stock market
has had an adverse impact on MPP balances, most participants approaching
retirement have a majority of their balances invested in lower-risk,
fixed-income funds," the Q&A report states.
Clergy who are a decade or more from retirement will see reductions in
the value of their accounts, "but given the amount of time before
retirement, there is time to recover those losses," Zellner said.
The board received numerous calls from participants after Lehman
Brothers filed for bankruptcy protection on Sept. 15 because the pension
agency has about $2 billion in assets managed by Lehman Brothers Asset
Management (LBAM). The Q&A explains that LBAM is a subsidiary of
Lehman Brothers Holding Co. that is not subject to the bankruptcy filing
and that securities managed by LBAM on behalf of the board are held by
and under the control of Bank of New York Mellon, custodian of the
"Approximately 60 percent of the securities managed by LBAM for the
General Board are safe U.S. government-issued securities," the report
Zellner noted that the value of the board’s LBAM assets actually
increased on the day when Lehman Brothers collapsed. "That entity is the
money management arm, and our participants should rest assured that
those assets are safe," he said.
Opportunity amid turmoil
Julianne Malveaux, an economist and president of United
Methodist-related Bennett College for Women in Greensboro, N.C., said
participants in the denominational pension plan should not panic when
they see a reduction in their account balances.
"I wouldn't be alarmed by what represents a 6 percent loss at a time
when some companies are experiencing losses of 30 and 40 percent," she
said. "I'd be more alarmed if we don't get on top of this in the longrun
by pushing our influence as a socially responsible investor and sharing
with our stakeholders what we should be doing around this economy."
Malveaux said the succession of collapses or mergers of some of Wall
Street's oldest and biggest firms represents an opportunity for the
pension board and other large managers to use their investment muscle to
influence public policy and address corporate greed.
"With such financial instability, the question we might want to raise is
how we can be a force for stability," she said. "With more than $15
billion, the pension board has an enormous influence to emphasize not
only rate of return but also social and economic justice. Investors can
change the course of corporate greed," for instance, by advocating
against unfair compensation packages, balancing CEO bonuses with
assistance to "the least of these" and pushing companies to be
environmentally, economically and racially just.
"This is a great time for people to think about where we are and to
begin to raise questions. At any shareholder meeting, there should be a
United Methodist statement at the table. We need to make sure we're seen
as a socially responsible investor that has a vision about what our
nation looks like."
The Board of Pension and Health Benefits is an original signer of the
United Nations Principles for Responsible Investment. All of its
investments are screened according to investment policies adopted by its
board of directors in accordance with the Social Principles of The
United Methodist Church. These policies exclude investments in companies
earning significant revenues from gambling or from the manufacture,
sale or distribution of alcoholic beverages, tobacco-related products,
pornography or weapons.
*Aldrich is news editor of United Methodist News Service.
News media contact: Marta Aldrich, Nashville, Tenn., (615) 742-5470 or firstname.lastname@example.org.
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