State, Local Funds Grab Larger Share of Equity Market

December 5, 2000 (PLANSPONSOR.com) - US institutional investor assets have nearly tripled over the past decade to $18.6 trillion, and control nearly half (49.6%) of the US equity market according to a new report.

At the end of 1998 US institutions had $16.3 trillion in assets, compared with just $6.3 trillion in 1990 the Conference Board noted in its Institutional Investment Report.

“Block” Buster

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Pension funds still represent the largest block of US institutional assets (47.5%), while open ended mutual funds account for 21.9% of the total, up from 14.5% a decade ago.

Insurance companies constitute 15.2% of the total, down from 21% in 1990.  Bank and trust companies represent 12.2%, roughly the same as the 12% a decade earlier.  Foundations now make up 2.4% of the total versus 2.3% in 1990.

Private trustee funds are 26.9% of the total, compared with 6.1% for private insured and 14.5% for state and local plans.

State Rises, Private Slips

Those state and local pension funds devote more than two-thirds (69.3%) of their total assets to equities, up from 36.1% in 1990.  These programs are “overwhelmingly the most activist institutional investors with regard to corporate governance matters,” according to the press release. 

Corporate pension funds actually lost ground as a percentage of total equity ownership, dropping from 16.8% of total equities in 1990 to 13.2% by the end of last year.

According to the Conference Board, possible reasons for the declining institutional share of the equity market could be the result of:

  • Trend by institutional investors to invest in hedge funds and other “private market” equities
  • A strong increase in individual shareholdings prompted by strong markets and easier trading access
  • New initial public offerings (IPOs), which are less attractive to institutional investors
  • Massive restructurings and stock repurchase programs by large companies generally held by institutions

Institutional investor assets experienced phenomenal growth over the past three years, rising

18.7% from 1996 – 1997
15.1% from 1997 – 1998
14.0% from 1998 – 1999

CalPERS Protests Bank of America CEO Pay

April 12, 2000 (PLANSPONSOR.com) - Showing its muscle as institutional investor, CalPERS is withholding its 1% proxy voting block of 9.6 million shares from re-electing Bank of America's compensation committee members. The bone of contention is a $76 million compensation package awarded in 1999 to Bank of America Chief Executive Hugh McColl.

Saw Earnings Lagging

The $168 billion California Public Employees’ Retirement System took this stand after noting the nation’s second largest bank holding company:

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  • had a 16 percent earnings shortfall
  • imposed a stringent cost-cutting program
  • laid off 19,000 employees.

Bank of America spokesman Peter Magnani said the board approved the following pay package for McColl in June 1999, after record quarterly earnings:

  • Salary of $1.25 million
  • Bonus of $2.5 million
  • Stock awards of $44.7 million
  • Stock options valued at $27.2 million
  • Other compensation of $319,442.

Prodding Others

The proxy action, posted on CalPERS’s corporate governance Web site, may influence other shareholders to follow suit. But unless that occurs, the protest gesture will not influence the election outcome at the bank’s annual meeting April 25.

CalPERS has not put forth any specific proposals for action around this matter, according to its Public Affairs spokesman Brad Pacheco. “There wasn’t any desired action that we’ve asked Bank of America. This is just to voice our concerns as one of the largest institutional investors,” said Pacheco. “We can rally other investors, that’s one of the reasons we have this website on corporate governance.”

Focus List Pays Off

Bank of America is one of 1600 US corporations in which CalPERS currently invests. It is not the only one under its corporate governance scrutiny. In February, 10 other underperforming companies were placed on the Web site’s Focus List.

Wilshire Associates reported in a recent study that CalPERS’ Focus List companies trail the S&P 500 Index by 89% for five-year periods before listing, and outperform the index by 23% in the five years following listing.

For more information about CalPERS proxy votes, visit http://www.calpers-governance.org

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