wfn.org | Church agencies see 'minimal' impact from Enron debacle

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Feb. 7, 2002  News media contact: Tim Tanton7(615)742-54707Nashville, Tenn.
10-21-71B{043}

A UMNS Report
By Tim Tanton*

The collapse of utility giant Enron has affected some United Methodist
Church investment portfolios, but denomination executives say the impact has
been minimal.

The United Methodist Board of Pension and Health Benefits, the Board of
Global Ministries and the United Methodist Foundation had relatively small
amounts of Enron stock in their portfolios, and their portfolio managers
sold those holdings last year after the company's trouble became public.
Texas-based Enron is in bankruptcy, and Congress is investigating the
company's management and collapse.

Despite the dollar amounts involved, the losses incurred by the Board of
Pension and Health Benefits, the Board of Global Ministries and the
foundation represented a small part - less than 1 percent - of their total
investment portfolios. 

The pension agency lost about $26 million, or less than one-quarter of 1
percent of its approximately $11.5 billion portfolio. "For every $100, we
lost 25 cents," said Dave Zellner, managing director of finance and
investments in Evanston, Ill. However, participants in the board's
Diversified Investment Fund (DIF) are protected by reserves.

The missions board, which has a much smaller portfolio, lost about $300,000,
or less than half of 1 percent of its $500 million-plus in investments,
according to Connie Takamine, associate treasurer for the New York-based
agency. 

Two of the United Methodist Foundation's eight investment managers had some
"extremely minor holdings in Enron," and those were sold in November, said
Byrd Bonner, executive director. The foundation absorbed a loss of $120,625,
or less than one-tenth of 1 percent of its $51.6 million portfolio, he said.

The Board of Pension and Health Benefits has a broadly diversified
investment portfolio, managed by carefully chosen outside companies. Some of
the board's investment managers sold their Enron holdings in late September
and early October, while others sold at the end of November, according to
Michael Lee, the agency's communications strategist. "We are very lucky that
our exposure's minimal," he told United Methodist News Service.

In a press release on its Web site, the board explains that two of its index
funds had Enron stock, and several of the investment managers for the DIF
also had holdings in the company. "The impact of these losses on participant
assets is minimal," the board said, citing its diversification as a reason.
The statement can be found at www.gbophb.org/releases/20020130enron.html.

The board manages the pension and health benefits for 65,000 United
Methodist clergy, employees, retirees and spouses.

Participants' accounts are protected by a reserve cushion that the board
maintains on the DIF, the agency's largest pool of investment dollars. The
cushion currently equals about 1 percent of participant account balances.
Though below the board's 14 percent goal, it is an improvement from the
reserve deficit of 7 or 8 percent at the end of September, when terrorist
attacks on America drove down an already declining stock market. 

About 65 percent of the DIF is in stocks, and Zellner doesn't see that
changing. "The board is very committed to its long-term strategic asset
allocation," he said. "It believes and strongly believes that trying to time
the market is a loser's game, and it's just not going to do it." The board
will not be influenced by short-term gyrations, he said.

"Risk always accompanies any investment," the pension and health benefits
board said on its Web site. "We will continue to see some spectacular stock
successes (such as Microsoft and Intel) and failures (such as Enron and the
Internet stocks). As a disciplined investor with a broadly diversified
portfolio, the general board believes that, over the long run, prudent risk
taking, coupled with qualified investment management, works to the benefit
of our participants."

Enron's stock, which had a 12-month high of more than $16 per share on the
New York Stock Exchange, was trading at about 30 cents a share as of Feb. 7.

Two growth-stock managers for the Board of Global Ministries had investments
in Enron, but one sold out in October and the other did so in November,
Takamine said.

Both the Board of Global Ministries and the Board of Pension and Health
Benefits were in touch with their investment managers as the Enron mess
worsened.

"Our managers who owned the stock have said that they had never before seen
such a sort of a misreporting," Takamine said, "and I think that ... the
lesson to be learned is that when a company has such a rapid growth spurt as
Enron had, that you really need to see how true that growth is." That would
have been hard because of the way Enron did its reporting, she added.

When Enron's problems became known, "not only did we call and grill our
managers that owned it, we also called in and had serious discussions with
our managers that didn't own it," Zellner said. Those that had bought it did
so because the stock had been doing well or had gone down and seemed to
represent a good value, he said. "I am skeptical that they all did the level
of research that they should have done because the ones that did (do their
research) figured out that it wasn't the right stock to hold."

Enron will be on the agenda when the board's Asset/Liability Committee meets
Feb. 10-11 in Orlando, Fla., Zellner said.

He foresees the board getting involved in legal action to recoup some of its
losses. "Certainly we will be participating in class-action lawsuits," he
said. "We're not going to take a lead role, but we will participate along
with everybody else. ... Our participants should get their proportionate
share of whatever the settlement's going to be." However, he added, any
settlement is unlikely to be much unless the lawsuits target Enron
executives and Arthur Andersen, the company's accounting firm.

The Board of Global Ministries will also probably join in legal action,
though not taking a lead role because it didn't have a large amount of Enron
stock, Takamine said. "We certainly think that there's a great deal of
evidence that points to there being legitimate lawsuits." 

The Board of Global Ministries has been contacting national institutions of
mission - autonomous local ministries started by the agency or its Women's
Division - and telling them that the Enron situation offers lessons to be
learned about governance, Takamine said. "Our boards have to take their
fiduciary responsibility more carefully than maybe they have in the past
because this isn't an isolated incident to Enron." 

"This was bound to happen," Zellner said, explaining that if the situation
hadn't occurred at Enron then it would have happened at another company. He
has long felt that "there's been a lot of obfuscation that has taken place
at the corporate level in terms of accounting." Some firms are transparent
and clear in what they do, but others manipulate their data, he said. The
silver lining is that greater attention will be paid to the importance of
accounting and accounting regulations, he said. 

The United Methodist Board of Higher Education and Ministry did not have any
Enron stock in its investment portfolio in 2001 or 2002, according to Razl
B. Alegrma, treasurer and chief financial officer for the Nashville,
Tenn.,-based agency. He added that he didn't think the agency had ever owned
Enron stock. The board's $108.2 million portfolio includes the Africa
University Endowment Fund, among others.

The United Methodist Publishing House also had no Enron stock in its $40
million portfolio, said Larry Wallace, senior vice president of finance and
business services in Nashville.
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*Tanton is news editor for United Methodist News Service.

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United Methodist News Service
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