wfn.org | Board sticks to long-term outlook in turbulent stock market

[NewsDesk <NewsDesk@UMCOM.ORG>]

July 23, 2002   News media contact: Tim Tanton7(615)742-54707Nashville,
Tenn.  10-71B{310}

NOTE: For additional coverage of the United Methodist Board of Pension and
Health Benefits' meeting, see UMNS story #309.

CHICAGO (UMNS) - When the stock market is in a freefall, accelerated by
continuous corporate scandals, managers of the United Methodist Church's
pension fund remain true to their strategy: Invest for the long term.

"We're long-term investors, and we're sticking to our discipline," said Gale
Whitson-Schmidt, treasurer of the churchwide Board of Pension and Health
Benefits in Evanston, Ill.

The board's largest pool of investment dollars, the Diversified Investment
Fund, has performed well compared with its benchmarks, but it hasn't emerged
unscathed. After the Dow Jones industrial average lost 390 points on July
20, board officials estimated that the fund was down to a little more than
$10 billion in assets. Since the beginning of the year, it has lost about $1
billion to $1.2 billion, they said.

Staff executive Dave Zellner estimated that the board's reserves for the
Diversified Investment Fund were at minus 11 or 12 percent, leaving it with
88 cents for each $1 of liabilities. However, reserves have been down
before, and the agency has always built them back up.

"We're not at a point were people should panic," Zellner said. The economy
is reasonably strong, he noted. The portfolio also took a hit during the
days following Sept. 11, but it bounced back with the market.

"Our charge is to do better than our benchmarks, and we are doing better
than our benchmarks," Zellner said. However, he added: "Our benchmarks are
doing terrible." Through June, the Diversified Investment Fund was down 3.93
percent, while its combined benchmark - representing the performances of
various peer groups - was down 4.84 percent.

"We're going to have a period when people are just fed up with the equities
market ... but at the end of the day, they do come back," said board member
Will Green of Stamford, Conn. That has happened over and over, he said at
the board's July 19-20 meeting.

The board doesn't want to be a market timer, Zellner said in an interview.
"Our long-term policy is that we think stocks will provide good long-term
returns for our participants, and we want to have 65 percent of our assets
invested in the market."

During their meeting, the board's directors took no action that would have
affected the annual base credit payment to participants in the Diversified
Investment Fund. The rate is currently at 3 percent.

In the agency's Personal Investment Plan, the Domestic Stock Fund was down
24.9 percent; Domestic Bond Fund up 5.1 percent; Money Market Fund up 2.7
percent; Balanced Social Values Fund down 17.7 percent; and International
Stock Fund down 9.5
percent, Whitson-Schmidt said.

As a major institutional investor, the Board of Pension and Health Benefits
had holdings in both Enron and WorldCom, once-reputable companies that
self-destructed amid accounting scandals. "At one time, both of those
companies were among the 20 largest companies in the United States in terms
of the market value," Zellner said. 

With Enron, the agency lost about $26 million, or less than one-quarter of 1
percent of the board's approximately $11.5 billion portfolio earlier in the
year. It lost about the same percentage on WorldCom stock, with realized and
unrealized losses of about $25 million. The board also has about $1.4
million of WorldCom/MCI bonds, which could result in some proceeds. The
telecommunications giant filed for Chapter 11 bankruptcy protection on July
21, the largest such filing in U.S. history.

Through the wave of scandals hitting the markets, the board is doing more
than counting its losses. Its staff is taking action to make corporations
more accountable.

"We're working with other institutional investors that are very supportive
of the New York Stock Exchange's recommendations for strengthening its
standards for companies that are traded on its exchange," said staff
executive Vidette Bullock Mixon. The stock exchange's board of directors
will consider those measures when it meets on Aug. 1.

The recommendations include defining "independent directors" more strictly;
current rules allow companies to define directors as independent when
potential conflicts of interest may exist, she said. 

The board is urging the stock exchange to adopt a policy mandating that
companies make public their business code of conduct and corporate
governance guidelines, she said. The agency also supports companies
providing transparent public disclosure of their financial performance in a
way that is understandable, accurate and complete, she said.
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United Methodist News Service
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