Ohio teachers lost $62 million on Enron
Some money managers for public pension funds
may have seen bargain in company's tanking
stock
BY ADAM GELLER
Associated Press
NEW YORK: It wasn't just Enron employees and individual
investors who bet heavily -- and lost big -- on the company's
stock last fall. Major public pension funds and some of the
nation's largest money management firms also got shellacked
when they kept buying even as evidence of Enron's troubles
mounted.
A retirement fund for Ohio teachers, for example, lost $62
million on Enron stock.
But some industry insiders are reluctant to second-guess firms
like Alliance Capital Management, which kept pouring money
into Enron. From a money manager's perspective, the energy
giant of last fall -- with its seemingly bargain prices -- still looked
like a worthwhile gamble despite enormous problems.
``Over the past few months, even as the share price declined,
the basic business appeared to be unaffected and standing
alone could more than justify the lower price of the stock,''
Alliance executive Alfred Harrison wrote in a Dec. 5 letter to
Florida pension officials, explaining his firm's repeated
purchases of Enron stock through mid-November.
Three days before, the Houston-based company had slid into
the biggest bankruptcy in U.S. history after thousands of
employees and big and small investors around the country lost
fortunes in the company's plunging stock.
Investments in Enron gone awry cost the Florida State Board of
Administration $306 million, more than $280 million of that in
money handled by the New York-based Alliance. Such losses
raise the question of whether investment managers should have
seen Enron's collapse coming.
Some say maybe not.
``We've been in a market where there have been a significant
number of stocks that have fallen from $70 or $80 to $20,'' said
Andrew Silton, deputy treasurer of North Carolina, whose
pension fund lost $15 million after Alliance and another money
management firm, Evergreen Investments, purchased Enron
shares on its behalf in October.
``Certainly at the time, it didn't look like a questionable thing to
be taking a look at a firm that had fallen sharply and saying, `Is
there value there?' '' Silton said.
Burned by Enron
The State Teachers Retirement System of Ohio is among the
pension funds burned by Enron's collapse, losing $62 million.
The fund modeled its portfolio on the Standard & Poor's 1500
index, of which Enron was a component. Fund managers,
though, increased the weight of Enron stock in the portfolio on
the belief in the firm's business model and long-term potential.
Such a decision reflected a judgment that is easy to
second-guess now, but at the time made sense, said Herb
Dyer, the Ohio official in charge of the pension fund. Ohio didn't
dump the Enron shares until after the firm filed for bankruptcy
protection on Dec. 2.
``The indications from Enron's record was they were good at it
(their business) and making money at it,'' Dyer said, ``and that's
the information you would want to associate yourself with or
invest in.''
Money managers
While the Ohio fund steered its own investment decisions,
some other public pension funds relied on money management
firms. Florida is suing Enron and has fired the New York-based
Alliance. New York City's pension fund has joined in the lawsuit.
In addition, a handful of individual investors in mutual funds have
sued Alliance, accusing the company -- which was the largest
single stakeholder in Enron -- of mishandling their money. The
investor lawsuits allege a conflict of interest by a former Alliance
executive, Frank Savage, who also sits on Enron's board.
An Alliance spokesman would not comment on the firm's
investment decisions regarding Enron, citing, in part, the
pending lawsuits. In the past, Alliance executives have said
Savage had no role in managing investor funds.
But as dissatisfied as it is with Alliance's performance, Florida
officials note that the firm appears to have been operating on
the same assumptions and making decisions similar to those at
least some of its competitors were making.
``Like a lot of people out on Wall Street, they (Alliance
executives) seem to have believed in this company,'' said
Michael Pucillo, a West Palm Beach, Fla., attorney representing
the state's Board of Public Administration in a suit against
Enron. ``What can I tell you? They're not alone.''
`B' for `buy'
In the three months that ended in September, the company
snapped up 17.8 million shares of Enron stock for its own
mutual funds, giving it a total of 43 million shares, or nearly 6
percent of the entire energy company.
The firm's extreme bullishness on Enron stock is grimly
illustrated in a spreadsheet faxed to Florida officials by Alliance.
The sheet's first entry, dated Nov. 6, 2000, and denoted with a
tiny ``B'' for ``buy,'' shows Alliance began by acquiring 150,000
shares of Enron on Florida's behalf at $78.74 a share.
It is the first of 50 such ``B'' entries, at prices as high as $82.73
a share, interrupted only by a single, limited sale of the stock
last April. The purchases, records show, continued through
mid-November. At the very end, the purchases were especially
aggressive -- in just the four days ending Nov. 16, Alliance
bought up 1.27 million shares of Enron.
By the time Alliance finally realized its mistake and liquidated
Florida's holdings, two days after Dynegy Corp. abandoned
plans to buy Enron, the stock was worth 28 cents a share.
Pension officials in Florida, North Carolina and elsewhere say
Enron stock comprised a very small percentage of their total
portfolios and that losses will not affect payouts to workers their
plans cover.
But individual investors who entrusted their money to private
managers are already noting the impact of Enron's fall on their
statements, since Alliance was just one of several money
management firms that put more money into the stock through
September.
Fidelity Management & Research and its sister international
firm increased their stake in Enron by 5.7 million shares to 23
million, during the three months that ended in September, the
latest date for which figures are available. Smith Barney bought
3.4 million shares during the same period, boosting its stake to
20.6 million shares.
Losses on Enron ``did not have a significant impact on the
performance of our funds,'' said a Fidelity spokesman, Vin
Loporchio.
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