County Reaches For International Growth

March 16, 2008
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GRAND RAPIDS — Following a recommendation made by the trustees that oversee the Kent County Employees’ Retirement Plan, county commissioners recently changed how the county invests its pension money internationally.

The county has invested a portion of the pension dollars in international value funds since 1996. Commissioners decided last month, though, to put half of those dollars in an International Growth Fund managed by the Julius Baer Group, which says it is the “leading dedicated wealth manager in Switzerland.”

At the end of last year, assets in the investment-products division of Julius Baer totaled 78 billion Swiss francs. A Swiss franc is worth about 96 cents, so that asset amount is nearly $75 billion in American currency.

Kent County Pension Administrator Michelle Balcom said the pension board began to consider reallocating the $50 million the county had invested in an international fund when its St. Louis-based investment counselor, the Asset Consulting Group, made that suggestion to board members last August.

“They said the board might want to consider splitting the international portion and giving half those assets to a growth manager to complement what the value manager had been doing for about 10 or 11 years,” she said.

“It was splitting the international pie into two different types of strategies,” she added.

So a few weeks ago, the county invested $25 million in the Baer growth fund, a group trust that holds stock in European, Australian and Far East companies.

Northern Trust, a Chicago firm with offices in Grand Rapids, Bloomfield Hills and Grosse Pointe, is custodian of the trust.

“It is pure stock; it is all equity,” said Balcom of the fund.

When AGC suggested to board members that they reallocate the international funds at the August meeting, the consultant recommended three growth managers. Two made formal presentations to the board in November, and members chose Baer at that time. One of the firm’s international equity funds has had a three-year return rate of 16 percent and a five-year rate of 24 percent.

The Julius Baer Group, whose headquarters are in Zurich with offices in 30 countries, is listed on the Swiss Exchange. Moody’s has rated Baer as Aa3. The company’s investment-products division had a 2007 pre-tax profit of 235.5 million Swiss francs, or $226 million in U.S. dollars, and that margin was an increase of 50 percent from 2006.

Balcom told the Business Journal that the international investments the pension board has made since May 1996 have done very well.

The pension board has seven members and three are county employees: Michael Dubay, David Kok and Mark VanderMolen. Commissioners David Morren and Fritz Wahlfield are also members. John Linabury and David Reglin are citizens on the board.

Kok and Reglin didn’t serve last year when the allocation change was made to the international investment, as they replaced Peter Jansons and Michael Powers as trustees at the start of this year.

In addition to giving the pension board the authority to invest in the Baer growth fund, county commissioners also amended the employee retirement plan by adopting the group trust into the plan when they voted last month. An Internal Revenue Service ruling required them to do that.

“If certain requirements are satisfied, a group trust is exempt from taxation with respect to the funds that belong to a participating trust,” said Balcom of IRS Revenue Ruling 81-100. “And that’s what we are: a participating trust of that group trust.”

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