Eastern promise: GE Pension Plan shifts into emerging markets

Capturing the growth of emerging markets in investment portfolios isn’t easy, says Jay Ireland, who oversees the GE Pension Plan’s $43 billion in assets, as he outlines long-term investment opportunities following the end of the decades-long bull market in developed world equities. Simon Mumme reports.

The 20-year bull market in equities that for so long benefited global investors ended in 2008, Ireland says. Now, with many developed economies over-indebted and generating flat or sluggish growth rates, investors have turned to robust emerging markets and their comparatively light debt burdens.

Ireland, who is a trustee of the GE Pension Plan and also head of GE Asset Management (GEAM), which controls most of the pension fund’s portfolios, says both operations are still determining how to channel the economic performance of emerging markets into investment returns.

And since many large institutions are investing in emerging markets, the fund must be careful to not buy assets at artificially high valuations.

But the end of the decades-long equities bull market, brought on by a credit crunch and financial crisis, also generated specific opportunities in developed markets that are wrapped around market dislocation.

So these themes, emerging markets growth and developed market dislocation, encapsulate the major investment opportunities that GEAM, and by extension the GE Pension Plan, are pursuing.

Each of GEAM’s five chief investment officers  ‘for US equities, international equities, alternatives, fixed-income and investment strategy’ are also trustees of the pension plan. The manager staffs 160 investment professionals and has bases in the US, Europe and Asia, including an alternatives team in Hong Kong and public markets team in Singapore.

This team also manages money for other institutions. Currently, it handles an extra $30 billion of capital from external investors. This may invite some comparisons to Hermes, the multi-boutique asset manager owned by the BT Pension Scheme, but they are not wholly similar: unlike Hermes, GEAM does not acquire boutiques and it is owned by a conglomerate corporation, not a pension fund.

But there is one strong parallel: both managers invest external capital alongside their original pension fund clients.

“We invest in something we believe in. We do it for a period of time, and if we think there’s an appetite for that in the external market we’ll bring it out,” Ireland says.

“The latest strategy that GEAM brought to the institutional market is a commodities fund. It is also incubating some new strategies internally, such as a frontier markets product,” Ireland says.

The only exposures that GEAM does not run for the pension fund are specialist strategies, such as small-caps equities, hedge funds and private equity, which are assigned to external managers.

For its hedge fund allocations, which are placed in its equities bucket, the fund’s three-person team only invests directly in hedge funds. “We essentially operates our own hedge fund-of-funds,” Ireland says.

Its real estate portfolio, which consists mainly of US assets, incurred a weighty loss last year: all bar $63 million of the $2.47 billion in unrealised losses experienced by the fund were attributable to the real estate portfolio.

This is because the asset valuations were marked-to-market, and refinancing concerns have depressed the performance of the sector. But Ireland is confident this loss will be regained because long-term, the stuff is pretty much financed and leased.

To the frustration of its private markets team, perhaps, GEAM is not allowed to invest directly in GE’s wide array of assets or operations. And unlike many of its US peers, the pension fund is not allowed to invest in the building it works in. The only GE assets that both entities can invest are the publicly available stock and debt issued by GE.

Ireland is a 30-year employee of GE, and has worked in the plastics, corporate investor communications and telecommunications divisions of the company. He says GEAM does not offer the mega-salaries paid by some investment companies but is capable of keeping people for long tenures.

“We’re competitive within a range. But we’ve been able to retain people over a long period of time.”