Unlike the other moving parts of General Motors Corp., the subsidiary that manages the embattled automaker’s vast pension assets has navigated the financial crisis rather well. GM’s U.S. defined benefit plan, with $84 billion in assets, was down 11 percent in 2008 — a loss, to be sure, but better than the average 21 percent decline that America’s 100 largest corporate plans suffered last year, according to New York research company Milliman, which tracks pensions. GM’s future is tenuous. The carmaker is flirting with bankruptcy after posting a loss of $30.9 billion for 2008; it has borrowed $13.4 billion from the U.S. Treasury since December. Clearly, the GM brand, which conjures thoughts of business failure, and a successful asset management business, which must be based on confidence, do not mix. So the pension fund manager launched a bold rebranding plan to distance itself from its parent and carve out its own identity, hoping to secure a future in the event its biggest client goes out of business. “The association and the questions that currently overhang GM are not useful to us in an asset management business,” says Nancy Everett, CEO of General Motors Asset Management, which on March 16 adopted the name Promark Global Advisors. “There’s this constant question about what happens if GM has further deterioration.”
GM has not sold Promark — at least not yet — in part because the company’s pension plan represents a huge risk and the automaker wants to retain control over the group that manages it, says Everett. The plan is substantially larger than GM’s market capitalization. Currently, the $84 billion in defined benefit assets are 55 times bigger than the company’s market cap of $1.54 billion. By comparison, Boeing Co. had $40.2 billion in pension assets and a market cap of $28.07 billion in late March.
Even as GM’s future hangs in the balance, its asset manager’s facelift is well under way. First, Everett renamed it, borrowing the Promark brand name from GMAM’s group of commingled funds. Then she physically distanced Promark from GM by moving her team of 51 money management professionals and 90 support staff out of the GM Building in midtown Manhattan and into the Citigroup Center, with its cheaper rent, several blocks away. Next, she wants to boost Promark’s non-GM client base, both in the U.S. and in overseas markets, starting in the U.K., where she says the firm is negotiating with a pension fund that has requested anonymity.
Promark, which hires other firms to manage its clients’ funds rather than doing so itself, has assets of $132 billion. In addition to the money it manages for GM, Promark oversees about $20 billion for the defined benefit plans of such clients as Xerox Corp. and auto-parts supplier Delphi Corp., as well as $28 billion for GM affiliates in the U.S. and overseas, such as New United Motor Manufacturing, a joint venture between GM and Toyota Motor Corp. Everett, who was CIO of the Virginia Retirement System for more than five years before taking over GMAM in June 2005, spends most of her time these days with marketing officials working on plans to grow the third-party business beyond the current client list.
Promark’s main selling point is its track record, she says. According to Milliman, the investment return for the GM pension plan last year was 10 percentage points above the average for large U.S. corporate pension plans. Promark CIO Tony Kao says he reallocated 20 percent of the portfolio from equity to bonds at the end of 2006. As a result, 52 percent of the U.S. portfolio was invested in fixed income. That helped the plan avoid some of last year’s stock market carnage. According to GM’s 2008 annual report, 61 percent of the assets in its pension plan were invested in fixed income as of December 31, 2008. Kao says the current allocation for the $112 billion that Promark manages for GM and its affiliates is 28 percent equity, 45 percent fixed income, 9 percent real estate and 18 percent alternatives.
Everett and Kao say they will work hard to keep the focus on the performance of GM’s pension plan. The automaker’s defined benefit plan ended last year $13 billion shy of the company’s liabilities to its present and future retirees, making it 87 percent funded. Everett and Julie Gibson, a spokeswoman for GM, both declined to comment on how the automaker would make up the difference. The funding gap occurred because GM’s Worldwide Pension Group, which implements the carmaker’s policies regarding the pension plan’s management, plucked about $9 billion from the plan to cover severance pay for workers who were laid off last year, as well as other labor-related costs. As a result, at the end of 2008, the plan was in its worst funding position since the end of 2002, when its deficit of $19.1 billion made it 24 percent underfunded. In July 2003, GM issued $13.5 billion in senior unsecured bonds to help fill that pension gap.
One pension fund expert says that given the current market turmoil and the carmaker’s fragility, Promark faces substantial challenges. “GM’s pension plan has never been in such a critical state of underfunding over the past six years,” says Robert Kemp, a senior research professor at the University of Virginia’s McIntire School of Commerce and an expert in pension accounting. He wouldn’t speculate as to whether Promark would survive if GM goes under, but based on the recent performance of its pension fund, he says, “there appears to be a lot of talent in GM’s asset management organization.”
The pension funds of GM and its affiliates make up 85 percent of Promark’s assets — that’s a huge chunk of business to lose if the automaker files for bankruptcy. If that happens, GM would either sell Promark to outside investors to raise cash, or the pension fund manager would be taken over by the Pension Benefit Guarantee Corp., the federal agency responsible for insuring the pension plans of corporations. Either outcome would be determined by a bankruptcy judge. Everett says she believes a downsized Promark could survive that fate, but adds, “I would hate to think about it.”
THE FACTS
NAME: Nancy Everett
POSITION: CEO, Promark Global Advisors
APPOINTMENT: June 2005
WHAT WE KNOW: Everett launched a bold rebranding plan to help Promark distance itself from General Motors.
