The changing of the guard at the $1.2bn (e00bn) San Antonio Fire & Police Pension Fund in Texas does not signal a change in investment strategy or practice. When Larry Reed settles into his new position as executive director for the fund he started on October 18, the transition should be seamless. His predecessor, Weir Labatt, retired after six years in the post to spend more time with his family.
Reed, who has just retired himself as a captain in the San Antonio Fire Department after 26 years, is hardly a newcomer to the fund. Elected to the board of trustees in 1985, Reed is well informed about the policy making of the fund and has kept a keen eye on the pension investment trends affecting US defined benefit and defined contribution plans over the past 14 years. During that time he has witnessed the 1980s boom, the Crash of 1987, the rise in popularity of defined contribution plans and various investment trends for defined benefit plans. He also earned a bachelor’s degree in finance from the University of Texas in San Antonio in 1986. This gives him a level of perspective many do not have, especially those investment professionals and plan sponsors who have only had the 1990s to use as an indicator of investment trends.
His experience makes him less nervous about corrections in the market, even as the Dow Jones Industrial Average does its annual ‘dip-dance’ in October. The former fire chief doesn’t envisage putting out any financial fires in the near future. “I don’t think we’re ready to see another 1987”, he says, underlining his optimism of the market. “Conditions are not the same (as they were in 1980s to today. The dynamics have changed and there are more individual investors than before”, Reed explains about the larger amounts of money invested in the markets today. “We’ve had a bit of a drop (in October) but many people will see that as an opportunity”.
Like many pension funds in the US, the San Antonio fund has benefited from the 1990s bull-run and has gained steady returns of 13% per annum over the past 13 years. The returns exceed the findings of a recently conducted asset liability study that concluded that the fund’s actuarial rate of return is 8%. Its consultant Dan Tretinik of Towers Perrin’s Atlanta office assisted with the study that is conducted every five years. San Antonio F&P have used Towers Perrins since 1989.
The fund’s asset allocation mix is 40% in domestic large-cap equities, 14% in domestic small-cap equities, 13% in international equities, 24% in domestic fixed income 5% in alternative investments and the remainder in real estate and cash. Like his predecessor, Reed is an advocate of diversification. “The only way to sustain growth is to be diversified. Some say 70-80% of performance is due to diversification in the long-term”, the 49-year-old says. Indeed, under Labatt the fund increased its exposure to alternative investments as a hedging strategy and recently awarded a $40m commitment to The Crossroads Group for a fund-of-funds account.
Moves further into the international markets may also be on the cards under Reed, who says the fund is in the very nascent stages of investigating the possibility of investing in international bonds. However, it has not made any moves to actively pursue it. “It’s an issue talked about and we are willing to explore. It’s at a conceptual stage”, Reed admits. Overall, the new executive director says the fund is positive about the international markets and emerging markets. “We have been hurt in our timing in the past, but we believe in it in the long term”. Currently, the fund has two managers running international equities for them, the Bank of Ireland and Brinson Partners. Reed declined to disclose the amount each firm was managing.
The fund maintains a close relationship with its 14 investment managers and Reed says he will continue that practice. Managers are expected to submit monthly reports and for the past several years managers have been meeting with the fund formally twice a year. At those times, the fund gets all of its managers together so each can see how they fit into its investment plan. “The managers get to see where they fit into our pie,î Reed explains, adding that often it makes for good debate and conversation as, for example, value and growth specialists square off and make their cases.”We have found that to be very beneficial and we try and promote that concept,î he says.
One of the projects Reed hopes to put his stamp on involves his part-time fascination with computers. Over the next three to six months, the fund will develop a web site for the planís 3,200 active and 1,300 retired members, as well as for its investment vendors. Reed said that he will use the site initially as a communication tool, but it could develop from there.
“I want to continue the success we’ve had. Continue with the type of team we’ve had. Mr Labatt did an excellent job”, Reed says looking back. Indeed, Labatt, who was appointed executive director in 1993 started with the fund as a trustee in 1986 when it was a modest $127.7m.
For his part, Reed does not think that growth will change. “I don’t come in here with a lot of ideas about tearing things down. I’ll keep things moving forward”.

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