Administration December 11, 2003

Tar Heel State Opens Alliance Inquiry

November 12, 2003 (PLANSPONSOR.com) - Joining a growing chorus of pension officials concerned about money placed with mutual fund companies caught up in the continuing fund trading scandal, North Carolina has now kicked off its own investing review.

Reported by

Fred Schneyer

North Carolina State Treasurer Richard Moore said his agency’s review would be focused on Alliance Capital Management Holdings, which is being investigated by federal and New York state regulators for improper mutual fund trading, Reuters reported. Alliance manages $6.99 billion of North Carolina retirement system funds, which account for almost 22% of the state’s total equity investment portfolio.

North Carolina assets are held in index funds that include large-, mid- and small-cap stocks and actively managed funds that include large-cap value and growth, international and emerging market stocks, Julie White, a Moore spokeswoman, told Reuters.

Alliance announced Monday that it asked two senior executives responsible for its mutual fund unit to resign for allowing improper trading (See Alliance Capital Execs Forced Out by Trading Scandal ). The resignations of John Carifa, who was board chairman of Alliance’s mutual funds, and Michael Laughlin, who was chairman of Alliance’s mutual fund distribution unit, are the latest blow to the $7-trillion mutual fund industry.

“Our objective is to confirm that each mandate remains appropriately managed and supervised,” Moore said in a statement. “When we complete our review we will make decisions concerning our position with Alliance.”

Moore said that although none of North Carolina’s investments are in mutual funds offered by unit Alliance Bernstein, the state wants to ensure “Alliance Capital has taken all necessary steps to identify and remediate problems in this area.”

The mutual fund industry has been rocked by allegations of market timing, which involves the quick buying and selling of mutual fund shares to profit from stale prices. The practice is not illegal, but many funds have policies barring it because it reduces a fund’s performance. Ongoing trading probes have also uncovered allegations of late trading as well.

Also this week, Minnesota Governor Tim Pawlenty ordered a sweeping investigation of trading practices at Minnesota mutual funds as well as a review of state investments to see if state assets are with companies caught in the scandal (See Pawlenty Orders MN Fund, Investment Probe ).