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February 1, 2001

Sidestepping The Tech Wreck

By Kathryn M. Welling

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As Chairman and President of GE Investment Corp., John Myers rides herd over the corporate behemoth's massive pension and institutional investment arm with an innate conservatism that is serving GE, and its pensioners, quite well amid today's turbulent markets. But also with a probing mindset and independent streak that defies homogenization in the herd, both of which he recently shared in this Q&A.

I read recently that the mammoth GE pension fund you oversee deftly avoided most of the misery in techs. How in the world did you manage to sell 'em, while running billions upon billions of institutional money, John?

Well, let's make it clear where we did it, first of all. GE Asset Management is currently managing $116 billion. That's before Honeywell, which is going to add another $20-$21 billion of pension fund and 401(k) assets. But the largest part of that $116 billion is in the GE Pension Fund: $48 billion. That is where we do the asset allocation and where we lightened up on techs [earlier]. But then we also have about $28 billion of assets that we manage for other pension funds. For example, earlier this week, we got a $2 billion order from Prudential -they'll be including our research product among their flagship retail equity fund options. This Prudential order actually is for what we call our "research portfolio," where we do a sector-neutral strategy with our research analysts picking the best stocks within their sectors. We've been doing that same thing, internally, for about eight years, with a very strong track record of comfortably outperforming the S&P.

Via stock selection? In markets in which that wasn't supposed to matter?

Absolutely. We just launched that product for the outside world within the last 60 days. But all of our outside portfolios mirror what we do for GE. Our pitch is, "Invest side-by-side with GE." What we're doing for our portfolios in the pension fund, we'll do for our clients. Our asset base breaks out like this: $64 billion in U.S. equities, $26 billion in fixed income, $14 billion in international, and $7 billion in private equity and real estate. So we've got a pretty substantial presence in almost any asset class that you look at. Then, if we look just at the pension fund, the roughly $50 billion where we are the fiduciaries doing the asset allocation, we're probably 50 percent U.S. equities, 20 percent international equities, and five percent or six percent private equity. Of course, then we manage within the asset classes, according to our investment philosophy: basic, fundamental, bottom-up stock selection. We're not a momentum-driven, flavor-of-the-month-type investor. I'd say that, in the last couple of years, it hasn't been easy. But our results have been pretty strong. We've actually exceeded the S&P with that philosophy.

What's that mean, in numbers?

Oh, roughly 300-400 basis points better than our various benchmarks, pretty much across all of our equity portfolios.

This is a politically incorrect question, I presume, but how much of that outperformance do you owe to the tailwind you've enjoyed from your pension fund's overweight position in the shares of General Electric?