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February 24, 2006

General Motors Targets Recapture

By Nina Mehta

General Motors Asset Management, the automotive giant's $160 billion pension fund, is an aggressive user of commission recapture but tailors its target recapture levels for outside managers to the asset class and style.

"If the manager is quantitative or uses capital commitment," George Bodine, GMAM's director of trading says, "we put a low or no target on that manager.

"If it's a liquid asset class like large-cap growth or value, and they trade one stock at a time, we might move that number up to 20-25 percent." Bodine adds most of the recaptured brokerage involves single-stock trades in the neighborhood of 3.5 cents per share to 5 cents per share.

For most pension funds a target recapture level of 25-35 percent of its trades is common. But the range is wide. Recapture brokers and buyside traders say that some plan sponsors ask money managers to direct trades to particular brokers on a "best efforts" basis while others require 100 percent of their trading to be directed.

GMAM has recaptured more than $50 million in commissions over the last two decades. The recaptured commissions go back into the fund to help returns and aren't used for expense reduction, according to Bodine.

The pension fund also monitors trading costs to make sure it's not being pennywise and pound-foolish by reducing commissions at the expense of market impact and delay costs.