Stock market losses manageable

KPERS, Security Benefit: Stock market losses manageable
By Michael Hooper
The Capital-Journal


Kansas money managers saw their investments hurt Monday as the stock market suffered its worst daily drop in seven years.

Security Benefit and Kansas Public Employees Retirement System suffered some losses Monday, but leaders at both institutions said the losses were small compared to their large investment portfolios.
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ANDRE PENNER / The Associated Press

The news from Wall Street caused turmoil in markets worldwide. In Brazil, the main index was down 3.3 percent.

MARY ALTAFFER / The Associated Press

Robin Radaetz holds a sign Monday in front of the Lehman Brothers headquarters, reflecting the anxiety invoked by the struggles of several banks. Lehman Brothers' filing and Bank of America's purchase of Merrill Lynch led to the sharp decline in the market.

LOUIS LANZANO / The Associated Press

A man leaves the Lehman Brothers headquarters building Monday in New York. The group filed for bankruptcy.

DAVID KARP / The Associated Press

Elizabeth Rose works her post on the trading floor of the stock exchange. The Dow dropped more than 500 points.
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Stocks fell Monday after Lehman Brothers investment banking firm filed for bankruptcy protection and Merrill Lynch was sold to Bank of America.

American International Group, the largest U.S. insurer, announced the need for additional capital as its shares lost 60 percent of their value on Monday, contributing to the 504.48-point drop in the Dow Jones industrial average.

Monday's decline follows last week's turmoil related to the government takeover of Fannie Mae and Freddie Mac.

"We've got some exposure, but it is well less than 1 percent," said Glenn Deck, executive director of KPERS.

On July 31, KPERS had a total of $93 million or 0.72 percent of its total $12.89 billion portfolio, exposed to AIG, Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac. About $69.3 million of that $93 million was in bonds and $23.4 million was in stocks. Some exposure came through broad index funds invested by money management firms hired by KPERS, Deck said.

"We're a long-term investor," Deck said. "Our goal is to make 8 percent over the long haul, and we've achieved that."

KPERS investment portfolio returned a -4.4 percent for the fiscal year ending June 30, while the S&P 500 index returned a -13.1 percent for the same time period.

Security Benefit, which has $32 billion under management, had about $7 million in stock in Lehman Brothers (NYSE: LEH), which lost 94 percent of its value on Monday.

"We have some Lehman Brothers, about $7 million in our $5 billion general account," said Kris Robbins, chairman and CEO of Security Benefit. "That's a relatively small amount."

Robbins said greed contributed to the downfall of Lehman Brothers and Merrill Lynch.

"There will be lots of finger pointing, but the root cause is greed and trying to grow and get transactions done, which led to it," Robbins said.

William Greiner, chief investment officer of UMB Asset Management, said the business model for large banking houses like Lehman Brothers no longer works because they take on too much debt.

Greiner said he expects more consolidation in the banking industry.

Nearly every investor with a 401(k) or 403(b) retirement account will feel some impact from Monday's plunge, but money managers encouraged investors to remain calm.

"The worst time to sell is when it's ugly," Robbins said.

The Dow Jones industrial average fell 504.48 points or 4.42 percent to 10,917.51, while the Nasdaq fell 3.6 percent to 2,179.91 and the Standard & Poor's 500 fell 4.71 percent to 1,192.

The Dow, which languished with a loss between 200 and 300 points for most of Monday, saw its losses accelerate in the last hour of trading to suffer its worst daily point drop since trading resumed after the 9/11 terror attacks.

All but one — Coca-Cola — of the Dow's 30 components fell. The Federal Reserve on Monday asked Goldman Sachs Group and J.P. Morgan Chase to help make $70-$75 billion in loans available to the company, The Wall Street Journal reported. The insurer has been racing to restructure its business and raise fresh capital to avoid a downgrade of its credit ratings.