11/16/2011

Kodak Pension to Reshuffle Manager Lineup

Eastman Kodak’s pension plan is preparing to cash out of five hedge funds and invest the proceeds in vehicles run by three other hedge fund operators and a mutual-fund manager.

The reshuffling of Kodak’s fund managers is the centerpiece of an overhaul of the $4.7 billion U.S. portion of the company’s retirement plan, whose worldwide portfolio totals $7 billion. The beneficiaries of the restructuring will be funds run by:

Passport Capital of San Francisco, with $4.5 billion under management.

Scout Capital of New York, with $2.3 billion.

Select Equity of New York, with $4 billion.

Tradewinds Global Investors of Los Angeles, a $39 billion unit of mutual-fund giant Nuveen Investments. Kodak will be investing in Tradewinds’ All-Cap vehicle, which targets shares of companies of all sizes.

Kodak still hasn’t officially notified its five current fund managers of its plans to redeem, but it intends to have its capital back from those vehicles by Feb. 1. It also expects to have contracts in place with the four new managers by that date.

The pension plan overhaul is in the works as the 131-year-old imaging giant scrambles to raise capital. The Rochester, N.Y., company insists that it has no plans to seek bankruptcy protection. But it recently hired Jones Day, a law firm that handles bankruptcies and other types of corporate restructurings, as well as restructuring specialist FTI Consulting.

The pension-plan overhaul is being spearheaded by Tim Barrett, who took the job a year ago after overseeing San Bernardino County Employees, which he helped build into one of the most profitable public pension plans in the U.S. It has $4.9 billion of assets, with Passport, Select and Tradewinds managing some of that money.

Barrett heads a five-person investment team that oversees defined-benefit and defined-contribution plans for Kodak employees around the world. Kodak also has a long-standing investment-advisory contract with NEPC.

Barrett’s team is under pressure to produce results given that Kodak’s pension plan has a $1.2 billion shortfall.

Barrett’s first move upon joining Kodak was to commission a series of asset-and-liability studies. The last of these is to be completed on Nov. 30, but the team is already pushing ahead with the restructuring of the equity portion of the investment program. Barrett is focusing on the liquid portion of the equity portfolio, blending passive and active hedge fund strategies.

The next step is to redesign the credit portion of the portfolio to be less index-based and to incorporate exposure to asset-backed securities, as well as corporate and distressed debt.

Rusty Olson, who was put in charge of Kodak’s retirement system in 1972, pioneered investments in hedge funds by corporate America’s pensions.

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