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Investment advisor changes hands

State in legal dispute with firm's new owner over retirement funds

Posted: Thursday, February 19, 2009

Alaska's top investment consultant, which helps manage the Permanent Fund and more than $15 billion in retirement savings, has been bought out by one of its top competitors.

San Francisco-based Callan Associates, Inc. will be merged with Mercer Consulting to form one of the world's largest investment advisory firms.

Mercer, however, has a checkered history with the state of Alaska.

Callan has advised the Alaska Permanent Fund Corp. for about 20 years, since it expanded its investments into more than just bonds.

Michael O'Leary, the Callan representative advising the Permanent Fund, told its Board of Trustees Wednesday that the change announced the previous day would improve the advice his company was able to provide.

"We really think this will make us much stronger," he said.

Callan's business, he said, is only in the United States. Mercer is equally large inside the United States, but also has investment professionals in 41 other countries, he said.

"That is, in our mind, a very powerful resource that will help us be better," O'Leary said.

In Alaska, however, another Mercer company, Mercer Human Resources Consulting, once worked for the Alaska Retirement Management Board.

State officials say Mercer provided poor estimates of future retiree costs that led to the state's multi-billion dollar pension liability deficit.

Alaska fired Mercer, and sued in December 2007, said Mike Barnhill, assistant Attorney General with the Department of Law. That case is currently in discovery, with a trial set for February, 2010.

Barnhill said the Callan acquisition should have no immediate impact on the lawsuit.

"At this point there's not going to be any change in the lawsuit, or the relationship with Callan," he said.

The Permanent Fund last year spent $310,000 on Callan's services, while the Department of Revenue spent an additional $531,000.

Mercer is owned by Marsh & McLennan Companies Inc., a $10 billion company traded on the New York Stock Exchange.

Trustee Carl Brady said he sold his insurance business to March & McLennan a number of years ago, and that it was a "world class" company with many fine people.

"I would endorse them as a company," he said.

O'Leary said Mercer's investment business currently has 200 people in the United States compared to Callan's 170. He said the merged company expects to have about 400 workers.

Mercer expects to make more money by growing the size of the business, not by cutting costs, he said.

Permanent Fund Corp. Executive Director Mike Burns has praised the work Callan has done for the fund over the years, and said he expected the people would remain the same.

"That's what they're buying," he said. "Relationships."

• Contact reporter Pat Forgey at 586-4816 or e-mail patrick.forgey@juneauempire.com.



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