Wednesday, October 08, 2008

BBT issues letter regarding international financial crisis.

The following letter from Brethren Benefit Trust (BBT) president Nevin Dulabaum was issued last Friday, Oct. 3, regarding the agency’s response to the international financial crisis. BBT is a Church of the Brethren agency providing insurance and pension benefits for pastors and employees of congregations, districts, and church agencies; ministries that undergird the financial health and wellbeing of individuals and organizations; and investment and information technology services for the wider church:

"As investors in the United States, and now the world, wait to learn what is next in the rapidly changing financial markets, Brethren Benefit Trust joins its clients and members with concern over what this all means in the short-, mid-, and longterm for investments that are under BBT’s management.

"Obviously, BBT’s stock and bond investments will follow the trend of the markets. Our mandate to our eight national investment managers is to outperform their respective indices, which are used as benchmarks to gauge how successfully they invest our funds. However, our managers cannot buck strong trends--no one can. This means that if one or more investment markets are in full-scale decline, such as equities at this time, BBT investments most likely will not decline as much as its benchmark, the S&P 500, but investments will decline nonetheless.

"It is all part of the ebb and flow of the investment marketplace, but just because this is part of the business cycle does not mean it is easy to watch. Exacerbating the situation is the fact that the scope and impact of the current financial crisis is being likened to that of Wall Street ’s crash of 1929. Over the past two weeks, a number of financial service companies have been bought out or shut down so quickly that it is difficult to keep up-to-date on whether one has investments in any of these firms.

"We are in unprecedented times; however, that does not mean that we are not prepared for times such as these.

"The BBT investment policies, which cover investments in the Brethren Pension Plan and Brethren Foundation and have been fine-tuned for two decades, emphasize investing in strong companies, not chasing "hot" stocks or bonds. Companies are looked at for their stability, longterm potential, and fiscal wellbeing.

"BBT’s investment guidelines call for funds under its management to be invested in a broad spectrum of sectors. With financials being one of a number of investment sectors, and with guidelines also limiting how much exposure BBT’s asset managers are allowed to purchase in any one firm, the BBT financial system is designed to absorb declines in individual companies and individual sectors. This system is also the reason why BBT’s investments were not adversely impacted in the recent past by other headline-grabbing implosions, such as with WorldCom and Enron.

"BBT’s investment strategy also calls for diversification through multiple managers. BBT currently contracts with four equity managers, two bond managers, one short-term manager, and a community development manager to guide the investing of its funds. Each of the equities and bond managers is given a unique investment style to follow, so that none of the managers is investing in the same manner. Managers are then reviewed quarterly to ensure that they are following investment guidelines and are equaling or outperforming their respective benchmarks.

"And who is managing these managers? On a daily basis, it is BBT’s staff that gives guidance to the investment managers. Mid- and longterm issues receive input and direction from BBT’s investment committee, which currently is composed of an investment officer who works for an $8 billion trust, a professional bond manager, the owner of a financial planning firm, and an attorney. BBT also contracts with a firm that specializes in providing investment oversight to companies like BBT to add additional expertise to our decision making.

"Indeed, these are unprecedented times. What is certain, however, is that the investment strategy crafted by BBT is designed to weather crises such as this one. Which brings me to the final point: For those who are not investment professionals, the best investing advice is to develop a strategy with a financial planner, and then stick with it. Market timing--that is, the jumping in or out of investments because a perceived increase or loss is about to take place--usually is not a sound move. For example, on Monday, Sept. 29, all signs pointed early in the day that Congress would approve a $700 billion bailout plan for the troubled financial industry. The equities markets seemed poised to rise under news of that planned stabilization. However, when the plan unexpectedly fell apart, the Dow Jones Industrial Average dropped a whopping 777 points--the index’s largest one-day drop ever.

"BBT recommends that all of its Pension Plan members and Brethren Foundation clients develop a longterm investment strategy based on their respective needs, and then stick to their plans. It is the best strategy for these uncertain times."

Source: 10/8/2008 Newsline

No comments: