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Bozarth: Despite rough stretch, SWIB may be able to find stock bargains

By Brian E. Clark

With the stock market swinging wildly in recent weeks and losing more than 20 percent of its value since the summer, these are trying times for pension fund managers.

On the last day of September, in fact, the value of the State of Wisconsin Investment Board’s (SWIB) holdings -- which now total nearly $73 billion -- fell by a whopping $3 billion. The next day, however, it gained some of that loss back.

Keith Bozarth, executive director of SWIB, said in a recent interview he believes the board’s long-term focus can manage the market’s volatility and that the SWIB may actually be able to scoop up bargains in the form of strong companies with distressed shares.

He said the board is “sticking to our base disciplines” and rebalancing its holdings as the market becomes distorted.
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Bozarth said he believes the market will eventually bounce back and that Wisconsin public retirees shouldn’t worry about their pension checks because the fund is well-supported for many years into the future.

“There is no question about whether people will receive monthly checks or not,” he said.

The checks will be there, but after this interview with Bozarth came news that pension payouts to retired government workers could drop by 1 percent to 3 percent starting in May 2009. The final numbers, which will be based on overall 2008 performance, won't be calculated until early in January.

Bozarth said most of the SWIB’s holdings are in the Core Trust Fund, which is 60 percent in the stock market, 30 percent in bonds and another 10 percent in either private markets or real estate.

He said the Core Fund lost 15 percent of its value in September and that October was even harder on the equity markets. The final figures for October are due to be released this week.

But Bozarth said the SWIB is trying to make what he called “opportunistic moves” in purchasing what he called “distressed debt.”

He said some of the financial stocks have also been “extraordinarily beaten down so there may be some bargains there. We are trying to focus on some areas where there are some better opportunities compared to the rest of the market.”

Bozarth said the SWIB officials entered 2008 with “some trepidation,” but he said he had no indication that economy and stock market would be hit so hard.

“We’d had a run of pretty good years that started tailing off toward the end of last year, which is a normal part of the cycle” he said. “But the magnitude of what has happened has been a bit of a surprise.”

In terms of adjustments, he said “we have been a little underweight in the financials, which has been hardest hit. We also didn’t invest in what the press has called ‘toxic securities.’ We did not buy a lot of subprime mortgages…

“We avoid those kinds of travails, but clearly the overall market decline has had a significant impact on us,” he said.

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