Fed chief Alan Greenspan is dead set against investing Social Security funds in the stock market and cites the potential political hanky panky as one reason. But in California and Los Angeles, investing huge pots of the public’s money in the stock market is old hat, and some participants are a bit surprised at Greenspan’s adamant stance.

The state employee retirement system, known as CalPERS, has $139 billion in assets largely invested in the stock market. The state teachers’ retirement system has another $90.2 billion.

Locally, there are four public pension plans, with the Los Angeles County employee pension plan having $23.5 billion under management, and the three Los Angeles city retirement systems one for city workers, one for fire and police workers, and one for Department of Water & Power workers having a combined $22.9 billion under management, as of latest reporting dates. Obviously, public money is being invested in the stock market in a big way here.

“I think Greenspan is bringing out a cautionary perspective we have all forgotten about. It harks back to a feeling in place in the 1950s and 1960s,” said Richard Goss, the veteran retirement-plan manager at the DWP.

Goss, like other public pension fund managers, must under state law invest to preserve assets and maximize returns for plan members, and invest through private-sector money managers. That rules out politically motivated investing. “We don’t get a lot of pressure to buy a particular stock anyway,” said Goss.

All the aforementioned public pension plans have moved sizable fractions of their portfolios to “index” stock funds, which merely mirror the broad stock market in general. But before the 1970s, public pension plans in California invested almost exclusively in bonds somewhat akin to today’s Social Security system, which is invested in U.S. Treasury bonds, noted Goss.

Local private-sector money managers were mixed on the idea of Social Security buying $700 billion in stock over the next 15 years some said it might work, but only with safeguards. “I wouldn’t want the government to exercise voting rights on their stock and if it were done, I would like to see it done in an index fund,” said Bill Mason, Pepperdine finance professor and money manager with Woodland Hills-based Cullen Fortier Asset Management Inc.

Other private money managers were opposed. “Oh please don’t let the federal government start investing in stocks,” said Robert Nichols, founder of Windward Capital Management Co. in Westwood. “Can you imagine what the federal government will do? Chief executives would be afraid to breathe.”

Well dressed

The kind of thumping, outsized, 300 percent-or-more returns seen recently in Internet stocks have nearly been matched by a very old-line industrial firm here in Los Angeles: downtown L.A.-based Tarrant Apparel Group Inc., which last week traded in the $39-a-share range, up from $8.13 a share last Jan. 30 and up from $12.13 a share in October.

Tarrant in 1998 opened huge plants in Mexico, consolidated other factories and became an integrated apparel manufacturer, meaning it makes its own textiles (largely denim material) that it cuts and sews into jeans and distributes. Before, it bought jeans material from other manufacturers.

Additionally, Tarrant is a heavy importer of product. Some Tarrant investors worried when the company gambled on the Mexico factory expansion and also when other apparel-industry stocks such as Mossimo Inc. of Orange County came apart at the seams last year.

But Tarrant reported a strong third quarter and received a “buy” recommendation in new coverage from Chicago-based Everen Securities in mid-December.

Also, the apparel industry, once characterized by many small “specialty” retailers and entrepreneurial start-ups in manufacturing, is increasingly characterized by huge retailers and larger manufacturers, and some stock pickers think Tarrant is on the right side of that equation.

By the way, Tarrant founder Gerard Guez, chairman and chief executive, owns 3.02 million shares, or 45 percent of shares outstanding a purse now worth $118 million.

Quick takes

Interesting tidbit from Prudential Securities research, citing data from First Call Corp. and I/B/E/S International (services that track corporate earnings): Not only are blue chips whomping small caps on Wall Street, they are beating smaller companies in projected earnings. Companies with a market cap of $50 billion or greater are expected to report fourth-quarter earnings up 11.7 percent from a year earlier, while companies with market caps in the $1 billion to $5 billion range are expected to report earnings down 4.7 percent, according to Pru. Moreover, those companies that have already reported fourth-quarter earnings are confirming the estimates, according to Pru data.

Michael Halpern, founder of the Century City-based Dorchester Associates money-management shop, with $100 million in assets, says he is undaunted by the ongoing strength of large caps, and will stick to his strategy of investing in smaller companies. “We like to buy good companies which are growing, but we don’t like to pay high multiples,” he said, referring to the pricey price/earnings ratios on so many blue chips. “The big caps are at serious nosebleed levels.” Don’t look now, but the S & P; 500 is trading at 33 times 1998 earnings.

Wedbush Morgan Securities, the downtown Los Angeles brokerage, reiterated its “buy” recommendation on Activision Inc., the Santa Monica-based maker of video games. The company is growing fast and should clear more than $500 million in sales in fiscal 2000, which starts this July. Titles such as “Toy Story 2,” “Space Invaders,” “X-Men,” and “Star Trek: Klingon Academy” are expected to boost sales, especially overseas, where Activision sells two-thirds of its product.

Dan Genter, chairman of RNC Capital Management LLC in Brentwood, was ranked as operating one of the top 15 equity income mutual funds nationwide by Indata, a part of Gordon, Haskett & Co. in Stamford, Conn. Genter earned about 28 percent last year. “I think we can look for high single digits in 1999, but not 20 percent,” Genter said.

Contributing Reporter Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].