Fiduciaries on Intel Corp.’s investment policy committee are being sued in United States District Court for the Northern District of California for directing hundreds of millions of participant 401(k) assets to hedge fund and private equity investments in the company’s customer target-date fund.

The suit also alleges participants in the company’s customized Global Diversified Fund were exposed to asset allocation models that “departed dramatically from prevailing standards employed by professional investment managers and plan fiduciaries,” according to court documents.

That Global Diversified Fund was the sole investment option to the “overwhelming majority” of participants in the plan, the claim alleges.

Intel’s investment committee designed and managed the customized funds until early in 2015, when AllianceBernstein was hired to manage the assets.

Both the target-date options and the diversified fund invested in the same underlying nine investments, including an alternative investment fund, comprised of private equity investments, a hedge fund investment, and a stable value fund.

Beginning in 2011, the investment committee began making aggressive allocations to the alternative investments in Intel’s custom target-date funds, increasing assets in the hedge fund option from about $50 million to $680 million, and increase of 1,300 percent.

Intel’s in-house management team began directing massive flows to alternatives between 2009 and 2014, when assets in the hedge fund investment increased from roughly $582 million to about $1.67 billion.

Investments in the alternative fund increased from $83 million to $810 million in the same period.

The extent of those investments deviated from “prevailing” asset allocation models and exposed participants to “unreasonably costly and risky investments,” resulting in “hundreds of millions” in losses to participants in the six years preceding the filing of the claim.

The claim alleges Intel’s custom target-date funds underperformed peer TDFs by 400 basis points annually. In June 2015, the assets in the custom funds were estimated to be 3.63 billion.

“Given the underperformance compared to peer TDFs, and the billions of dollars allocated to Intel TDPs, the Plans have lost hundreds of millions of dollars that they would have otherwise earned had the Intel TDPs been prudently allocated since 2011,” according to the complaint.

The claim also alleges Intel’s Global Diversified Fund underperformed Vanguard’s balanced fund by 50 basis points annually.

As of June 2015, $5.82 billion of $6.66 billion of total plan assets were invested in the Global Diversified Fund.

The lone named plaintiff in the suit is a physicist who spent about two years at an Intel facility in New Mexico. Intel is headquartered in Santa Clara, California.

Instant Insights /

Claim says alts cost Intel participants hundreds of millions

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