A number of public pensions are finding
benefit in taking the long view on their investments, trading risk-heavy
active strategies for buy-and-hold schemes with consistent records. This path
has not exactly been in vogue for the past few decades, but it appears to be
catching on among a few fund sponsors.
“Typically, when a pension fund dismisses
an investment manager, it moves the money to another active manager,” said
Illinois State Board of Investment Chairman Marc Levine, Bloomberg reported. “Unfortunately, the new
manager performs no better and frequently worse than the one who was fired. The
Illinois State Board of Investment avoids that fool’s errand; we have replaced
our terminated managers with more than $8 billion of index funds.”
The Nevada Public Employees’ Retirement
System’s funds are all in low-cost, index-like funds—a strategy uncommon enough
to warrant a Wall Street Journal article, but one
that outperformed CalPERS over one-, three-, five- and 10-year periods.
Other funds may be reluctant to take this
route because a reduction in riskier funds like equities could lower returns in
the short term, and increase the amount that state governments must pay to make
up the difference, according to Reuters. But with low funded levels
across the board, it may be time for some reevaluation.