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Bellwether Pension Fund CalPERS Going More Passive?

On Monday, Sept. 16, the CalPERS investment Committee will meet. The big topic: whether to move more aggressively to passive strategies. RIABiz’s Lisa Shidler describes how the retirement industry is closely watching the $260 billion bellwether pension fund, which already has 35% of its assets in passive funds and went all-passive with its $1.6 billion Supplemental Income Plan.

The clear value of passive is lower cost and less need for internal management. However, critics point out that all-passive is not a good risk management strategy, and experts wonder how a sophisticated multi-billion fund could even consider a strategy that may make sense for a small, unsophisticated retail investor.

Then there’s the debate about who is picking the index and whether the so-called “smart beta” approach is better. Many argue that there is no such thing as a passive TDF, since someone is choosing the glide path even if the underlying investments are passive. BrightScope’s Mike Alfred has opined that perhaps some asset classes are better suited for a passive strategy.

Some firms like BlackRock and Fidelity are making a bet on both sides — especially BlackRock, which bought Barclays and iShares while maintaining a large active strategy. Others like Vanguard stay pretty true to one side and, even when though they do have some active funds, they keep it quiet. In either case, the industry will be watching what CalPERS does on Monday, with some arguing that the move to passive is part of their fiduciary responsibility to manage the plan in the best interests of participants.

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