Despite conventional wisdom that institutions like pension funds and endowments have moved to passive investing more aggressively than individuals, the opposite appears to be true.
As reported in a recent New York Times article, just under 20% of public pension fund assets and 11.2% of corporate plan assets are invested in passive strategies, compared with 30% for individuals — a figure that has risen from 13.8% 10 years ago.
A move by Pennsylvania’s Montgomery County employee plan to index funds saved $1.3 million in fees, according to the report, while in his recent budget address Pennsylvania Gov. Tom Wolf (D) signaled that the Keystone State may follow suit for its $53 billion public school fund and the $27 billion state employee plan, which could save the state $476 million and $140 million in fees, respectively.
The biggest shift to indexing by a public fund, by CalPERS, brought a lot of attention to the issue of whether larger institutions, particularly state and municipal plans, should be using more passive strategies. Critics of traditionally higher priced active managers — especially alternatives like private equity, hedge funds, real estate and commodities — and high-priced consultants argue that state and local officials can be swayed by perks and trips, and that many do not want to “index themselves out of a job.”