Saturday, September 17, 2016

Illinois Pension Switches From Active Managed To Passive Index Funds: Fees Drop 90 Percent

From The Wall Street Journal, "Illinois State Pension Board Stops Trying to Beat the Market: Switch to funds that track market is a win for Vanguard Group, Northern Trust; among the losers: T. Rowe Price, Fidelity" by Timothy W Martin:
The board overseeing 401(k)-style benefits for 52,000 Illinois state workers has terminated all money managers who try to handpick winners, a major embrace of low-cost funds that instead mimic the markets.
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The shift would dramatically reduce outside management fees paid plan-wide, dropping from more than $10 million annually to $1 million, Marc Levine, the board’s chairman, said in an interview. On a per-participant basis, it equates to fees being shaved to about one-fourth of the previously paid total.
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The Illinois plan’s abandonment of higher-charging, so-called “active” managers comes amid a broader debate unfolding among big investors: whether Wall Street firms can consistently outperform a simple index fund that costs virtually nothing.