U.S. PENSION FUNDS MOVE ASSETS IN-HOUSE / THE FINANCIAL TIMES ( RECOMMENDED READING )

US pension funds move assets in-house

By Paul O’Dowd

Published: September 12 2010 11:36

The $69.2bn State of Wisconsin Investment Board is looking to move $3.9bn of externally managed international equity assets in-house, a transfer that will mean terminations or loss of assets for several equity houses that currently hold mandates.

The Madison-based fund says the change is partly driven by the cost of external management.

According to a spokeswoman, the scheme, which currently has $16bn in non-US equity holdings, is looking for “less expensive internal management” options.

The move comes shortly after the $139bn California State Teachers Retirement System announced it, too, is considering adding to its in-house assets. Calstrs, which already manages $70bn internally, believes managing more assets itself could be more “effective” than hiring external managers.

The Wisconsin pension fund’s 2009 annual report detailed spending of $192m on “external management and advisory” services during calendar year 2008. That figure accounted for 84 per cent of total costs for the year.

However CEM Benchmarking said in an annual report that total costs for the Badger State pension were “low compared to its peers based on the mix of assets managed”. CEM is a Toronto-based company that provides cost measurement and analysis of corporate and public pension funds.

Wisconsin’s international manager roster includes The Boston Company Asset Management, AllianceBernstein, T Rowe Price, Morgan Stanley Investment Management, Acadian Asset Management, Pyramis Global Advisors and American Century Investments, according to MandateWire.

While changes are imminent, fund officials have yet to terminate any houses or lessen account sizes, the spokeswoman says.

As a way to support this new undertaking, the board recently approved the hiring of a “portfolio manager or analyst” to assist with bringing the assets in-house.

The decision to bring roughly 25 per cent of the non-US equity portfolio in-house comes at a time when the fund is looking to expand its global equity holdings.

Moves by state funds to bring assets in-house are not the only worries plaguing active managers. More institutional investors are choosing to invest passively, taking further assets out of the active management pool.

Recently the $110bn Florida State Board of Administration chose to reduce risk within its equity and fixed income portfolios, a decision that will mean termination for a number of its traditional managers.

Paul O’Dowd is a reporter on FundFire, a Financial Times publication, where this article first appeared.

Copyright The Financial Times Limited 2010