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Pension Funds

North Carolina’s internal domestic equity indexing initiative reaches $4 billion

North Carolina Retirement Systems, Raleigh, is now managing $4 billion in passive domestic equity index investments in-house, and is hoping to handle all $13.5 billion of its passive domestic accounts by the end of the calendar year, state Treasurer Dale Folwell said Thursday.

Mr. Folwell, the sole trustee of the $98 billion state pension plan, launched the in-house initiative in November 2017, with $50 million in cash and $50 million reallocated from Piedmont Investment Advisors, which helped North Carolina make the change.

Of the $4 billion now internally managed, $2.25 billion was transitioned from a BlackRock (BLK) Russell 1000 index strategy, $1.25 billion from a Piedmont Russell Top 200 index strategy, and approximately $400 million from a Russell Midcap Value index strategy previously managed by BlackRock.

The internal domestic passive equity portfolio now consists of $2.9 billion in the Russell Top 200, $670 million in the Russell Midcap Core, and $398 million in Russell Midcap Value.

The initiative to switch to internal passive index investing started under Mr. Folwell's predecessor, Janet Cowell, and former Chief Investment Officer Kevin SigRist.

Mr. Folwell, who took office in January 2017, also campaigned on a promise to reduce money management fees by a total of $100 million. So far, $60 million in fees were cut in 2017 through terminations and renegotiations, and he expects that to exceed $250 million over his four years in office.

Deputy Treasurer Frank Lester said in an interview that fee reduction can be accomplished without sacrificing returns. "It's not only about cutting fees. We are going to hold ourselves to the same standards as far as benchmarking," he said. Once all $13.5 billion in passive domestic indexing is moved in-house, North Carolina expects to save $2.4 million each year.

U.S. passive equities represent about 35% of the pension fund's equity holdings and 14% of the overall portfolio.