And the nation's largest pension fund, the $138 billion California Public Employees' Retirement System, Sacramento, announced plans last week to boost its enhanced index stock allocation to between 15% and 20% of its total $87.5 billion in global equities. Currently, the plan has barely 1% of equities in enhanced index equities.
Other pension plans have recently committed money to enhanced index:
-- Montana Board of Investments, Helena, hired Dimensional Fund Advisors to run $10 million in an enhanced Russell 2000 index portfolio for the $4.8 billion plan.
-- Oklahoma Public Employees' Retirement System, Oklahoma City, boosted its allocation to enhanced indexed equities to 22.6% of domestic equity assets, or $406.8 million, up from 10%, as a result of an asset allocation study conducted by the $4.3 billion pension plan.
-- Ascension Health, St. Louis, hired Western Asset Management Co., Pasadena, Calif., and Wellington Management Co., Boston, to run $80 million each in enhanced S&P 500 index portfolios for the $1.5 billion plan.
-- UNC Management, which manages the $1 billion endowment of the University of North Carolina at Chapel Hill, raised its enhanced fixed-income allocation to 7.5% of total assets from 5%.
-- Exel PLC Retirement Plan, Bedford, England, hired State Street Global Advisors Inc., Boston, to run £115 million ($188 million) in enhanced Pan-European equities for the £1.1 billion plan.
Consultants say there is a clear shift to enhanced indexing from traditional active management.
"We're seeing a move away from traditional, run-of-the-mill active management," said Jeff Nipp, head of manager research at Watson Wyatt Worldwide Inc., Atlanta. Plan sponsors are using more enhanced index strategies as their core equity investments and balancing them with more aggressive portfolios in a "core-satellite" approach.
In response, active money managers are ratcheting down the risk in their portfolios. Casey, Quirk & Acito's quarterly institutional product review finds that, in general, portfolios across the large-cap growth spectrum have lowered their tracking error, which the report interprets as a decrease in relative risk levels.