For some 30 years now indexing has been a powerful force in the market, investing and benchmarking; it raised performance expectations for active management — more often than not to unbeatable levels — as Steven A. Schoenfeld underscores in his new book, "Active Index Investing."
The book — which contains the contributions of some 50 pension fund officials, money managers and other practitioners, as well as academics — shows there is nothing passive or apathetic about indexers in terms of investment innovation, even in this era of hedge fund growth.
Hedge funds, in fact, as well as adding index alpha are among timely topics addressed in the book, edited by Mr. Schoenfeld and published by John Wiley & Sons Inc., Hoboken, N.J.
Mr. Schoenfeld, a leader in expanding the use and understanding of indexing, has an intellectual's grasp of its concepts and a practitioner's ability to apply them. He wrote nine of the book's 31 chapters and was co-author of another.
Mark Anson, chief investment officer of the California Public Employees' Retirement System, Sacramento, wrote a chapter on hedge fund benchmarks and asset allocation." In the chapter, Mr. Anson examines, among other issues, "whether a hedge fund index can be or should be investable."
Nancy Calkins, senior investment officer-public equity, Washington State Investment Board, Olympia, wrote a chapter addressing how and why large pension plans use index-based strategies as their core investments.
Other pension fund officials who contributed include Michael Mueller, assistant director-investments, Oregon State Treasury, Salem.
Other contributors include Larry Siegel, director-policy research, Ford Foundation; Aje K. Saigal, director-investment policy and strategy, Government of Singapore Investment Corp.; Gus Sauter, chief investment officer, Vanguard Group; Joanne M. Hill, managing director, head of derivatives & trading strategy, Goldman Sachs & Co.; and Stephen Wallenstein, executive director, Duke University Global Capital Markets Center.
The 720-page book is an essential guide for anyone involved in portfolio management, active as well as passive, and useful in discussions of indexing for investing and benchmarking and weighting, among other issues. A chapter on enhanced indexing, or adding alpha, discusses the delicate balance of seeking the outperformance of active management, yet the risk characteristics of an index.
Providing more illumination, the book contains some 30 so-called sidebars, or minichapters. Their topics include "the vital importance of market capitalization weighting," Other supplementing sidebars are available only on the book's website. In one web-only piece, Arlene Rockefeller, head of global enhanced equities, State Street Global Advisors, compares the S&P 1500 supercomposite index with the Russell 3000 index.
Mr. Schoenfeld has worked for years with pension funds applying indexing concepts. When he worked at the International Finance Corp., Washington, he helped develop the IFC Investable Emerging Market indexes. At Barclays Global Investors, San Francisco, he worked in a variety of key capacities in indexing. Last year, he joined Northern Trust Global Investments, where he currently works in its New York office as chief investment strategist for global quantitative management.
Indexing choice is expanding. But users don't want more choice, Mr. Schoenfeld asserts. Users, he contends, want "precise solutions that solve their functional needs." Somehow that financial engineering is likely to involve indexing.