One of the plans, the New Mexico Public Employees Retirement Association, Santa Fe, added enhanced index equities at the expense of its passive portfolio. In September, the fund hired INTECH, Palm Beach Gardens, Fla., to handle about $300 million in a long-only enhanced index equity account. Assets from the fund's traditional passive portfolio were used to fund the new enhanced account.
"We were seeking alpha," said Robert E. Gish, director of investments. "We have had a significant amount of assets in passive investments for the better part of the past decade. Enhanced indexing was something that we've been talking about for a while. So now, our equity portfolio consists of a passive component, a low-risk component and an active component."
Jay Fewel, director of investments at the Oregon Investment Council, Salem, which oversees the Oregon Public Employees Retirement Fund, Salem, said Fidelity Management & Trust Co., Boston, was hired in September to handle an $800 million enhanced international index fund (P&I, Sept. 22); $500 million for the account came from trimming the fund's passive portfolios.
Also, the fund is planning to search for an additional domestic enhanced index manager to handle as much as $1.7 billion to help fill a $5 billion allocation to enhanced domestic index strategies.
"We moved money from our passive portfolio to enhanced because wanted to get an incremental return over our (international equity) benchmark in a risk-controlled way," said Mr. Fewel. "It was something that we were discussing adding for a while. We have active equity managers that are high alpha, and now we have a low-risk, low-alpha approach." Mr. Fewel said the fund was partly prompted to add the enhanced index account after the termination of Putnam.
The California Public Employees Retirement System, Sacramento, in late 2003 created a new $6 billion enhanced index portfolio, which was funded entirely with assets from its passive index portfolios.
The New York State Teachers' Retirement System, Albany, funded some of its enhanced index allocation from its active accounts this year. In late 2003, the fund terminated Putnam from a $409 million active international equity account and gave the assets to Barclays Global Investors, San Francisco, San Francisco, in an enhanced index international account. In April, Montag & Caldwell LLC, Atlanta, was terminated from a $400 million active international equity account and the assets were moved to an internally managed enhanced international equity index strategy. The fund already managed several billion dollars worth of enhanced index assets
"We just felt that we could more efficiently manage Montag's assets in-house, and that we could get better returns with BGI," said John Cardillo, a fund spokesman.
The move to enhanced indexing was partially driven by the increase in allocations to alternative investments, as plan sponsors sought to lower risk in other portfolios while moving into higher-risk asset styles, said Kathy Taylor, BGI's managing director of U.S. institutional business.