Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. INVESTING
February 04, 2019 12:00 AM

Funds turn back clock in return to active equity

Christine Williamson
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print
    John J. Delaney believes more volatility is one reason for the rise in active management.

    The largest U.S. defined benefit plans increased aggregate investment in actively managed U.S. equity strategies by 16.2% to $405.1 billion in the year ended Sept. 30, data from Pensions & Investments' annual survey of U.S. retirement plans show.

    The rise in assets in active U.S. equity strategies by defined benefit plans among the largest 200 retirement plans is the first since 2014, analysis of P&I's survey data found.

    Investment in actively managed U.S. bonds by P&I's universe of U.S. defined benefit plans rose 12.9% to $757 billion during the 12-month period.

    In contrast, assets invested in passively managed U.S. equities by large U.S. defined benefit plans were relatively flat, up just 0.8% to $605.2 billion in the year ended Sept. 30 vs. the prior year, while assets invested in indexed bond strategies dropped nearly 6% to $130 billion compared to a year earlier.

    The active-passive breakdown in the year ended Sept. 30 is a reversal from the same date a year earlier when assets managed in passively managed U.S. equity were up 13.8% and active U.S. equity assets in aggregate were down 9.6%.

    The bump in actively managed U.S. equity shifted the balance in aggregate for defined benefit plans among the top 200 U.S. retirement plans to 40.1% active and 59.9% passive, as of Sept. 30, from 36.7% and 63.3% a year earlier.

    Looking at the narrower universe of the 79 defined benefit plans that reported their active/passive split for both survey periods, the breakdown was 40.4% active vs. 59.6% passive in the year ended Sept. 30, and 36.4% active and 63.6% passive for the 12 months ended Sept. 30, 2017.

    Industry observers said it's difficult to interpret the increase in actively managed U.S. equities in P&I's data, given the reasons for changes among plans surveyed vary widely.

    For example, there isn't a clear trend among the 79 plans, with 42 increasing their investment in actively managed U.S. equity and 30 reducing their allocation.

    The changes in active U.S. equity investment within this group ranged from a 200% plus increase to dropping active equity strategies entirely.

    The $376.9 billion California Public Employees' Retirement System, Sacramento, for example, made the most dramatic change with a 215.5% increase in actively managed U.S. equities to $70.6 billion. That increase includes $13.2 billion of actively managed global equity assets that were reclassified as active U.S. equity, according to a note on the survey the fund submitted.

    CalPERS reduced its allocation to passive U.S. equities by 27.1% to $45.1 billion.

    John "Mike" Osborn, a Cal- PERS' spokesman, declined to comment after a request for more information.

    Similarly, 46 plan sponsors in the survey increased their weighting to indexed U.S. equity while 27 decreased investment in these strategies. The percentage change for this group was between 318.7% to a complete withdrawal.

    But sources agreed one of the likely drivers behind the move to active management is the condition of global markets.

    "If you look back over the last five years, there were big swings to passive management as investors tired of their active managers not producing alpha in the long-running bull market," said John J. Delaney, portfolio manager, who is based in the Philadelphia office of Willis Towers Watson PLC.

    Mr. Delaney said the ending of quantitative easing and the specter of rising volatility is pushing investors to reconsider active equity on the premise that managers will find more opportunities to generate alpha.

    The $153.1 billion Teacher Retirement System of Texas, Austin, for example, increased its allocation to actively managed U.S. equities by 46.3% to $22.2 billion and reduced the allocation to indexed U.S. equities by 70.1% to $3.5 billion in the year ended Sept. 30.

    The reduction in passive equities, which are managed internally at Texas Teachers, was used to fund "lower-risk investments during this (late) stage of the market cycle, including opportunistic credit," said Dale West, senior managing director of the fund's external public markets group, in an email.

    The fund also significantly increased the allocation to actively managed, quantitative, factor-based equity portfolios: TRS investment staff managed a total of $15.5 billion internally in U.S. and international equity factor-based portfolios as of Sept. 30, up from $7.4 billion a year earlier.

    P&I's data likely reflect a move by many U.S. plan sponsors into quantitatively managed factor-based portfolios, said Steven J. Foresti, chief investment officer, Wilshire Consulting, Santa Monica, Calif.

    "Over the past five years, there's been a lot of money going into quasi-active and quasi-passive factor-based strategies," Mr. Foresti said, noting Wilshire's consulting practice created a bucket for factor-based approaches that rests between active and passive equity.

    "I think what you are probably seeing in the P&I data is plan sponsors trying to fit factor-based strategies into the binary categories of active and passive equity but not uniformly."

    P&I's survey asks pension funds to list assets invested in factor-based strategies, but only 10 plans listed assets totaling $38.4 billion in the most recent survey.

    Texas Teachers, for example, accounts for its substantial factor-based equity portfolio in its active equity category and did not respond to the factor-based question on P&I's survey.

    Unexplained

    The motivations behind big U.S. equity portfolio changes remain a mystery for some.

    Another large increase to active U.S. equity by U.S. defined benefit plans was made by the $213.2 billion New York State Common Retirement Fund, Albany, which raised its investment in active U.S. stocks by 50.1% to $12.9 billion and pumped up its passive U.S. equity 6.3% to $69.6 billion.

    The $68.3 billion University of California Retirement System, Oakland, led the pack of large U.S. defined benefit plans that significantly increased passively managed U.S. equities. The university's office of the chief investment officer raised the fund's allocation to passively managed U.S. equity by 318.7% to $783 million and cut actively managed U.S. equity assets by 33.6% to $3.9 billion.

    Jagdeep S. Bachher, chief investment officer and vice president, investments, office of the president, was not available to comment about the changes But he and other UC investment officials have outlined plans to increase investment in passive U.S. equity strategies to reduce the number of managers and cut fees for the university's pension fund, endowment and other investment pools.

    Rebalancing

    For some U.S. defined benefit plans, moving assets between active and indexed U.S. equity strategies is part of rebalancing.

    The $51.8 billion Teachers' Retirement System of the State of Illinois, for example, increased passive U.S. equity assets by a significant 53.9% to $4.2 billion and trimmed active U.S. equities by 13.1% to $4.6 billion.

    The changes in actively and passively managed U.S. equity was based on portfolio tenets, said David Urbanek, spokesman for the Springfield-based fund, in an email.

    "In general, our investment strategy is built on diversification and balance, and we don't deviate from that when we consider active vs. passive strategies in U.S. equity assets. ''We're looking for an appropriate balance between the two that keeps us within our risk parameters yet maximizes our opportunities. We're not favoring one over the other," Mr. Urbanek said. The increase during the most recent survey period was "the result of our effort to maintain a proper long-term strategic balance in U.S. equities," he added.

    In fact, Illinois Teachers' $8.8 billion U.S. equity portfolio was split almost evenly with 52% in actively managed strategies and 48% in indexed portfolios.

    Making an equity bet

    U.S. defined benefit funds among the top 200 with the largest year-to-year growth in active and passive equity allocations. Dollars are in millions as of Sept. 30.

    Betting on active
    RankFundTotal U.S. equityActively managed U.S. equity Year-to-year changePassively managed U.S. equityYear-to-year change
    1California Public Employees*$115,721 $70,573 215.5%$45,148 -27.1%
    2Deloitte$437 $390 56.0%$47 -69.1%
    3New York State Common$82,453 $12,877 50.1%$69,576 6.3%
    4Texas Teachers$25,663 $22,172 46.3%$3,491 -70.1%
    5Exelon$2,488 $2,433 34.1%$55 -90.8%
    6Southern Co.$4,264 $2,512 32.1%$1,459 19.5%
    7Montana Board of Investments$4,093 $2,096 23.8%$1,997 -8.7%
    8Los Angeles County Employees$14,030 $1,955 21.7%$10,561 2.2%
    9Orange County$3,363 $353 20.5%$3,010 6.4%
    10Los Angeles Water & Power$5,442 $3,708 20.4%$1,734 4.3%
    Betting on passive
    RankFundTotal U.S. equityPassively managed U.S. equity Year-to-year changeActively managed U.S. equityYear-to-year change
    1University of California$4,638 $783 318.7%$3,855 -33.6%
    2Illinois Teachers$8,759 $4,189 53.9%$4,570 -13.1%
    3Citigroup$1,007 $256 48.0%$751 -24.7%
    4Alaska Retirement$8,151 $3,713 47.4%$4,438 -3.8%
    5Oklahoma Teachers$6,792 $1,674 46.8%$5,118 1.5%
    6San Diego County$2,817 $1,185 34.5%$102 ∞
    7Ohio School Employees$3,658 $1,856 34.2%$1,802 2.4%
    8Oregon Public Employees$14,314 $4,444 30.2%$9,870 -9.9%
    9New Mexico Educational$2,634 $2,634 25.4%$0 -100.0%
    10Pentegra$1,420 $942 22.8%$478 17.4%
    *Included in California Public Employees' Retirement System's increase in active U.S. equity is $13.2 billion of assets reclassified from the fund's global equity portfolio.
    Source: Pensions & Investments survey

    Related Articles
    Teachers plans seeing results from effort to improve cash flow
    Assets rise 10% on 3 booming quarters of gains in equities
    Largest funds top $11 trillion; assets up 6.4%
    Teachers plans seeing results from effort to improve cash flow
    Largest funds top $11 trillion; assets up 6.4%
    Los Angeles Water & Power Employees puts Los Angeles Capital on watch
    Oakland County Employees taps 2 for smidcap equity
    Recommended for You
    ONLINE_180629815_AR_0_CVHUUGRTFTQU.jpg
    CLO managers use ‘print-and-sprint' to profit from cheap loans
    US_Treasury_1550_i.jpg
    PIMCO warns U.S. Treasury that Russia sanctions will hit pension funds
    Stocks_bad_NYSE_i.jpg
    Recession, stagflation risks top concerns for managers
    Emerging Markets: A Selective Approach
    Sponsored Content: Emerging Markets: A Selective Approach

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit