US - Staff at the California State Teachers Retirement System want to expand the range of active versus passive management they can use in the global equity portfolio, stating the current policy is too restrictive.
In a memo to be discussed at an investment committee meeting on February 4, staff is requesting the range of active/passive management be increased to +/- 10% of the existing policy targets, double the current +/- 5% range.
The memo said: "Staff has found this requirement to be too restrictive during times of extreme market conditions. For example, during the past 18 months, the portfolio has periodically ‘bumped up' against the current ranges, which has the potential to force portfolio movement at points that would not be opportune within the market environment."
The current investment policy calls for the US equity portfolio to be 70% passive, and for international equities, excluding emerging markets, to be evenly split between active and passive management.
Any change to the investment ranges will need to be approved by the investment committee at the February meeting.
The request comes at the conclusion of a review of the use of active and passive strategies within the US$72.5bn global equity and $28bn fixed income portfolios launched in September. (Global Pensions; August 25, 2009)
The purpose was to find the optimal balance between the two investment styles.
The study found that the fixed income portfolio already uses the most effective investment style. Eighty percent of the portfolio is managed in-house in a risk-controlled core strategy meant to add "modest" alpha over time. The remaining 20% is invested in opportunistic strategies like high yield, core plus and special situations.
The active/passive debate has been making the rounds as pension funds around the world suffered heavy losses in 2008 and early 2009 from their active investments.
In Norway, the Ministry of Finance is currently reviewing the use of active and passive management within the Government Pension Fund Global. This sparked officials at Norges Bank Investment Management, the pension fund managers, to defend their use of active management within the portfolio. (Global Pensions; January 18, 2009)
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