A California pension fund has fired Franklin Templeton Investments, JPMorgan Chase & Co and Pacific Investment Management Co from some portfolio-management responsibilities in a shakeup that puts more of its assets in lower-fee, index-tracking investments, the fund said.
The Orange County Employees Retirement System (OCERS) is the latest institutional investor to scrap some of its active managers, stemming from a consultant’s recommendation to avoid high fees and subpar performance in its $14.1 billion investment portfolio, according to a notice posted online this week.
Last year, active mutual funds lost $343 billion to withdrawals. Billionaire investor Warren Buffett earlier this year said most investors are better off buying index funds.
The retirement system based in Santa Ana, California, decided to move more than $1 billion of assets from the managers late in March, the notice said.
Parts of the portfolio managed by Grantham Mayo Van Otterloo & CO LLC and Standard Life PLC are also being liquidated.
Franklin Templeton and Standard Life did not respond to requests for comment, while the other fund companies declined to comment.
The changes were reported earlier Wednesday by FundFire, an industry news service.
Half a trillion dollars moved into index funds last year, according to Morningstar Inc, the seventh straight year they have outpaced counterparts whose managers try to pick winners and losers in the market. Those figures do not include privately managed institutional accounts.
The California retirement system’s investment consultant, Meketa Investment Group Inc, told the pension plan it could save at least $9 million a year, excluding performance fees, by cutting some managers and transferring some of the funds to index-tracking investments.
Meketa advised cutting equity strategies run by Franklin, GMO and JPMorgan for “historical underperformance” and “expected performance challenges relative to passive exposure going forward.”
And it said cutting funds such as the Pimco All Asset All Authority Fund and the Standard Life Investments Global Absolute Return Fund could also help save fees.
Marc Seidner, Pimco’s chief investment officer for “Non-traditional Strategies,” and Robert Arnott, who manages the All-Asset fund, are slated to speak to an OCERS committee on Thursday, according to an agenda posted online.
The pension fund has cut hedge funds as a separate investment category, but has kept some hedge funds in its portfolio, including products run by Pimco, D. E. Shaw & Co LP and Bridgewater Associates LP.