Illinois Pension Fund has paid hedge-fund managers more than $180 million in fees for the past three years while performance generated by these managers was worse than that of a balanced index fund. Marc Levine writes on The Wall Street Journal that The Illinois State Board of Investment, which oversees $16 billion of pension assets, is slashing its hedge-fund portfolio by 70% and replacing about 40% of the high-cost, underperforming investment managers with index-based portfolios. Finally, Illinois state pension system recognizes the Boglehead philosophy: In investing, you get what you don’t pay for. By adopting the use of index funds, state pension systems can eliminate unnecessary costs and limit the incentive of political interference. Mr. Levine also points out two instances of political mischief:
- Federico Buenrostro Jr., the former chief executive of Calpers, California’s public-pension fund, admitted in 2014 to accepting bribes, a felony. Prosecutors said he collected money, casino chips and other gifts from a middleman who connected Wall Street investment firms with the fund.
- In New York, State Comptroller Alan Hevesi accepted $1 million in gifts from a money manager in return for steering him $250 million in state-pension-fund money to invest. Mr. Hevesi spent more than a year in prison after pleading guilty to corruption charges in 2011.
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