Pennsylvania treasury to move $1bn of funds to passive strategies
A total of $1bn in state funds previously managed by outside firms will instead be overseen by the Pennsylvania treasury, announced Joe Torsella, the state's elected treasurer. He explained that active fund managers were not able to generate income that sufficiently justified their fees, and said the treasury should instead try to capture underlying market return at the lowest cost. The policy shift will introduce investments in state funds that mimic broad sectors of the market, rather than as investments picked to outperform market averages. Torsella expects the policy to save about $5m in fees annually and reduce investment risk.
HARRISBURG, Pa. (AP) — Pennsylvania's elected treasurer announced Monday that about $1 billion in state funds that have been managed by outside firms will instead be overseen internally in a change designed to save millions in annual fees.

Joe Torsella said the new policy altering how the state money is invested will be implemented over the next six months.

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"We shouldn't be treating investing public funds like a casino game, trying to 'beat' the market, and paying casino prices to do it," Torsella said in a news release. "Instead, we should capture the underlying market return at the lowest possible cost."

He said the new policy will save about $5 million in fees annually and reduce investment risk.

Torsella said research indicates most active portfolio managers are not able to generate sufficient returns to make their fees worth what they cost.

"And trying to find those managers by looking in the rearview mirror doesn't help," said Torsella, a Democrat who took office in January.

The Philadelphia Inquirer reported Monday that one of the Treasury Department's vendors collected about $1.3 million in fees during the recent fiscal year, but its returns lagged the broader market by about 5 percentage points.

The policy shift means the state funds will be invested in ways that mimic broad sectors of the market, rather than a strategy of trying to pick investments that will outperform market averages.

Democratic Gov. Tom Wolf announced in January he was transferring three state-run funds to the Treasury Department to save on fees — a $1.4 billion state workers' insurance fund, a $700 million worker's compensation fund and a $200 million underground storage tank indemnification fund. That cut out 30 private money managers.

Wolf said Monday that Torsella's announcement "will save money and provide an important blueprint for efforts to cut out investment managers and save Pennsylvania money."