Performance of a bad idea.(Editorial)

Pensions & Investments, March, 2007

When a pension fund's investment universe is limited, the potential for harm to performance is great, while the reason for the limitation generally is dubious and usually politically motivated. That became evident recently at the $236.6 billion California Public Employees' Retirement System and at public pension funds in Illinois.

At CalPERS, restrictions on investing in some emerging markets have cost 2.6 percentage points in performance since they went into effect in 2002, according to a staff memo released in February. Because of the restrictions, two of CalPERS' three emerging markets managers, running $1.7 billion each, significantly underperformed unconstrained portfolios, the memo noted. These are opportunity costs, but they are real, and taxpayers or...

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