Wisconsin Pension Transfers Assets in-House

(September 13, 2010) — The State of Wisconsin Investment Board (SWIB) is looking to transfer $3.9 billion of externally managed international equity assets in-house.

The move reflects the financial pressure on pensions to increase the in-house management of assets and boost efficiency. “We’ve always had in-house management and we’ve increased it from 20% in 2007 to over 41% as of the end of last year,” Vicki Hearing, public information officer at the State of Wisconsin Investment Board, told ai5000.

“It’s more cost-effective, no doubt about it,” she said, adding that the pension was able to boost its percentage of in-house management due to the support it received from the Wisconsin legislature for additional staff.

The $69.2 billion Madison-based scheme currently has $16 billion in non-US equity holdings and is seeking “less expensive internal management” options. To support the new undertaking, the Wisconsin board recently approved the hiring of a portfolio manager or analyst to assist with bringing the assets in-house, Hearing told ai5000.

“Over the past few years, we have increased internal active management significantly, but the current initiative is aimed at index assets, not active management,” Hearing confirmed.

SWIB spent $192 million on “external management and advisory” services during the calendar year 2008, the according to the fund’s 2009 annual report. That figure accounted for 84% of total costs for the year.

The transfer of assets follows the announcement by the $139 billion California State Teachers Retirement System (CalSTRS), which already manages $70 billion internally, that it would consider adding in-house assets. The fund asserted that managing increasing assets itself could be more “effective” than hiring external managers.

“…We believe there are areas within the portfolio where internal asset management may be more effective and efficient,” said a CalSTRS investments business plan for the 2010-11 fiscal year, written by chief investment officer Christopher Ailman and staff.

Separately, Leo de Bever the CEO of Alberta’s AIMco — the corporation created to manage the province’s pension and sovereign wealth fund — spoke positively of internal private equity teams to ai5000. “I paid [US $160 million] in external fees last year,” he said in a December interview. “I think we can cut that down by four times if we move some of it internally.” His outlook mirrors other large Canadian institutions, which have created internal teams to pursue direct investments and avoid external fees.