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Public Funds Seeking to Reduce Reliance on Wall Street

The New York Times had an interesting article out yesterday by Nathaniel Popper titled, “Public Funds Take Control of Assets, Dodging Wall Street”, which indicates that public pension funds and sovereign wealth funds are increasingly growing tired of high fees in exchange for meager returns from Wall Street.

There is no longer a willingness to pay high fees when index funds can provide better returns at lower cost intervals. Many of these funds are seeking to invest on their own or create mutual partnerships called “co-investments”, which significantly slashes fees from private equity and hedge fund managers. No longer are these funds willing to sit back and be gouged. According to Popper, “Now, the big players are also searching for cheaper ways to put money into trickier investments like real estate and technology.”

In terms of pension funds, friction exists between public employees and Wall Street managers. A lot of private equity and hedge fund managers are simultaneously managing defined benefit plans while arguing in favor for defined contribution plans. Public employees hate defined contribution plans because benefits are not guaranteed under those plans. Mistrust is ramped on both sides.