Will Calpers' Announcement Cause More Pensions Cut Down on Paying for Investment Management?

This story about didn't get the press it deserved:

The largest U.S. public pension fund intends to sever ties with roughly half of the firms handling its money, one of the most aggressive industry moves yet to reduce fees paid to Wall Street investment managers.

The fund here is Calpers, the California concern that manages the state's pension system. They led the way to expanding the investments held by pension funds beyond stocks and bonds. For years, they've paid Wall Street firms billions in fees. It seems they've concluded the money wasn't worth it.

Fees paid to outside managers have ballooned over the past decade as many public retirement systems followed Calpers into hedge funds and private equity in an attempt to boost long-term returns and meet their mounting obligations to retirees.  

The question is whether other funds will now backtrack on their previous commitments. If so, it will reverse a long-running trend and undermine what seemed like an ever-expanding arm of the investment management business: consulting to pension funds. Indeed, there's a body of evidence out there that calls into question the expertise such consultants claim in being able to pick winning managers from mediocre or losing managers. And while this article focuses on those managers who specialize in "alternative" investing, how long will it be before either Calpers or some other pension fund begins to whittle away their roster of managers who "actively" manage money vs simply investing in index funds?

While this may take some time to unfold, just as it took years for pensions to invest in alternative strategies, we may be witnessing a dramatic turn of events, a veritable sea change not only in how pensions are managed, but in the sort of advice for which such funds are willing to pay.