November 8, 2017
North Carolina Retirement Systems, Raleigh, launched an initiative to handle passive investing in equities, Treasurer Dale Folwell said on a press call Tuesday.
“We are one of the few treasurers in the U.S. that does not have in-house index capabilities,” Mr. Folwell said on the call.
The switch is the result of an initiative started under his predecessor, Janet Cowell, and former Chief Investment Officer Kevin SigRist, who resigned in July. The state treasurer is the sole trustee of the $93.9 billion pension fund.
The internal index program will start with $50 million in cash and $50 million reallocated from Piedmont Investment Advisers, which helped North Carolina make the change. That represents a “slight reduction” in Piedmont’s North Carolina allocation, Mr. Folwell said. It will follow the Russell 2000 index.
Piedmont still has $3.63 billion in passive indexing funds for the pension fund. The rest is managed by BlackRock (BLK), which has $9 billion in U.S. equities and $8 billion in non-U.S. equities.
The ultimate goal is to manage about $12.5 billion in U.S. passive equities in-house, which represents about 30% of the pension fund’s equity holdings and 12% of the overall portfolio.
“This time next year we will be reporting that all of our indexing will be done in-house,” Mr. Folwell said on the call. “As we go further into next year … international passive strategies seems to be a natural place to go next.”
The current plan is to bring all U.S. funds in-house within two years, and then consider the non-U.S. ones in year three, he said.
“This is just an extension of what we’ve been saying all year, which is reducing complexity and improving transparency. In dollar terms we’re going to save fees,” he said, adding that it also allows a little more control over where assets are invested.
The program will be overseen by Rhonda M. Smith, director of the equities program.
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