My recent scholarship (e.g., Outside Investor & Retirement Revolution) has focused on retirement and institutional investors. On the retirement investor side, I frequently address the impact that fees have on retirement investment returns, in part, as a critique of the opacity and lack of choice in the defined contribution plans (i.e., 401K and 457 plans). A focus on fee reduction (as well as simple diversification) has driven growth in the index and electronically-traded (ETF) funds, which charge lower fees because they are passively managed.  These simple lessons in finance are not just relevant to the individual investor.  Earlier this week, CalPERS announced that it would cut fund management fees by reducing (nearly in half) the number of active fund managers overseeing the investment of its over $300 billion in assets.  The New York Times reported that:

Eliminating some external managers will help Calpers shore up its investments by reducing fees. Last year, it paid $1.6 billion in management fees, $400 million of which was a one-time payment for its real estate managers, a Calpers spokesman said.

With larger pools of assets shifted to the remaining asset managers, CalPERS should have more leverage to demand lower fees and cost savings of the chosen few.  CalPERS, as a leader in the pension world, may pave the way to increased pressure on Wall Street fees by other pension funds.

Additional coverage on the shift is available at the Wall Street Journal and at NPR.   

-Anne Tucker