Pension funds trail individuals in embracing index funds

MORE individuals are pouring money into so-called passive investing or index funds, which aim to match the performance of the main stock and bond markets, but larger institutions such as pension funds and endowments have been slower to follow suit, despite the potential for higher returns and lower fees.

These bigger institutions still tend to rely on an army of asset managers and consultants who charge higher fees but promise better returns through so-called alternative investments such as private equity and hedge funds. But many of these investments do no better - or even worse - than index funds, opponents say.

Jeff Hooke, an investment banker at Focus Securities in Washington, who favours the greater use of index funds by public funds to save taxpayer dollars, says he thinks many public fund officials favour active management despite its higher costs because they don't want to "index themselves out of a job". He said some of the officials might have ties to Wall Street or might be swayed by some of the perks of active management, such as fancy investment conferences in Florida or Bermuda.