PT - JOURNAL ARTICLE AU - Richard M. Ennis TI - Institutional Investment Strategy and Manager Choice: <em>A Critique</em> AID - 10.3905/jpm.2020.1.141 DP - 2020 Mar 31 TA - The Journal of Portfolio Management PG - 104--117 VI - 46 IP - 5 4099 - https://pm-research.com/content/46/5/104.short 4100 - https://pm-research.com/content/46/5/104.full AB - The diversification of public pension funds and educational endowments is explained by a few stock and bond indexes alone. Alternative investments ceased to be diversifiers in the 2000s and have become a significant drag on institutional fund performance. Public pension funds underperformed passive investment by 1.0% a year over a recent decade; the annual shortfall of endowments is 1.6% a year. Given the extent of institutional diversification, the diminished effect of alternatives, and the funds’ prevailing cost structure, institutional investors face the prospect of continuing significant underperformance in the years ahead. There is a better approach to institutional investment strategy and manager choice.TOPICS: Wealth management, retirement, pension funds, private equityKey Findings• Public-market pricing is a much bigger factor in alternative asset markets now than in the past. Alts have ceased to be the diversifiers they once were and have become a significant drag on institutional fund performance.• The cost of institutional investing is 1.0% to 1.7% of asset value annually. Public pension funds underperformed passive investment by approximately 1.0% a year for the 10 years ended June 30, 2018; the shortfall of educational endowments was 1.6% a year.• The author advocates much greater use of passive investment management as a way to bring cost into line with the characteristic diversification of institutional investors.