Hedge fund managers investing Illinois’ pension money averaged $60 million in fees each of the last three years but underperformed the stock market. So the Illinois State Board of Investment terminated three of its four managers.

The move will change the amount Illinois’ pension funds invest in high-risk stock and bond trading to 3 percent from 10 percent. The Illinois State Board of Investment will move that money into cheaper, safer index funds.

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Illinois State Board of Investment Deputy Director Johara Farhadieh said the move is the smart play for investing taxpayer dollars. “We’re doing it in a manner that’s saving a significant amount of money and ultimately, in the long run, will outperform the majority of the active managers.”

Farhadieh said the cheaper, safer bet will also earn better returns on the state’s $16 billion in investments. “Index funds charge a minimal fee to track the index, and ultimately, studies have shown that long-term, it’s difficult to beat these indexes through active management.”

Investment board member and Illinois Treasurer Mike Frerichs has questioned some of the board’s previous decisions, but his spokesman said Frerichs supports the move away from high-fee services. Fellow board member and state Sen. James Clayborne Jr., D-Belleville, could not be reached for comment.


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