Mass. pension system dropping stock pickers

The Massachusetts state pension fund pulled $2 billion in assets from Legg Mason Inc.'s Bill Miller and four other firms as part of a plan to shift all US equity assets from managers who actively pick stocks to buy and sell.

The board of the $50.6 billion pension fund approved the switch at a meeting yesterday, citing "inconsistent performance," said Francy Ronayne, a spokeswoman for state Treasurer Timothy Cahill. The money was assigned to portfolios run by State Street Corp. and three hedge funds that are designed to track the investment performance of indexes, or baskets of securities.

"We've determined that active managers add no value over long periods of time," Michael Travaglini, director of the Massachusetts Pension Reserve, said.

The fund kept $2.4 billion in "enhanced" Standard & Poor's 500 portfolios run by Janus Capital Group Inc. and Pacific Investment Management Co. It also left $1.3 billion in actively managed small-company funds.

Active fund managers select holdings according to individual research and investment styles. Index-fund portfolios are determined by the composition of market indexes.

"Public pension funds in recent years have made an effort to increase their diversification and this is certainly a part of that," said Keith Brainard, research director at the National Association of State Retirement Administrators.

Miller is chairman of Legg Mason Capital Management, a Baltimore-based unit that invests in companies considered cheap when measured by sales or profit. His $9.7 billion Legg Mason Value Trust, famed for beating the Standard & Poor's 500 index for 15 years, has trailed the benchmark for three years. Massachusetts' $637 million account with Legg Mason was down 35 percent in the year ending June 30.

The pension fund will move about $1.5 billion to a portfolio at Boston's State Street Global Advisors that tracks the Russell 3000. The Russell 3000 has declined 12 percent this year.

The plan will also shift about $540 million to funds that invest in other hedge funds.

Other stock managers dropped were Gardner Lewis Asset Management, where Massachusetts' account dropped 5.7 percent in the past year; NWQ Investment Management, down 18 percent; Mazama Capital Management Inc., down 29 percent; and Ariel Investments, down 20 percent.