This is the time of year when investment boards and committees in charge of selecting fund managers for pension plans and 401(k) plans gather for a time-honored ritual. They review the past performance of their fund managers and decide whether to keep or replace them.
The point of this elaborate and lengthy exercise is to identify prospectively active fund managers who can “beat the market” and generate “alpha.” But if the members of these boards and committees really understood how unlikely it is to achieve that goal, they would fire their many consultants, stop having meetings, do no review of past performance and simply invest in low management fee index funds.
Given the available data, it is both shocking and irresponsible that trillions of dollars of retirement plan assets are entrusted to those who use this process to make fund-selection decisions.
Read the rest of the article at The Huffington Post.