Public pension funds should eliminate Wall Street middlemen and invest directly using low-cost index strategies
Source: Drew Warshaw. "Cut Out the Wall Street Middlemen From Our Pension Funds." March 3, 2026. jacobin.com
The Gist
The author argues that public pension funds should stop using Wall Street investment managers who charge high fees but don't beat the market. Instead, they should invest directly using simple, low-cost strategies that would save money and reduce Wall Street's power over the economy.
Conclusion
Public pension funds should cut out Wall Street middlemen entirely and instead invest directly into the economy using diversified, low-cost index strategies
Premises
- America's public pension funds hold $6 trillion in assets that flow through Wall Street middlemen who generate enormous fees
- These Wall Street investment managers consistently fail to beat market benchmarks net of their fees
- Public pension funds are the primary source of capital fueling financialization of the economy
- This system transfers wealth from taxpayers and workers to investment managers, with New York alone losing $59.1 billion over 18 years
- Investment managers received $11.3 billion in taxpayer-funded fees in New York despite underperforming
- This cycle concentrates economic power in Wall Street and undermines democratic principles
- Direct investment through low-cost index strategies would achieve higher returns at lower cost to taxpayers
Assumptions
- Index investing consistently outperforms active management net of fees
- Pension fund administrators have the authority and capability to implement direct investment strategies
- Eliminating Wall Street middlemen would significantly reduce financialization
- Public pension funds can effectively manage direct investments without creating new risks
- The current system's underperformance will continue in the future