These firms are paid an annual fee of 25 basis points of the market value of the total PSF assets they manage. In fact, two additional employees were hired to track the external managers' results. As a result, the PSF investment office's operating budget has risen. Due to costly contract terms, all three external managers selected by SBOE have produced lower rates of return than PSF's own internal managers. More favorable contract terms would have greatly increased revenue to the state.
Management fees are often prohibitive when contracting for long-term investing.
The comparisons of PSF internal management and the three external managers shown in Exhibit 2 do not include such fees. Texas Education Agency. Note that over the last decade, the three external money managers have substantially underperformed the internal PSF staff. In terms of fixed income, all three managers underperformed the PSF and the bond index. No evidence exists that external money managers will generate a higher return on PSF investments.