Updated

Updated · The Philadelphia Inquirer · Aug 19

Pennsylvania SERS Awards Xponance $2 Billion U.S. Mandate After Cutting $300 Million Foreign-Stock Fund

Updated

Updated · The Philadelphia Inquirer · Aug 19

Pennsylvania SERS Awards Xponance $2 Billion U.S. Mandate After Cutting $300 Million Foreign-Stock Fund

Q: How does gaining a massive $2 billion investment mandate actually result in an 80 percent revenue loss for a financial firm?

Because the new $2 billion assignment is a low-fee passive index mandate, while the old $300 million account was a high-fee active strategy. Under the terminated foreign small-cap mandate, Xponance was charging about 0.8% annually on $300 million, which worked out to roughly $2 million a year in revenue. Active international small-cap investing is labor-intensive and typically commands much higher fees because the manager is trying to beat a benchmark through stock selection. The new mandate is very different. Xponance will run a passive Russell 3000 index portfolio, whose job is simply to track the market at low cost. Passive index mandates are priced far more cheaply because they require less research, less trading discretion and face fierce fee competition. Xponance’s own materials indicate passive equity fees can range from 0.01% to 0.25%, and SERS expects this account to generate only about $400,000 a year on $2 billion. That means the assets under management rise sharply, but the fee rate collapses. In simple terms, Xponance is moving from earning about 80 basis points on $300 million to about 2 basis points on $2 billion. So the firm gains scale and keeps a major client relationship, but the revenue tied to this specific business drops by about 80%. The episode also reflects a broader industry trend: big institutional investors increasingly favor low-cost passive mandates unless active managers clearly outperform.

1 articles · Updated · The Philadelphia Inquirer · Aug 19

$42 billion Pennsylvania SERS voted July 28 to terminate Xponance’s $300 million non-U.S. small-cap mandate, then in the same action handed the firm a new $2 billion passive U.S. stock assignment.
Xponance lost the foreign-stock account after 20 months on SERS’s evaluation list and because it was the only one of five foreign-stock managers to trail its benchmark since inception, including a 6% lag in 2025.
The new mandate tracks the Russell 3000 and will partly draw assets from Mellon Investment Management’s existing SERS accounts, giving Xponance SERS’s only fund spanning both large- and small-cap U.S. stocks.
Fees explain part of the switch: Xponance earned about $2 million a year on the active foreign-stock account, while a $2 billion passive mandate would typically bring roughly $400,000 annually before final terms are negotiated.
SERS said it is pressing to lower manager costs across the system, which paid more than $230 million in fees and expenses in 2024, while also noting Xponance is its only public-markets manager majority-owned by women or minorities.

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The Philadelphia Inquirer1d ago

Pennsylvania SERS Fires Xponance from $300M Fund, Awards $2B U.S. Stock Mandate

Why did a public pension fund hand $2 billion to an asset manager immediately after firing them for poor performance?

How does gaining a massive $2 billion investment mandate actually result in an 80 percent revenue loss for a financial firm?

Does shifting billions to passive index funds truly protect retirees, or does it merely mask the systemic failures of active stock picking?

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The Philadelphia Inquirer1d ago

Pennsylvania SERS Fires Xponance from $300M Fund, Awards $2B U.S. Stock Mandate

Pennsylvania SERS Awards Xponance $2 Billion U.S. Mandate After Cutting $300 Million Foreign-Stock Fund

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