OMERS recently announced its mid-year investment results: a 2.2 % return in the first half of 2025 (Financial Post; OMERS update). The press release emphasizes “a challenging market” and “resilient performance” but let’s be honest: if your retirement savings grew only 2.2 % while simple index funds were delivering far better, you’d probably be disappointed.
Pension Funds Keep Making Excuses
Canada’s so-called Maple 8 pension funds like to present themselves as sophisticated, world-class investors. They employ armies of analysts, travel the globe to source deals, and spend heavily on complex strategies. Yet their results often fail to clear the simplest hurdle: a low-cost passive index fund.
OMERS’ results are just the latest example. Instead of facing the hard truth, that active management isn’t delivering superior results. We get excuses about “market headwinds” or “currency volatility.” The problem is that these excuses show up every year in one form or another.
High Fees, Low Proof
Whether it’s a pension fund or a wealthy family office, the facts are the same: high fees dig directly into your returns. The bigger your portfolio, the more painful the drag. Wealthy investors and institutions may be able to afford to pay for expensive managers, but that doesn’t mean they should.
The data is overwhelming. The SPIVA Scorecards track the performance of active managers versus passive benchmarks. The results are remarkably consistent: most active managers underperform their benchmarks over time. It’s not just a Canadian phenomenon. It’s true globally, across equities, bonds, and alternatives.
So, if we know most managers don’t beat the index, why pay them higher fees for the privilege of falling short?
Why Do Pensions Keep Choosing Active Management?
If the data is so clear, why do pension funds and wealthy investors continue to pay for active managers who, often, underperform? The answer isn’t purely about economics. It’s also about knowledge, psychology, and perception.
1. Lack of Awareness
Many pension trustees, board members, and even wealthy families simply don’t know the facts. Passive indexing is sometimes dismissed as “too simple,” when it has decades of evidence supporting its success. Without a clear understanding of the evidence, decision-makers may assume that hiring expensive managers is the only way to achieve strong performance.
2. The Allure of Sophistication
There’s a powerful emotional appeal in believing that complex strategies and high-priced experts can deliver superior results. “Sophistication” feels safer than simplicity. Yet this is often an illusion. Sophistication may impress at board meetings, but it doesn’t always show up in net returns.
3. Fear of Regret
Trustees and wealthy families often fear the optics of “doing nothing.” If markets fall and the portfolio is indexed, it can feel like a failure of leadership. Hiring an active manager provides psychological cover: “At least we hired the experts.” This is a form of regret avoidance. Paying for action, even when inaction (indexing) would have been better.
4. Overconfidence Bias
Investors, whether individuals or institutions, often believe they can identify the “winning” manager. They think they’ll be the ones to beat the odds. But statistically, the odds are stacked against them, and overconfidence leads to disappointment.
5. Status and Signaling
For large pensions and family offices, hiring elite managers can feel like a status symbol. It signals sophistication, power, and influence. Even if it doesn’t translate into better returns. In this way, investment management becomes as much about appearances as about outcomes.
A Better Way: Embrace Simplicity
For pensions, family offices, and wealthy investors, the lesson is clear: simplicity wins. But it takes courage from boards and investment committees. Here are some easy-to-understand arguments in favour of index investing.
An indexed portfolio delivers:
- Lower costs — often saving more than 1% per year compared to active strategies.
- Better odds — because the data shows passive funds beat most active managers, most of the time.
- Clarity — no need to decode why your “world-class” manager only earned 2.2 % while the market did better.
Ironically, while pensions love to highlight their “sophisticated approach,” real sophistication is knowing when to stop paying for complexity that doesn’t pay off.
Clarity Wins
OMERS’ latest returns are another reminder that the emperor has no clothes. Active management sounds impressive, but when results consistently lag passive benchmarks, pensioners and investors are left footing the bill. The Maple 8 continue to defend their underperformance with excuses, but the evidence keeps piling up.
Wealthy families and pension funds alike would be better off taking a page from Warren Buffett’s playbook: keep it simple, keep it low-cost, and let the indexes do the heavy lifting.
