Aug. 6 (Bloomberg) -- The Massachusetts state pension fund pulled $2 billion in assets from Legg Mason Inc.'s Bill Miller and four other firms as part of a plan to shift all U.S. equity assets from managers who actively pick stocks to buy and sell.

The board of the $50.6 billion pension fund approved the switch at a meeting today, citing ``inconsistent performance,'' said Francy Ronayne, a spokeswoman for Massachusetts Treasurer Timothy Cahill in Boston. The money was assigned to portfolios run by State Street Corp. and three hedge funds that are designed to track the investment performance of indexes, or baskets of securities.

``We've determined that active managers add no value over long periods of time,'' Michael Travaglini, director of the Massachusetts Pension Reserve, said in an interview.

The fund kept $2.4 billion in ``enhanced'' Standard & Poor's 500 portfolios run by Denver-based Janus Capital Group Inc. and Pacific Investment Management Co. of Newport Beach, California. It also left $1.3 billion in actively managed small- company funds.

``However, the long-term objective is to eliminate all long-only active management in the domestic equity portfolio,'' according to the agenda of today's meeting.

The changes were reported earlier today by Reuters.

Active fund managers select holdings according to individual research and investment styles. Index-fund portfolios are determined by the composition of market indexes such as the Russell 3000.

``Public pension funds in recent years have made an effort to increase their diversification and this is certainly a part of that,'' Keith Brainard, research director at the National Association of State Retirement Administrators in Baton Rouge, Louisiana.

Miller is chairman of Legg Mason Capital Management, a Baltimore-based unit that invests in companies considered cheap when measured by sales or profit. His $9.7 billion Legg Mason Value Trust, famed for beating the Standard & Poor's 500 Index for 15 consecutive years, has trailed the benchmark for three years. Massachusetts' $637 million account with Legg Mason was down 35 percent in the year ending June 30.

State Street Global

The pension fund will move about $1.5 billion to a portfolio at Boston's State Street Global Advisors that tracks the Russell 3000. The Russell 3000 has declined 12 percent this year.

The plan will also shift about $540 million to funds that invest in other hedge funds. Those assets will be overseen by Blackstone Group LP and EIM Management USA, both based in New York, and Austin Capital Management GP in Austin, Texas.

``This is not a temporary move,'' Travaglini said. ``We've reviewed 24 years of history. The domestic equity structure is not working.''

Besides Legg Mason, the stock managers dropped by the pension board were Gardner Lewis Asset Management in Chadds Ford, Pennsylvania, where Massachusetts' account dropped 5.7 percent in the past year; Los Angeles-based NWQ Investment Management, a part of Nuveen Investments Inc., down 18 percent; Mazama Capital Management Inc. in Portland, Oregon, down 29 percent; and Chicago-based Ariel Investments, down 20 percent.

The S&P 500 declined 15 percent in the past year.

The Pension Reserve invests assets for teachers' and employees' retirement systems in Massachusetts. It returned an annual average of 11.6 percent in the last 10 years prior to the last fiscal year, according to the Pioneer Institute in Boston. It lost 1.8 percent in the past year.

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

Last Updated: August 6, 2008 17:33 EDT