More than 30 public funds, including the San Francisco Employees’ Retirement System, the New Hampshire Retirement System and the New Mexico Public Employees Retirement Association, have awarded roughly $2.6 billion in small-cap mandates this year. That’s an increase of $800 million over all of last year.

The goal is to further diversify portfolios and tap existing potential for growth in global equities, specifically in small caps, says David Kehler, retirement administrator for the Tulare County (California) Employees Retirement Association. Other industry officials say turnover is another driver behind the trend. “The financial crisis has seen a number of active managers struggle given a number of factors, including the junk [bond] rally,” says Paul Harte, vice president at San Francisco’s Strategic Investment Solutions. “I suspect some of these managers have underperformed severely and are being replaced.”

— Money Management Letter