Thanks, Mark--that's very helpful. I believe I have printed out Scott Stewart's monograph before, but I don't remember having read it carefully and I look forward to doing so now. My initial scan suggests that my concerns regarding the efficacy of the manager search function are well placed: for example, on page 93 Stewart summarizes one study in which the authors "confirmed that on average, institutional investors' changes in manager allocation led to underperformance in all asset classes. In fact, the authors estimated that the economic impact of manager selection changes, before transaction costs, was more than $170 billion."
To answer your question as to why investors would bother with active investment management--and therefore manager searches--despite unfavourable evidence, I have in mind two main explanations. The first is lack of information: for example, in real estate (the asset class in which I am most knowledgeable) actively managed private equity real estate investment managers have underperformed passively managed exchange-traded equity real estate, on average, over the 38-year available historical time period (and every reasonable sub-period) even after controlling for differences such as leverage, property type mix, and location--in fact, I have literally never seen any piece of empirical evidence suggesting that private equity real estate investing has outperformed passive exchange-traded real estate. Yet most institutional investors seem genuinely surprised, and even skeptical, to hear about those empirical findings. (The same goes for actively managed hedge funds and private equity funds, although there is some empirical counter-evidence.)
The second explanation is agency problems: the possibility that members of the institutional investment community--plan sponsors, investment consultants, active investment managers, etc.--may prefer active management and manager searches not because they result in investment performance that is better for the beneficiaries (retirees or workers covered by pension plans, students supported by endowments, etc.) but rather because active management and manager searches are better for those members of the institutional investment community themselves.
I would be interested in your opinions, too.
--Brad