With global pension assets projected to reach US$12 trillion by 2000, understanding what drives pension fund performance has never been more important. The study of pension funds described in this article found that the funds, after adjustment for the incremental costs and risks they undertook, underperformed their passive policy benchmarks in the 1993–96 period by an average 60 basis points a year. We discuss three drivers of fund performance—fund size, proportion of assets passively managed, and quality of the fund's organization design—and offer suggestions for improving pension fund performance by improving elements of the fund's organization.