New Strategy Includes Significant Reduction in Use of Hedge Funds In Favor of More Traditional Strategies for Growth, Stability
PROVIDENCE, RI – General Treasurer Seth Magaziner announced a new «Back to
Basics» investment strategy for the Rhode Island pension fund – following unanimous
approval by the State Investment Commission.
Among the changes recommended by Treasurer Magaziner is a significant reduction
in the state’s investments in hedge funds. Under the «Back to Basics» plan, the
state will reduce its investment in hedge fund strategies by more than $500 million
over the next two years, and reallocate these funds to more traditional asset classes.
Back to Basics is the result of an extensive review of the state’s pension investments
launched earlier this year by Treasurer Magaziner, involving many of the state’s
leading financial experts. Among those participating in the review were the members
of the State Investment Commission and Retirement Board, Treasury investment staff,
and Pension Consulting Alliance, a leading national pension investment advisor.
«While our pension system has achieved positive performance and beaten our benchmark
since I took office, I believe that we can do better,» said Treasurer Magaziner.
«Our ‘Back to Basics’ approach will improve returns through common sense investments
that have proven they can deliver growth and stability.»
Performance has been positive since Treasurer Magaziner took office in January 2015,
earning more than $390 million and beating the plan’s own benchmark.
«I am committed to bringing a steady and reliable hand to our state’s finances,»
said Treasurer Magaziner. «With pension costs comprising a large percentage of
state and local budgets, the stronger performance projected under our ‘Back to Basics’
strategy can save millions for taxpayers and strengthen retirement security for
our public employees.»
Under Back to Basics, a majority of the pension fund will be invested in strategies
designed to produce strong returns over time. These growth and income strategies
mainly consist of low-fee index funds. The rest of the portfolio will be invested
in assets designed to protect the pension system against market risks such as inflation
August 2016 Investment Performance
The RI pension fund saw positive performance in the month of August, earning roughly
$20 million in net investment returns, beating the plan’s benchmark as well as a
traditional 60/40 benchmark. During the month, the pension system returned 0.44%
compared to the 0.33% return of the benchmark and 0.16% return of the 60/40.
To date in 2016 the pension has earned roughly $334 million in investment gains
and contributions, offset by $256 million in pension benefit payments for a net
increase of approximately $77 million.
About the State Investment Commission: The State Investments Commission (SIC) oversees
the assets of the state’s pension system as well as non-pension related investments
such as the General Fund.
Chaired by General Treasurer Seth Magaziner, SIC membership includes Robert Benson,
Chief Investment Officer, Amica Insurance; Michael Costello, Managing Partner,
Wealth Management; Thomas Fay, Regional Vice President, BNY Melon; Marie Langlois,
Former Managing Director, Washington Trust, and Chair of the RI Foundation Investment
Commission; Sylvia Maxfield, Dean, Providence College Business School; Paula McNamara,
President, Murray Charitable Foundation; Tom Mullaney, Director of the State Budget
Office; Frank Karpinski, Executive Director of the Employees Retirement System;
and Marcia Reback, Former President, RI Federation of Teachers.
About Pension Consulting Alliance: Pension Consulting Alliance, LLC is a nationally
recognized consulting firm that provides thoughtful, conflict-free, independent
investment analysis. In addition to Rhode Island, PCA’s public pension clients include
CalPERS, CalSTERS, New York, Washington, Oregon, South Carolina, Kansas, and Hawaii.