Hedge Fund That Providence Pension Fund Is Heavily Invested In Hit With Record $7B IRS Penalty

Hedge Fund That Providence Pension Fund Is Heavily Invested In Hit With Record $7B IRS Penalty

The officers of one of the largest investments by the underfunded Providence pension fund have been hit with the largest penalty in the history of the U.S. Internal Revenue Service.

The hedge fund — Renaissance Technologies, LLC— has been a favorite investment by the Providence Board of Investment Commissioners, which is chaired by Mayor Jorge Elorza.

This is just the latest hit to the hedge fund and correspondingly has a potential for even more losses for Providence's workers' retirement future.

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Earlier this year, GoLocal unveiled in a series of reports that the Providence pension fund had 12% of its investments in hedge funds, and the vast majority of it was invested in one of the companies' funds, Renaissance Institutional Equities Fund. Providence’s beleaguered pension lost millions in that one investment in 2020 and for months institutional investors have been pulling billions from the fund.

While the S&P 500 gained more than 18.4% in 2020, Providence’s pension fund grew by just 6.4%. The underperformance Providence pension fund was heavily tied to the losses by Renaissance.

The Providence pension fund is managed by Wainwright Investment Counsel, LLC.

 

The Exodus Has Continued by Investors

Renaissance Technologies has suffered an $11 billion outflow of client funds in seven months as investors have tired of its poor performance, Bloomberg reported in June, citing investor documents.

The city of Providence has cut its investment from 9% to 4.4% over the past few months. Wainwright refused to answer questions from GoLocal as to why the City of Providence was not exiting the fund. The Elorza administration said, "The Board of Investment Commissioners actively oversees the Providence Pension Fund's management and will continue to reassess investments in any underperforming funds."

According to the Board of Investment Commissioners' August report, Renaissance has delivered a return of 0.2% in the trailing 12 months.

 

IRS Penalties

The Wall Street Journal reports that "current and former executives of hedge fund Renaissance Technologies LLC will personally pay as much as $7 billion in back taxes, interest and penalties to settle a long-running dispute with the Internal Revenue Service, the firm said, a tax settlement that may be the largest in history.

"James Simons —the quantitative-investing pioneer who started Renaissance before retiring as the firm’s chairman on Jan. 1—will make an additional 'settlement payment' of $670 million, according to the firm. Mr. Simons will also pay back taxes related to his gains," according to WSJ.

The Providence Pension fund is underfunded by more than $1.2 billion