RI Pension Fund Underperformed Market by $800 Million in FY14

RI Pension Fund Underperformed Market by $800 Million in FY14

Rhode Island's $8 billion pension fund posted a gain of 15.12% for Fiscal Year 2014, which Forbes columnist and SEC lawyer Edward Sieldle criticized for underperforming the market by 10% -- or "$800 million," said Siedle.  

"The market was up 25% over the period," said Siedle.  "The state's pension fund underperformed the market by 10% -- on $8 billion, that's $800 million.'

GoLocal's Stephen Beale wrote in 2013 that ERSRI saw a 11% return for that fiscal year, with a similar ten point lag behind the market return of 21% -- for a differential of $700M.  

"That's over a billion dollars of underperformance right there," Siedle told GoLocalProv.  "That right there could take care of the COLA."

Financial analyst and GoLocal MINDSETTER Michael Riley, however, thought the state's performance was a "very good return" -- but questioned its methods.  

"The allocation is just right, but the vehicles are wrong," said Riley.  "There are much cheaper alternatives to the hedge fund allocations .....no need to pay 2% and 20% fees."

Performance

Sieldle conducted an investigation into Rhode Island's pension fund last year, producing a report entitled, "License to Steal" in which he called for the SEC to investigate Rhode Island, saying, "The Treasurer has intentionally withheld information about soaring investment fees which is material in assessing both whether ERSRI should invest in costly alternative investments and whether benefit cuts are necessary to improve pension funding."

"Why did Rhode Island do so badly this year?  Hedge funds and private equity," said Siedle.  "If you look at the SIC report, private equity underperformed the market by 30%, and hedge funds did less than half of what the market did, at 12%."

"Raimondo's disclosing here $26 million in direct billing fees, but what about fund-to-fund fees?  In the past, she's disclosed fees of $70 million.  What we need to know are the total fees, direct and indirect, billed or not billed," said Siedle. 

The General Treasurer's office did not respond to the request for total fees for the past fiscal year, but did praise the ERSRI return.

"The State Investment Commission has been pursuing a strategy of achieving strong long-term returns while reducing risk, and results over the last three years show that strategy to be working," said Ashley Gingerella O'Shea, Communications Director for the General Treasurer.  "The investment return of 15.12% for Fiscal Year 2014 is double our target rate of return, and is an encouraging step forward as we continue to put the retirement system on a safe, secure path."

Around the Country

Nationally, California announced its retirement systems -- CalPERS and CalSTERS - were up over 18% for the year, as did Minnesota.  New Jersey's pension fund was up 16%.  

"The real question is how much of all these funds underperformed the traditional liquid markets," said Siedle. "The fact that all of these have gone down this disastrous path goes to show you the drag of the ' Wall Street wealth transfer'.  It's no excuse for Rhode Island, but they're all pursuing politically driven alternative investments."

"If anything, you can make an argument that this approach is too conservative," said Siedle.  "Raimondo herself said that private equity should be doing 300 basis points better than the traditional market -- and we see that it's not."