Moore: Magaziner Must Embrace Filippi’s Pension Proposal
Russell Moore GoLocal MINDSETTER™
Moore: Magaziner Must Embrace Filippi’s Pension Proposal
Magaziner’s proposal would make it easier for locally managed municipal and other pension funds to enter into the state managed Municipal Employees Retirement System (MERS). The proposal would help local communities, presumably, because it would cut down on the cost of managing the system due to the economies of scale it would generate.
In a way, the move is akin to regionalization, which isn’t a bad idea. However, pardon me for not getting that warm and fuzzy feeling about putting more money into the state system, which poured hundreds of millions of dollars into hedge funds under former General Treasurer Gina Raimondo’s (currently Governor) watch, which prevented the state from attaining hundreds of millions in investment returns thanks to their lackluster performance and ridiculous fees.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTColossal Waste
Last year, GoLocal reported that according to numbers compiled by Wilshire TUCS, the Rhode Island pension fund under-performed the median fund of similar sized plans, over a 5-year period, to an extent that if it had kept pace, would have made an additional $455 million in returns. That time period coincided with the fund’s move into hedge funds.
Hedge funds are also as opaque as they are expensive and ineffective. Managers do their best to keep their operations shrouded in secrecy, under the guise of “trade secrets”.
Still think hedge funds are great? Please don’t just take my word that they’re not. There’s a highly trusted investment professional who goes by the name of Warren Buffett who is also outspoken in his criticism of the ridiculously expensive and overrated hedge fund investment industry.
Buffett has an ongoing, $1 million bet with a hedge fund (proceeds to charity) that no hedge fund can beat the S&P 500 index over a ten year period. After 9 years, the results aren’t even close. Fortune Magazine recently reported. The S&P has an annual return of 7.7 percent. The hedge funds are returning 2.2 percent per year. Nuff said.
Listen to Buffett
(Last year, Magaziner began to reduce the Rhode Island pension fund’s hedge fund allocation--a move I appreciate, but continue to wonder why it took him a year-and-a-half to come to this common sense realization.)
In any event, Magaziner’s proposal to bring more locally administered plans into the MERS system garnered significant press coverage.
The proposal would require that the State Investment Commissions provide a separate report including “information and supporting documents relating to the hiring of alternative investment consultants, alternative investment performance and confidentiality agreements with consultants are finally disclosed to the public,” according to a GoLocal report last week.
Best Legislation So Far
Yes, Filippi is a Republican and Magaziner is a Democrat. I get that. But it’s time to get past partisanship and start doing what’s right for Rhode Island. Magaziner fashions himself as a champion of transparency. If that’s true, he should embrace this Filippi proposal.
Magaziner won’t be General Treasurer forever, so let’s codify this pro-transparency legislation into law. Chance are, this legislation will help dissuade future hedge fund investments, and save us hundreds of millions into the future.
It’s not far-fetched to say that Filippi’s proposal is the best, and most important piece of legislation proposed this legislative session.
Folks should call Seth Magaziner’s office at (401) 222-2397 and tell him to support this common sense bill. (Remind him about how much he values transparency.)
RI Pension System's Highest Paid Investment Firms
20
MHR Institutional Partners III
Firm Type: Private Equity
Pension Assets Invested: $20,000,000
Management Fee Rate: 1.75%
Performance Fee Rate: 20%
Management Fees: $243,171
Performance Fees: None
Total Investment Expense: $243,171
19
Oaktree European Principal Fund
Firm Type: Private Equity
Pension Assets Invested: $20,000,000
Management Fee Rate: 1.75%
Performance Fee Rate: 20%
Management Fees: $300,687
Performance Fees: None
Total Investment Expense: $300,687
18
W Capital Partners
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees:$65,790
Performance Fees: None
Total Investment Expense: $65,790
17
Nautic Partners IV
Firm Type: Private Equity
Pension Assets Invested: $20,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $84,442
Performance Fees: None
Total Investment Expense: $84,442
16
W Capital Partners II
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $107,549
Performance Fees: None
Total Investment Expense: $107,549
15
Kayne Anderson Energy Fund IV
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $108,970
Performance Fees: None
Total Investment Expense: $108,970
14
Thomas, McNerney & Partners
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $143,862
Performance Fees: None
Total Investment Expense: $143,862
13
Paladin III
Firm Type: Private Equity
Pension Assets Invested: $10,000,000
Management Fee Rate: 2.00%
Perfomance Fee Rate: 20%
Management Fees: $150,000
Performance Fees: None
Total Investment Expense: $150,000
12
Lighthouse Capital Partners VI
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $210,600
Performance Fees: None
Total Investment Expense: $210,600
11
Thomas, McNerney & Partners II
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $169,053
Performance Fees: $96,512
Total Investment Expense: $265,565
10
Bain Capital Fund X
Firm Type: Private Equity
Pension Assets Invested: $25,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 30%
Management Fees: $361,635
Performance Fees: None
Total Investment Expense: $361,635
9
BlueCrest Capital LP
Firm Type: Hedge Fund
Pension Assets Invested: $20,981,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $419,000
Performance Fees: $0
Total Investment Expense: $419,000
8
Riverside Capital Appreciation Fund VI
Firm Type: Private Equity
Pension Assets Invested: $25,000,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $489,102
Performance Fees: None
Total Investment Expense: $489,102
7
Brevan Howard LP
Firm Type: Hedge Fund
Pension Assets Invested: $77,047,000
Management Fee Rate: 2.00%
Performance Fee Rate: 25%
Management Fees: $1,588,000
Performance Fees: $0
Total Investment Expense: $1,588,000
6
Capula Global Relative Value Fund
Firm Type: Hedge Fund
Pension Assets Invested: $55,791,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $1,097,000
Performance Fees: $1,027,000
Total Investment Expense: $2,124,000
5
Third Point Qualified LP
Firm Type: Hedge Fund
Pension Assets Invested: $0 *
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $1,029,000
Performance Fees: $2,423,000
Total Investment Expense: $3,452,000
NOTE: Figures are end of year figures. The zero here means that money was invested earlier in the year but then withdrawn.
4
OZ Domestic Fund II LP
Firm Type: Hedge Fun
Pension Assets Invested: $98,918,000
Management Fee Rate: 2.00%
Performance Fee Rate: 20%
Management Fees: $1,907,000
Performance Fees: $2,142,000
Total Investment Expense: $4,049,000
3
Point Judith Venture Fund II
Firm Type: Private Equity
Pension Assets Invested: $5,000,000
Management Fee Rate: 2.50%
Performance Fee Rate: 20%
Management Fees: $71,496
Performance Fees: None
Total Investment Expense: $71,496
2
Focus Ventures III
Firm Type: Private Equity
Pension Assets Invested: $15,000,000
Management Fee Rate: 2.50%
Performance Fee Rate: 20%
Management Fees: $263,633
Performance Fees: None
Total Investment Expense: $263,633
1
DE Shaw Composite International Fund
Firm Type: Hedge
Pension Assets Invested: $73,443,000
Management Fee Rate: 2.50
Performance Fee Rate: 25%
Management Fees: $1,725,000
Performance Fees: $2,965,000
Total Investment Expense: $4,690,000
