Riley: Negative Return on Fiscal Year 2015

Riley: Negative Return on Fiscal Year 2015

In early March, after reading the most recent State Investment Commission report dated February 2015 on the Status of the RI State Pension Plan I calculated both the calendar year 2014 returns for the plan and the Fiscal 2015 progress thus far. Both were extremely disappointing but this meeting was really about Governor Raimondo handing over the reins of Rhode Island Chair of the Investment Commission to newly elected Seth Magaziner as both people were present. The commissions’ own report cited above was handed to everyone in the room. The data was ugly, for calendar year 2014 as the plan earned just 4.42% vs the expected return of 7.5%. That’s a bad miss but nothing compared to Fiscal year 2015 which is now 7 months old and ends June 30, 2015. The return thus far for Fiscal year 2015 is NEGATIVE at an alarming -0.75 %. 

The Rhode Island Pension fund is roughly  $8 billion dollars invested in stocks, bonds, fixed income securities, Private equity, Hedge Funds, other alternatives and cash. Im keeping the numbers simple here. The state commission, headed by Raimondo, has stated expected return of the portfolio to be 7.5% annually and this is to be achieved compounded over the next 20 to 30 years. A 7.5% return on $8 billion is $600 million for Fiscal 2015. According to the report that Treasurer Magaziner was handed, the return thus far in Fiscal 2015 shows a portfolio (Fiscal ytd )loss of 0.71% and including expenses a loss of 1.03% . This 1.03 % loss translates to a negative $80 million dollars.  The State would need to gain $680 million over the next 5 months to achieve their “expected” return.

I wrote an article exposing this “hole” in the plan on March 10, 2015.

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Bill Rappleye at WJAR was appropriately alarmed and so he asked me for an explanation with an interview. After reviewing my evidence he followed up with Treasurer Magaziner to ask about the negative returns. Magaziner went on a “spin rant,” which is something I have been warning about, and did not answer the charge.  A serious General Treasurer should respond to the questions asked and provide the relevant return figure, not just ramble and answer some other question. His spin can be read and seen here.  

Facts are Facts Mr. Magaziner

 

 

 

 

 

 

 

 

 

 

 

 

The big picture is that the last 5 years include the best bull market in Bonds and Stocks in 100 years and we barely achieved the Discount rate. Our funded ratio today is the same as post reform 58% percent and this is after 5 years of up markets. This does not bode well for Rhode Island financial stability which defines pension critical status as below 60% funded. 

Transparency and honesty are more important now than ever as these lagging returns will hit the state budget soon in the form of increased taxpayer contributions. We don’t need Magaziner’s spin we deserve the truth.

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC.