Riley: RI Pensions Returns Raimondo Style 2011-2015

If you are a reader of the Providence Journal you might have read recently about the near double digit returns in the Pension fund for the State of Rhode Island. These returns were used to justify a continuation of a 7.5% discount rate recently confirmed by rookie Treasurer Seth Magaziner who still has no track record of ever making a dime. This year was Mr. Magaziner’s first year actually managing money as Treasurer and he struck out. To be fair, he was hobbled by a Raimondo hodgepodge, a horribly complex massive portfolio of hedge funds, private equity funds, real estate investments, absolute return funds, junk bond specialists, leveraged long short strategies and hundreds of managers and consultants and fees. The table below shows the results of this Frankenstein experiment.

Raimondo used to defend the State’s investment results, but is now silent. New Treasurer Magaziner is like a deer caught in headlights. He‘s virtually paralyzed and meanwhile the last 24 calendar months have just ended with a pension earnings shortfall of nearly $1 billion dollars.

When Raimondo was in the mood to defend her hedge fund experiment she used her spokesperson to call Ted Nesi or K. Gregg and had them repeat the State Investment Commission Data as compiled by CIO Anne Marie Fink. Then they would dutifully publish it.

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Here is what CIO Anne Marie Fink said in December 2014:
“Ms. Fink reviewed the performance of the portfolio for the last 3 years and 11 months or the term of the current administration. The portfolio has averaged 8.4% annual gain which compared to 8.3% for the bottom-up benchmark and 7.2% for the 60/40 basic allocation.”

Given the updated data in the table below, she would now have to change that sentence to  something like, and I paraphrase:

  “ ..  over the last 4 years and 11 months or the term of the current administration ,extended to the current treasure Seth Magaziner, the RI pension  portfolio has averaged 6.39% annual gain which is less than half the gain of the S&P 500.”

 

 

 

 

 

 

 

 

There is no question, that after one of the greatest bull markets in United States History Rhode Island pension system still extremely vulnerable. An appropriate and much lower discount rate would wipe out any theoretical gains that came from unilaterally altering employee pension benefits and inexcusably re-amortizing the liabilities. A more realistic calculation is coming soon in the State CAFR and I suspect the funded ratio which is currently a crisis level 55% will drop to the low 40’s. This will virtually eliminate any chance of a restoration of Cola’s for State retirees.

Until someone in the State shows leadership and tells us the truth about our debt and the economic situation in Providence there is no reason for any of us to believe the Speaker or the Governors efforts to build Stadiums, or payback a rip-off like 38 Studios or to build toll gates in order to borrow their way out of this financial mess. We can no longer bury the next generation in debt and stick our head in the sand. It’s just wrong.

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. 

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