Magaziner: Financial market volatility contributed to 0.28% state pension investment loss

(Updated, 4:48 p.m.)
PROVIDENCE – Pointing to the currency crisis in Europe and China’s economic slowdown, Rhode Island’s general treasurer says volatility in the financial markets contributed to the 0.28 percent loss on the state’s pension investments last year.
The $7.5 billion portfolio, for the most part, performed well in areas where the state had the least amount of its money and poorly in areas where it invested the most. The largest drag on performance came from its international stock index funds, which dropped 5.8 percent, according to the report.
Real estate assets grew 14.2 percent while private equity increased 7 percent. But the gains were offset by a 2.5 percent drop in equity index funds and a 0.3 percent drop in inflation-linked fixed assets. The portfolio saw modest gains of 0.3 percent in traditional fixed assets and 1.2 percent in hedge funds along with a modest drop of 1.3 percent in credit assets, according to the report.
“Financial markets can be volatile and uncertain,” General Treasurer Seth Magaziner said in his year-end report, released this week. “We can’t control what happens in China or on Wall Street.”
The $7.5 billion Employees’ Retirement System of Rhode Island comprises pensions of the state’s largest public employee systems, including state employees, teachers, municipal employees, MERS police and fire, correctional officers, state Department of Behavioral Healthcare, Developmental Disabilities and Hospitals nurses, state police and judges.
The 0.28 percent loss fell well below the state’s 7.5 percent target rate of return, but Magaziner argues the overall performance of the state’s $7.5 billion investment did better than an equivalent plan, known as its “benchmark plan,” which is a weighted average performance of the benchmark of each asset class. The benchmark plan fell 0.38 percent during the same period, according to the report.

At the same time, a sample portfolio, comprising 60 percent stock and 40 percent bonds, fell 0.98 percent, according to the report. Magaziner says the state’s diverse investment strategy is what kept it from losing as much as the comparable plans.

“By planning for the long term and avoiding risk, Rhode Island can weather the storm and meet our financial objectives,” he said.

The performance numbers include the amounts the state paid for fees. The total amount of fees and expenses paid to each manager is listed on the Treasury’s website, investments.treasury.ri.gov. In fiscal 2015, the state paid $79.6 million in investment-related fees and expenses, which represents 0.98 percent of total assets, according to December report.

- Advertisement -

When asked whether Magaziner would consider changing the state’s allocation of assets, his spokesman David Ortiz responded, “We are constantly evaluating the asset allocation and will make changes as need be. But there is no doubt that our diversification, particularly our alternative asset classes, helped us avoid larger losses in 2015.”

The state’s asset allocation, as of Dec. 31, was as follows:

  • Equity index funds: 45 percent
  • Fixed income: 18 percent
  • Hedge funds: 15 percent
  • Private equity: 7 percent
  • Real estate: 6 percent
  • Credit: 5 percent
  • Other: 4 percent

The full report can be found HERE.

No posts to display

1 COMMENT