SPREADING IT OUT: Critics have attacked General Treasurer Gina M. Raimondo’s increase of investment in hedge funds for Rhode Island’s pension system. She says the diversified portfolio will reduce risks long term.
Critics of the Rhode Island pension system’s growing investment in hedge funds warn that they’ve increased the state’s exposure to risk while subjecting it to the notoriously high fees charged by alternative-investment managers.
But General Treasurer Gina M. Raimondo, steward of the pension system and target of the attacks, argues that alternatives such as hedge funds and private-equity diversify the state’s assets, making the portfolio safer in the long run.
In fact, Raimondo said the steep fees attached to these investments are a regrettable, but necessary, premium to protect the system from risk, a kind of insurance against the next time stocks start to plummet.
“Most of the work we have done in the last two years has been on the risk side of the equation, trying to reduce risk,” Raimondo said.
“You might even think of it in terms of insurance, paying a little bit in fees so that we have a more-diversified portfolio and less risk, less likelihood of losing a lot of money the next time the stock market crashes,” she said. “The reason we lost so much money in 2009 was everything was correlated with the U.S. stock market. When the stock market went down everything went down and we lost over $1 billion in assets.”
Scrutiny of Rhode Island’s pension-system investments has been heightened since public employees and retirees saw benefit cuts by the Raimondo-led 2011 pension overhaul.
It reached another level after an opinion piece posted on Forbes.com described Raimondo’s hedge-fund bets, and the management fees attached to them, as a wasteful “Wall Street feeding frenzy.”
Rhode Island’s first investments in private equity were in 1982, according to the treasurer’s office, but it was only until Raimondo predecessor Frank Caprio that the system began exploring hedge funds.