RHODE IS­LAND’S PEN­SION FUND

The Bond Buyer - - Front Page - By Paul Bur­ton

earned $64 mil­lion in in­vest­ment gains in Au­gust, bring­ing the fund’s value to $8.17 bil­lion, ac­cord­ing to state Trea­surer Seth Magaziner. . .

PROV­I­DENCE, R.I. – Rhode Is­land’s pen­sion fund earned $64.2 mil­lion in in­vest­ment gains in Au­gust which brings the fund’s value to $8.17 bil­lion, ac­cord­ing to state Trea­surer Seth Magaziner.

Magaziner cited the “back to ba­sics” strat­egy his of­fice un­der­took about a year ago. The fund earned 0.79% net of fees in Au­gust, out­per­form­ing its own 0.77% bench­mark and beat­ing a tra­di­tional 60% stock-40% bonds port­fo­lio, which would have only de­liv­ered a 0.58% re­turn.

Sim­i­larly, said Magaziner, the pen­sion fund’s one-year re­turn for the 12-month pe­riod end­ing Aug. 31 is 11.27%, beat­ing the plan’s bench­mark which stands at 10.95% and ahead of a tra­di­tional 60%/40% port­fo­lio, which would have re­turned 10.21%.

Magaziner an­nounced the new in­vest­ment strat­egy in Septem­ber 2016, which moves the state out of most hedge funds and into more tra­di­tional in­vest­ments that are de­signed to grow when mar­kets are up and pro­vide sta­bil­ity when mar­kets are down.

“Our main goal is al­ways to main­tain and im­prove the re­tire­ment se­cu­rity for our mem­bers,” Magaziner said in an in­ter­view last Tues­day af­ter his speech at the Rhode Is­land In­fras­truc­ture Bank sum­mit at the Omni ho­tel in down­town Prov­i­dence.

Magaziner, just elected vice pres­i­dent of the Na­tional As­so­ci­a­tion of State Trea­sur­ers, said his of­fice is half­way through with its back-to-ba­sics im­plan­ta­tion. “We’re mak­ing a hand­ful of tweaks,” he said.

“I think one of the things that we found when we were go­ing through the process of de­sign­ing back to ba­sics was that a lot of the things that hedge funds were sup­posed to for us, re­duc­ing volatil­ity, re­duc­ing risk, there are other ways to do it that are lower cost and have stronger trans­parency,” he said.

“And some of these al­ter­na­tives to hedge funds even may have not ex­isted five years ago, but be­cause in­vestors have been de­mand­ing, there are al­ter­na­tives to hedge funds than we can use,” Magaziner said.

Ad­di­tion­ally, the state leg­is­la­ture re­cently cod­i­fied a Magaziner best-prac­tice ini­tia­tive known as Trans­par­ent Trea­sury, which he be­gan to im­ple­ment about two-and-a-half years ago.

The pol­icy re­quires the state re­tire­ment sys­tem to only in­vest with managers that al­low Trea­sury pub­lish es­sen­tial in­for­ma­tion on its web­site.

“Im­por­tantly, that’s all fees and ex­penses, so man­age­ment, per­for­mance, car­ries in­ter­est, fund in­ter­est the whole deal,” said Magaziner.

Feed­back has been all pos­i­tive, said Magaziner.

“I can’t re­call a time since we launched Trans­par­ent Trea­sury that any­one’s com­plained about it,” he said.

“I think this is a di­rec­tion that the world is headed. There is an un­der­stand­ing, par­tic­u­larly when it’s pub­lic dol­lars, that the pub­lic is en­ti­tled to a level of trans­parency and that managers have to be will­ing to ac­cept a level of scru­tiny that they haven’t in the past.”

Magaziner cited sim­i­lar ef­forts in Cal­i­for­nia, New York City and Mis­souri.

For­mer Se­cu­ri­ties and Ex­change Com­mis­sion Chair­man Arthur Le­vitt Jr. said ev­ery pub­lic fund in the U.S. should fol­low Rhode Is­land’s trans­parency model.

“Com­ing from a for­mer chair­man of the SEC, that was praise we were very proud to re­ceive,” said Magaziner. ◽

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