PROVIDENCE, R.I. (WPRI) — General Treasurer Seth Magaziner announced this week that Rhode Island is moving more than $500 million of its pension portfolio’s investments out of hedge funds.
During this week’s episode of Newsmakers, Magaziner revealed the hedge funds have cost taxpayers a lot in fees.
“Last year, the total fees paid to hedge funds – this is the 2015 fiscal year, which is the most recent year we have data for – was about $40 million.” Magaziner explained.
“In fact, over the last three years the hedge fund part of the pension portfolio is the only place where the majority of the value created, the majority of the return stayed with the managers in the form of fees and expenses rather than being returned to investors,” he continued.
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Magaziner said for the most part, fees are acceptable when the investments are working, but that wasn’t the case.
In, 2011, then-Treasurer Gina Raimondo put more state money into hedge funds in an effort to minimize risk to the pension fund of the economy were to take a hit.
“When you look back at how our hedge fund portfolio has performed over the last five years, there have been some funds that have performed very well,” said Magaziner. “But clearly most have not met expectations.”
Earlier this year, Magaziner launched a review of the state portfolio and decided to cut the $1 billion the state invests in hedge funds – one of the highest rates in the country – in half over the next two years.
“Clearly, by and large, the hedge fund strategy has been a disappointment, which is why we’re making a change,” he said.
Magaziner said he discussed the move with Gov. Raimondo and, according to him, she supported his decision.