Providence has invested 19.75% of its total pension assets in hedge funds, the Taveras administration disclosed Tuesday after WPRI.com requested a breakdown of its investment portfolio.
Rhode Island’s state pension system has invested somewhat less in hedge funds – 14.6% of assets as of April – under a new investment strategy implemented by Treasurer Gina Raimondo soon after she took office in 2011.
Providence’s Board of Investment Commissioners, which is chaired by the mayor and oversees the city’s pension portfolio, started investing in hedge funds on the advice of its longtime financial consultant, Boston-based Wainwright Investment Counsel, Taveras spokesman David Ortiz told WPRI.com. The investment board meets roughly once a month.
Ortiz said the city was already investing nearly 20% of its money in hedge funds when Taveras succeeded now-Congressman David Cicilline in January 2011. Raimondo, by contrast, moved to add hedge funds to the state’s portfolio a few months after she took over from Frank Caprio that same year.
“The asset mix in Providence’s pension portfolio has remained essentially static since we took office,” Ortiz said. “We relied on the advice of Wainwright. They’ve managed the city’s portfolio for many years, and the fund has performed well relative to peers.”
Providence’s pension investments earned an 11.2% return during 2012, less than the 12.5% that the state’s investments earned, according to Ortiz and the State Investment Commission. Providence expects to earn an average return of 8.25% on its investments over the long term, while the state expects to earn 7.5%.
Ortiz said the Taveras administration didn’t have information available about the amount of fees it pays to hedge funds, although city officials “asked a while ago” for Wainwright to provide details.
“We’re awaiting reply,” he said.
Raimondo’s investment strategy has come under withering criticism over the last month from Forbes.com contributor Edward Siedle, president of Benchmark Financial Services, who argued in one post that “the smart pension money would steer clear of hedge funds, not pile into them.”
Robert Walsh, executive director of the National Education Association Rhode Island teachers union and a frequent Raimondo critic, quipped recently that the treasurer’s defense of her hedge-fund strategy might as well rely on “magic beans,” tweeting: “Top corporate pension funds have 2% in hedge, not 20%+.”
Taveras is now planning to review Providence’s heavy investment in hedge funds, according to Ortiz.
“Recently, compelling questions have been raised about hedge funds and other nontraditional investments by public retirement systems,” he said. “We’ve asked Wainwright for more information about those kinds of investments in Providence’s pension fund, including the fees paid to investment managers.”
Coincidentally, Raimondo said during her 2010 campaign that Providence’s pension fund invested $1 million in Point Judith Capital, the venture capital firm she co-founded, after Wainwright approached Point Judith and then recommended the investment to the Board of Investment Commissioners.
Providence’s pension fund is significantly smaller than the state of Rhode Island’s. Their assets totaled $326.5 million and $7.2 billion, respectively, as of June 30. Following the adoption of separate overhauls pushed through by Taveras and Raimondo, the city’s pension plan is 36% funded and the state’s plan is 59% funded.
• Related: Raimondo puts 14% in hedge funds, 10 times US median (April 29)
(photo: Ted Nesi/WPRI)