Providence is significantly outpacing the state of Rhode Island in the battle of the pension plans.
Providence’s $247-million pension fund, the second-largest in Rhode Island, earned a return of 13.4% during the 12 months ended June 30 – more than two percentage points better than the 11.1% earned by the $7.55-billion state fund over the same period, according to data obtained from the city by WPRI.com.
In fact, Providence’s pension investments have consistently performed better than Rhode Island’s over the last decade, a period during which Providence’s Board of Investment Commissioners has been chaired by Mayors Angel Taveras and David Cicilline, as this chart comparing their returns shows:
Providence’s 2012-13 investment return not only beat Rhode Island’s – it also topped the Massachusetts pension fund’s 12.7% return and the California Public Employees’ Retirement System’s 12.5% return.
The investment earnings could have political implications, since the two elected officials in charge of the pension funds – Mayor Taveras and R.I. Treasurer Gina Raimondo – are both expected to challenge Lincoln Chafee for the Democratic gubernatorial nomination in 2014.
The difference between 13.4% and 11.1% may sound relatively small, but it’s significant when such large amounts of money are at stake. A rough back-of-the-envelope calculation suggests the Rhode Island pension fund would have added an additional $64 million last year if Raimondo had matched Taveras.
Ironically, Raimondo has come under withering criticism in recent months for moving more than $1 billion of Rhode Island’s pension assets into hedge funds – but Taveras has been earning better returns than her in recent years while having an even larger share of pension assets invested in hedge funds. As of June 30, Providence had 17.5% in hedge funds, while Rhode Island had 14.4% in them.
Taveras aides have emphasized, however, that he inherited the Providence pension fund’s asset allocation strategy from Cicilline and, unlike Raimondo, Taveras never made an affirmative decision to move into hedge funds. The mayor has said he is exploring whether Providence should reduce its exposure to hedge funds.
Providence needs all the help it can get to shore up its retirement system. The city’s pension fund is still just 36% funded in the wake of the landmark deal Taveras struck with retirees to reduce benefits, with an unfunded liability of roughly $739 million – roughly the size of the annual city budget.
Providence’s longtime investment consultant is Wainwright Investment Counsel of Boston, while the State Investment Commission’s lead consultant is Allan Emkin of Pension Consulting Alliance in Los Angeles. The state also uses Cliffwater LLC of Marina del Rey, Calif., to choose hedge funds.
• Related: Taveras in WSJ story about pension funds wary of Wall Street (June 21)
This post has been updated.