Providence Mayor Angel Taveras made some news in June when he told a Wall Street Journal reporter he was concerned about whether the city was getting enough bank for its buck by investing roughly 15% of its pension assets in hedge funds. “To me, it’s a question of whether we can get the same performance for less risk and fewer fees,” the mayor told the newspaper.
Three months later, Treasurer Gina Raimondo – the mayor’s likely rival for the 2014 Democratic gubernatorial nomination – has offered her own criticism of hedge fund fees to a Wall Street Journal reporter in a front-page story Monday headlined: “Hedge Funds Cut Back On Fees.”
Raimondo’s comments don’t come in a vacuum, of course; she has come under heavy criticism from a Forbes.com contributor and local union leaders for shifting more than $1 billion of pension assets into hedge funds, which last year left the state with subpar investment returns.
“Hedge funds could make the case for charging a 2% management fee when they were managing much less money,” Raimondo told the paper. “But do they still need to charge that much when they are now managing billions, not millions?”
Investment fees can quickly add up. Rhode Island’s pension fund spent nearly $46 million on fees in 2011-12, while Providence’s much smaller fund spent more than $2 million, city documents show.
But the WSJ noted that not all hedge funds are created equal in Raimondo’s eyes (emphasis added):
Even some of those at the vanguard of pushing for better investor terms seem willing to pay high fees for certain big-name funds, an indication of why the shift to lower fees has been gradual. Rhode Island, for example, pays management fees of 1.5% or less for most of the funds it invests in. But it continues to pay performance fees of 25% to invest with funds run by Brevan Howard Asset Management LP and the D.E. Shaw Group, two of the best-known firms in the hedge-fund world.
“The State Investment Commission always tries to negotiate better fees whenever possible, but fees are not the only consideration,” the treasurer’s spokeswoman said in a statement. It “also looks for the best expected risk and return and value for money.”
• Related: Taveras’s 13.4% pension investment return beats Raimondo’s 11.1% (Aug. 13)