Providence’s pension fund has moved quickly to reduce its exposure to hedge funds this year, but a spokesman for Angel Taveras said Wednesday it’s not an effort by the mayor to get an advantage over Treasurer Gina Raimondo in their expected gubernatorial campaign.
“The mayor if anything is acting in a methodical, prudent manner,” Taveras spokesman David Ortiz told WPRI.com. “When concerns started being raised in Rhode Island and across the country, and financial experts like Warren Buffett and others started talking about their concerns with hedge fund investments, the mayor as chair of the Board of Investment Commissioners has a fiduciary responsibility to investigate that.”
The Providence pension system’s hedge-fund investments totaled $40.6 million on Oct. 22, down from $51.3 million on April 23, a reduction of nearly $11 million over six months, financial documents show. The share of total assets invested in hedge funds dropped from 19% in April to 14% this month. The change came to light when Ian Donnis of Rhode Island Public Radio mentioned it in a tweet.
Hedge funds have become a potent issue in Rhode Island politics in recent months, as Raimondo faced heavy criticism for moving more than $1 billion of the state’s pension assets into the higher-fee alternative investments. WPRI.com revealed in May that the city fund, which is overseen by Taveras, had an even larger share of its assets in hedge funds at the time; city officials said the investments dated back to David Cicilline’s tenure.
But the city’s portfolio has changed since the spring.
Providence’s moves lowered the share of its pension assets in hedge funds to 14.3% as of Oct. 22, only slightly more than the state’s 14.2% allocation as of Sept. 30. Ortiz said the move reflected the fund’s growing asset base and an effort by its advisor, Boston-based Wainwright Investment Counsel, to re-balance the hedge-fund portfolio to the city’s target allocation of 13%.
Taveras has “asked our pension advisors, Wainwright, to research and report back on alternatives to hedge funds that will function in the same way but with less risk, lower fees and more transparency,” Ortiz said. Wainwright will report at the city’s next investment meeting on Nov. 15, he said.
While Providence remains an investor in the same three hedge funds it was part of six months ago, it cut its investment in the Renaissance Institutional Equities Fund from $34.8 million in April to $25.7 million this month. Providence’s investment in the Q BLK Strategic Partners II fund declined from $11.1 million to $10.5 million, and its investment in Graham Global Investment Fund II fell from $5.4 million to $4.4 million.
“The mayor is on the record … as say that he’s concerned that these investments in hedge funds are perhaps riskier than advertised, they are very expensive, and he has concerns about transparency,” Ortiz said, referencing comments Taveras made to The Wall Street Journal in June.
Providence’s equity investments jumped from $142 million to $151 million between April and October; its fixed-income investments rose from $69.5 million to $80 million; and its cash holdings soared from less than $400,000 to $8.8 million.
The market value of Providence’s entire pension fund totaled $283 million on Oct. 22, up from $267 million on April 23. By contrast, the city said the actuarial value of its pension assets was $422 million on June 30, 2011; the huge difference may be attributable to the “smoothing” of investment losses as they get reported.
Providence’s pension fund faced a long-term shortfall of $729 million as of June 30, 2012, which is projected to grow to $783 million by 2020, according to city data filed with the R.I. Division of Municipal Finances. The shortfall was shaved by 19% after Taveras negotiated a deal with retirees to lower benefits.
Providence’s pension fund earned a 13.4% return on its investments during the year ended June 30.
“Wainwright has done a very good job managing our investments,” Ortiz said. “The portfolio has performed well, and so the mayor has asked them to investigate these concerns and come back with a report that lets us know whether there are alternative products that give us the same function but also address these concerns.”
• Related: Taveras invests 20% in hedge funds, more than Raimondo (May 8)