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Tuesday, May 9, 2017

Magaziner pulls $340 million of state pension money out of hedge funds

Reverses Raimondo’s investment preference

Image result for hedge fundsRhode Island's pension system has hit a milestone in its move away from hedge funds, recouping more than $340 million to date General Treasurer Seth Magaziner announced today.

 "We are moving away from the high-cost hedge funds that have failed to meet expectations while charging unacceptably high fees," said Treasurer Seth Magaziner.

"Our new Back to Basics strategy will improve performance and reduce risk, providing a more secure future for Rhode Island public employees and all taxpayers."

Exiting underperforming hedge funds is a component of Magaziner's 'Back to Basics' investment strategy, unveiled last year after an intensive review process involving some of the state's leading investment experts.

Additional hedge fund redemptions are expected in the coming months, as implementation of 'Back to Basics' continues.

Performance has been strong for the pension system in recent months.

As of March 31, the $7.9 billion pension fund has achieved a one-year return of 10.81%, beating its own benchmark of 9.96% and a 60% stock/40% bonds portfolio which would have earned 9.02%.

In addition, Magaziner also has worked to boost the state's finances by re-financing some of its debt.

He announced $7.2 million in savings found by refunding $70 million in state debt to take advantage of more favorable interest rates.

"Rhode Islanders deserve to know that they have an advocate in state government who making sure that public borrowing is done responsibly and affordably," said Treasurer Magaziner. 

"I created Treasury's Office of Debt Management to make sure we are taking advantage of opportunities to save money and implement responsible borrowing practices throughout the state."

Of the $7.2 million in savings for the state, $3.4 million will be saved in the upcoming fiscal year alone, as the outstanding principal was reduced from $70.4 million to $66.9 million.

In addition to the $67 million in refinancing bonds, the state also successfully sold $91 million of General Obligations bonds for new capital projects approved by voters. This is just the second competitive bond sale the state had held in over a decade, a practice designed to maximize savings for Rhode Islanders. The bonds were ultimately sold at a 2.94% interest rate.

As part of its ongoing commitment to fiscal responsibility and oversight, the Treasurer's office recently completed the State's most comprehensive debt affordability study in history. It was the first update to the State's debt affordability targets since 1999.