Both J. Michaels raise good points about how the public sector should manage its financial investments in Ed Fitzpatrick’s great column this morning for which he writes the perfect lede about Rhode Island’s game of pension football:
“It was the best of investment strategies. It was the worst of investment strategies.”
Thankfully, there may be a third way that could take the best of both while skimming away the parts nobody likes.
J. Michael Downey makes the point that General Treasurer Gina Raimondo’s big bet on hedge funds serves as a wealth transfer from local retirees to Wall Street investors. “Instead of promoting retirement security for all Rhode Islanders, the changes have apparently enriched wealthy hedge fund managers,” he told Fitzpatrick.
Meanwhile, J. Michael Costello, “one of the longest-serving members of the State Investment Commission and managing partner of Endurance Wealth Management,” according to the ProJo, defended hedge funds saying, “we have a very underfunded pension system that has to pay hundreds of millions of dollars in excess of what comes in every year. As a result, you need to be careful with the various market fluctuations, so the motivation is to use these types of funds that traditionally hedge against significant downside events.”
If only there were a way to protect against downside events without transferring wealth to otherwise disinterested economic actors … Oh wait, there is!
Rhode Island should consider divesting from both index and hedge funds and invest instead in local and/or sustainable funds. There is certainly a way to structure a fund that hedges against the S&P 500 while boosting the (not-yet-indexed?) Ocean State 250.
It’s also well worth noting on this blog that Raimondo has defended the investment and denounced the fees – and I hope to get to compliment her efforts one day at transferring the wealth back from Wall Street to Main Street.