Hedge funds continue to hamper RI pension fund

Rhode Island’s pension fund lost money for the second straight year because of the hedge fund gamble Governor Gina Raimondo made when she restructured the system as the state’s general treasurer in late 2011.

“This is precisely what we predicted four years ago,” public pension expert Ted Siedle told Jim Hummel on WPRO recently.

The pension fund fell 5.9 percent – or $466 million – thanks in large part to a 6.94 percent decline in hedge fund assets.

Along with switching from a defined benefit-type pension to a defined contribution-style plan, the investment in hedge funds was the most controversial component of Raimondo’s plan to overhaul the state pension system. Siedle told Hummel, “The gamble has not paid off. It has been a massively costly gamble for taxpayers.”

According to Siedle, investments in hedge funds have cost Rhode Island $2 billion since Raimondo revamped the pension plan in late 2011, or $4,000 per taxpayer. Meanwhile, California, the largest public pension plan in the US, has stopped investing in hedge funds and New Jersey has taken $9 billion out of hedge funds. “But in your state,” Siedle said, “the losses continue to mount because of this reckless gamble that Gina Raimondo began and Seth Magaziner has continued.”

Siedle said the continued investment in hedge funds could have more to do with campaign contributions than pension solvency.

“This is a politically motivated decision to invest in hedge funds,” Siedle told Hummel. “This is about campaign contributions, this is about politics. This is not about investment theory or investment philosophy. You’ve got terrible performance but massive political donations. You figure it out.”