By Steve Klamkin WPRO News
Saying “the expected performance of most of our hedge funds is not what we’d want it to be,” General Treasurer Seth Magaziner is moving to significantly reduce the allocation to hedge funds in the state’s nearly $8 billion pension fund over the next two years, and to invest in more traditional assets.
Magaziner says the change is the result of months of analysis by a panel of experts, and extensive meetings of the State Investment Commission, which oversees investments, and State Retirement Board, which oversees the state’s retirement system. The General Treasurer chairs both boards.
“We’re calling this the “back to basics” strategy,” Magaziner said in an interview. “We want to stay diversified, we want to get good returns while also managing our risk, and I think that there are a lot of traditional investment vehicles that can help us do that.”
He intends to create a new, “crisis protection” asset class in the pension fund, designed to protect against risks such as inflation and volatility.
Magaziner said the pension fund has made about $400 million since he took office in January, 2015, but he is initiating the move in order to reduce the risk of loss in a period of low interest rates and low inflation.
He expects that once the changes are initiated, the Investment Commission and Retirement Board would consider reducing the pension fund’s assumed rate of return, currently at 7.5%.
Magaziner expects to phase in the changes over about two years, adding that the hedge fund investments will be slowly reduced, not incurring any fees or penalties to do so.
“Ultimately, I do believe that this is going to improve the performance of the pension system,” Magaziner said.
Magaziner said “zero” consideration was given to criticism of the state’s allocation to hedge funds by Forbes columnist Edward “Ted” Siedle. Siedle heads a Florida pension investigation firm and was hired by public employee unions following the state’s 2011 pension law changes, initiated by then – Gen. Treasurer Gina Raimondo. .
