Rhode Island General Treasurer and Pensions

Dear Taxpayers and retirees,

Rhode Island has a real chance to fix costly pension management mistakes that began with the election of Treasurer Gina Raimondo and continues with current Treasurer Seth Magaziner. Gina Raimondo is well known nationally for her slashing of employee benefits, implementation of a hybrid plan, and suspending COLA’s. She did this while also amortizing unfunded liabilities. (aka kicking the can). However, those reforms were on the “cost” side of the pension equation. Reform wasn’t easy, but she persevered. It was a very difficult task. Significantly though, she also changed the way money was managed for taxpayers and retirees. This is the professional money management side of the equation that produces 60% of future retiree’s compensation. She restructured the portfolio to emphasize high fee hedge funds and high fee private Equity Investments. Remember, the pension fund is really managed for the taxpayers who have promised through their elected representative, to pay a fixed amount to Public employees, like teachers, when they retire. If Raimondo were to have lost all the pension money employees and taxpayers contributed , we (taxpayers) would still owe the public employees their fixed pensions. So, money management is critical for taxpayers. No return on pension fund = future higher taxes. Great returns = lower future taxes. Money management is the funding side of the equation.

The problem is neither Gina Raimondo or Seth Magaziner had any expertise in managing portfolios like our $8 billion-dollar Rhode Island Pension Fund. Voters must have assumed based on Gina’s education and her background in the related Venture Funding Business that she knew what she was doing managing a portfolio. Wrong! First, as background to her investment acumen, in 2007 Gina Raimondo pitched her venture fund, PJC 2 to the City of Providence and the State of Rhode Island which is considered by both fiduciaries as a “private equity investment”, charging Rhode Island taxpayers 2.5% annually and in addition she participates on 20 to 25% of any gains. Providence and the State of Rhode Island both invested tax dollars in Gina’s fund. That fund Point Judith2 turns out to have been a disaster, gaining less than 2 % annually and lasting 11 years now instead of the average 7 years for private equity. Taxpayers require returns after expenses of at least 7% just to break even on our horribly underfunded State Pension plan. (RI is in the bottom 10 states) Now, seven years after pension reform our Funding ratio is down from 62% to 53%. Astonishing, because our funding ratio should have been up given the roaring bull market. Retirees, who watch that funded ratio carefully, are understandably outraged and confused, after all, they were told even though Cost Of Living Adjustments of 3% compounded would be temporarily suspended, their COLA’s would be reinstated once the funding ratio (assets/liabilities) reached 80%. Gina Assured taxpayers and retirees this would happen. So today retirees view that 53% funding ratio in horror. The taxpayers should also.

Seth Magaziner followed in his mentors’ footsteps with even less experience and no track record at all. He had never managed money. He was an analyst at an investment fund. My review of both the Magaziner and Raimondo performance as Treasurer over the last 7 years is disturbing to say the least. They both finish in the bottom 20% of performance against their peers according to the experts at Pensions and Investment and their widely followed Public Fund Tracker. http://www.pionline.com/section/returns-tracker .

One major reason for poor performance is their use of high fee investments that pay Wall Street roughly twice the average fees of the rest of Treasurers in the United States. Rhode Island pays 1% or $80 million vs .54% (the avg) or what might be $54 million. I have written many articles about how to correct this and I have specific expertise. Importantly we would save $50 million annually, at the same time we can make a big change in the conflict of interest between our treasurer and his friends on Wall Street. It’s obvious that these 155 different managers, of your pension money, have a big reason to thank Gina and Seth for the generous fees. Nationally, including Rhode Island, its well known that favors have been and will continue be paid as long as this conflict exists. Let’s be the first State to eliminate this insidious connection. I can manage the RI pension fund with 5 managers, not 155 and the maximum fee I’ll pay is .40% annually not 2% annually + profits. It’s your money folks and I intend to carefully manage the fund in order to fulfill the Promises we’ve made. The Treasurer’s office and the Pension Fund should not be used to further one’s political career.

We can do better,

Michael G Riley https://rileyfortreasurer.com/

Michael G. Riley is Candidate for General Treasurer of Rhode Island. He is managing member and founder of Coastal Management Group, LLC. And Beach Street Financial LLC. Riley has 40+ years of experience in the financial industry, having managed divisions of PaineWebber, LETCO, and TD Securities (TD Bank). He has been quoted in Barron’s, Wall Street Transcript, NY Post, and various other print media and also appeared on NBC News, Yahoo TV, and CNBC. Mr Riley has authored a column on GoLocal.Prov focused on Pension issues nationwide since 2013.