Riley: Beat the Treasurer
Tuesday, January 10, 2017
But, I also want you, interested Rhode Islanders above age 21, to challenge the Treasurer by selecting your own mix of Cash, Equity Indices and Fixed Income.
Beach Street Financial Services LLC is announcing a contest to outperform the State of Rhode Island Pension Plan over the next year. Entries will be free but limited to 2 per person. This is one reader's chance to win $500 dollars and to have $500 dollars contributed to their favorite charity.
As you know, the Treasurer pays lots of fees to professionals to manage Private Equity investments, Hedge Funds, Real Estate and Venture Capital funds. We believe he doesn’t need any of these investments and that they are politically driven and that he can achieve higher returns with less risk and at lower costs. Just last week despite claims of “back to the basics” he and Cliffwater and the Investment Commission put $57.5 million into alternative energy investments.
Entrants will be asked to create a portfolio of Stock Indexes, fixed income Exchange Trade Fund AGG and/or cash. A sample Portfolio entry would be chosen from the following financial instruments:
1) SPY – the first Exchange Traded Fund, introduced by my father Ivers Riley, tracks the performance of the S&P 500.
2) IWM – an ETF tracking the Russell 2000 index of small cap Stocks.
3) AGG – an ETF, the iShares Core US Aggregate Bond -The investment seeks to track the investment results of the Bloomberg Barclays U.S. Aggregate Bond Index. The index measures the performance of the total U.S. investment-grade bond market. The index includes investment-grade U.S. Treasury bonds, government-related bonds, corporate bonds, mortgage-backed pass-through securities.
Sample Portfolio Entrant 1
57% SPY, 14% IWM, 23% AGG and 6% cash.
All contestants will be competing against the portfolio return of Treasurer Magaziner, determined over a one year period from 1/31/2017 until 1/31/2018.
Contestants will also be competing against the traditional Prudent Portfolio for Pension Assets known as “60/40” which will consist of 60% SPY and 40% AGG. In addition to those portfolios, contestants will be competing with Beach Street Financial Services (me) and a “Beach Street Buffer” available only to clients of Beach Street. The Beach Street buffer is mathematically designed to produce a pre-defined outcome based on either the SPY or IWM indices.
Importantly, Magaziner can and will continue to actively manage his portfolio in order to navigate the markets, the rest of us will stay with our picks on January 31, 2017, and can make no changes all year. Treasurer Magaziner's current portfolio composition and track record can be found here.
Over the last 3 years ended October 31, 2016 (because the site is not updated) ERSRI (Magaziner) produced 3.9% returns versus 60/40 return of 3.5% and versus expected returns of 7.5%. While we wouldn’t be surprised if many of you outperform Mr. Magaziner in 2017, we would absolutely be shocked if any of you outperformed both Magaziner and our Beach Street Buffer, but if you do manage to beat us both, that one entrant with the best return that also out beats us will receive $500 from me. If you beat both of us and the expected rate of return I will also contribute $500 to your favorite Charity.
Good luck to all of you. Maybe we can teach the Treasurer something.
Related Slideshow: Timeline - Rhode Island Pension Reform
GoLocalProv breaks down the sequence of events that have played out during Rhode Island's State Employee Pension Fund reform.
Governor Don Carcieri makes pension reform a top priority in his emergency budget plan. His three-point plan included:
1. An established minimum retirment age of 59 for all state and municipal employees.
2. Elimination of cost-of-living increases.
3. Conversion of new hires into a 401(k) style plan.
See WPRI's coverage of Carcieri's proposal here.
Rhode Island increased mandatory employee contributions for new and current employees. New Mexico was the only other state to mandate current employees to increase their contributions.
Read the NCSL report here
(Photo: FutUndBeidl, Flickr)
Rhode Island's state administered public employee pension system only held 48% of the assets to cover future payments to its emplyees.
"This system as designed today is fundamentally unsustainable, and it is in your best interest to fix it" - Gina Raimondo
Check out Wall Street Journal's coverage here.
Gina Raimondo defeats opponent Kernan King in the election for General Treasurer of Rhode Island using her platform to reform the structure of Rhode Island's public employee pension system. She received 201,625 votes, more than any other politician on the 2010 Rhode Island ballot.
Raimondo leads effort to reduce the state’s assumed rate of return on pension investments from 8.25 to 7.5%.
Her proposal includes plans to suspend the Cost of Living Adjustment (which allows for raises corresponding with rates of inflation for retirees), changing the retirement age to match Social Security ages, and adding a defined contribution plan.
Raimondo releases “Truth in Numbers”, a report detailing the pension crisis and offering possible solutions. She continues to work to raise public support for her proposal.
"Decades of ignoring actuarial assumptions led to lower taxpayer & employee contributions being made into the system." - Gina Raimondo (Truth in Numbers)
Read GoLocalProv's analysis of the report here.
Read the Truth in Numbers report here.
Governor Lincoln Chafee and General Treasurer Gina Raimondo present their pension reform legislation proposal before a joint session of the General Assembly.
“Our fundamental goal throughout this process has been to provide retirement security through reforms that are fair to the three main interested parties: retirees, current employees and the taxpayer…I join the General Treasurer in urging the General Assembly to take decisive action and adopt these reforms.”- Gov. Lincoln Chafee
Head of Rhode Island firefighters’ union accuses Raimondo of “cooking the books” to create a pension problem where one did not exist. Paul Valletta Jr. states that Raimondo raised Rhode Islanders’ assumed mortality rate to increase liability to the state, using data from 1994 instead of updated information from 2008, and lowered the anticipated rate of return on state investments.
“You’re going after the retirees! In this economic time, how could you possibly take a pension away?” Paul Valletta Jr (Head of RI Firefighters' Union)
Read more from the firefighters' battle with Raimondo here.
Check out the New York Times' take on RI's pension crisis here.
November 17, 2011
The Rhode Island Retirement Security Act (RIRSA) is enacted by the General Assembly with bipartisan support in both chambers. RIRSA’s passing is slated to reduce the unfunded liability of RI’s pension system and increase its funding status by $3 billion and 60% respectively, level contributions to the pension system by taxpayers, save municipalities $100 million through lessened contributions to teacher and MERS pension systems, and lower the cost of borrowing.
Read more from GoLocalProv here.
November 18, 2011
Governor Lincoln Chafee signs RIRSA into law. According to a December 2011 Brown University poll, 60% of Rhode Island residents support the reform. Following its enactment, Raimondo holds regional sessions to educate public employees on the effects of the legislation on their retirement benefits.
Read about how Rhode Islanders react to RIRSA here.
Raimondo hosts local workshops to explain the pension reforms across Rhode Island. She also receives national attention for her contributions to the state’s pension reforms. The reforms are given praise and many believe Rhode Island will serve as a template for other States’ future pension reforms.
Read about the pension workshop here.
Read Raimondo's feature in Institutional Investor here.
March - April 2012
Raimondo opposes Governor Chafee’s proposal to cut pension-funded deposits. She continued to provide workshops on the pension reforms.
December 5, 2012
Raimondo publicly opposes Governor Chafee’s meetings with union leaders in an effort to avoid judicial rulings on the pension reform package. In response, Chafee issues a statement supporting the negotiations.
Read more about Raimondo's opposition here.
Read about Chafee's statement http://www.golocalprov.com/news/new-chafee-issues-statement-supporting-pension-negotiations/">here.
Led by the Rhode Island State Association of Fire Fighters, unions protest the 2011 pension reform outside of the Omni Providence where Governor Lincoln Chafee and General Treasurer Gina Raimondo conduct a national conference of bond investors.
Read about Raimondo's discussion of distressed municipalities here.
The pension plan comes under increased scrutiny as a result of the involvement of hedge funds and private equity firms. Reports show that $200 million of the state pension fund was lost in 2012.
"In short, impressive educational credentials and limited knowledge of investment industry realities made Raimondo ideally suited to champion private equity’s public pension money grab." - Ted Seidle (Forbes)
Read GoLocalProv's coverage of the State Pension Fund's losses here.
Read Ted Seidle's criticism of Raimondo in Forbes.
Reports show that the State’s retirement system increased in 2013 by $20 million despite the reforms being put into effect the previous year.
Read GoLocalProv's investigation into the rising pension costs here.
Matt Taibbi publishes an article in Rolling Stone detailing Raimondo’s use of hedge funds as a questionably ethical tool to aid with pension reform.
Read Taibbi's article in Rolling Stone.
Read GoLocalProv's response to Taibbi here.
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