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Riley: Institutional Investor Gives Bad Grades to RI’s Hedge Fund Picks

Tuesday, February 24, 2015

 

Gina Raimondo

February 2015 has seen a big rally in the Stock Markets around the world helping stem the losses in our Pension Funds Statewide. Some indexes have gained 5% or more.  Despite these big gains, our tracking shows the State Pension Fund will underperform this month and will remain badly lagging the market for fiscal year 2015 which ends June 30, 2015. It has been no secret that those managing the State Pension Fund former Treasurer Gina Raimondo and now Seth Magaziner are adherents to Modern Portfolio Theory and enjoy wielding a massively complex portfolios filled with fees. Over 100 different external asset managers and a handful of advisors and consultants have produced the portfolio you see today.

You can easily see how complex this portfolio is. Unfortunately there are no guarantees in life or the stock market and things can go wrong. Does RI management team have a plan B? Relying on professional consultants who consistently make the same mistakes as individuals, by weighing too heavily past performance of large politically influential hedge funds and not valuing low cost indexing, ETF’s  and hedging. The State has underperformed its discount rate and the market for nearly a year now. What happens if negative interest rates come to the U.S.? Or Oil goes to $25 or $125?  Has the portfolio become so complex that they can’t outperform most scenarios?

Why is the State underperforming?

Last week came news that would have been very surprising to retirees and state taxpayers alike. That is if anyone actual reported on this $8 billion dollar pension fund that our new treasurer is managing in trying to support $12+ billion in liabilities. The news was that Institutional Investors released its 2015 ranking of the 100 largest Hedge Funds. 

They were ranked by 8 metrics and finally given grades “A to F”. In 2015 there were 4 “F” grades and a few “D” grades according to Institutional Investors. 

Rhode Island picks clunkers

Somehow our $800,000 per year hedge fund consultant “Cliffwater” managed to recommend one “D” rated fund and one of only 4 “F’s” in the survey. Blue Crest Capital, rated “F”, was chosen by RI Investment Advisory Board, Gina Raimondo, and Anne Marie Fink. In addition to this disastrous pick they also select Brevan Howard who received a “D” rating from institutional investors. These rating are significant because the only votes on this survey come from current Institutional Investors who have money managed by those hedge Funds. It would be interesting to know If Ann Marie Fink or Seth Magaziner think these two poorly rated funds are performing well or if they could ask their consultant “Cliffwater” what is going on?  Blue Crest Capital charges a 2% management fee plus a 20% performance fee while Brevan Howard is 2% and 25%. The total fees paid to all hedge fund managers by the State of RI pension fund in FY 2014 was $46 million dollars. 

From January 2012 Blue Crest has received $1.75 million in fees and Brevan Howard, over the same time period, has earned $5.13 million in fees. Blue Crest Capital has returned a paltry 1.59% in FY 2014 and since inception returned only 1.93%. Brevan Howard was even worse despite the $5 plus million in fees over the last 3 years. Brevan Howard had negative returns in fy 2014, - 5.44% and since inception 3 years ago returned 1.00% to the state pension fund.

The State of Rhode Island pension portfolio is way too complex and expensive. Warren Buffet believes that it’s too complex and so do I. There is no indication in the last 4 years that increasing costs and complexity benefit the fund. The State of Rhode Island needs to compound 7.5% for the next 25 years or so to get to proper funding levels. The chance of this occurring is less than 25%. If the Pension Reform is unwound the chance of proper funding will drop dramatically and the returns on the pension funds’ assets will need to be enormous.

Editor's note:  A previous version incorrectly stated that Brevan Howard earned $6.5 million in fees; it has been edited to reflect the correct amount of $5.13 million.  

Michael G. Riley is vice chair at Rhode Island Center for Freedom and Prosperity, and is managing member and founder of Coastal Management Group, LLC. Riley has 35 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.

 

Related Slideshow: Top Providence Pensions

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#49

Name- Daniel Guertin

Annual Earning- $95,050.92

Postition- Police-5

City- Providence   

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19,1991

Source: This information was secured through a FOIA request from the city of Providence.

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#48

Name- Carmine Vallante

Annual Earning- $95,140.20

Postition- Fire-4

City- Johnston

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19,1991

Source: This information was secured through a FOIA request from the city of Providence.

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#47

Name- Alfred Millard

Annual Earning- $95,368.32

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Accidental Disability

Retirement Date- March 24, 1994

Source: This information was secured through a FOIA request from the city of Providence.

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#46

Name- James Rattigan

Annual Earning- $95,983.44

Postition- Fire-4

City- North Providence   

State- RI

Retirement Type- Service

Retirement Date- June 30, 2003

Source: This information was secured through a FOIA request from the city of Providence.

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#45

Name- Frank Deangelis

Annual Earning- $95,986.80

Postition- Fire-4

City- North Providence   

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#44

Name- Stephen Lowe

Annual Earning- $96,156.36

Postition- Fire-4

City- Bristol   

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 17, 1992

Source: This information was secured through a FOIA request from the city of Providence.

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#43

Name- Mary Gonsalves

Annual Earning- $97,463.04

Postition- Police-5

City- Warwick

State- RI

Retirement Type- Beneficiary

Retirement Date- December 1, 1993

Source: This information was secured through a FOIA request from the city of Providence.

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#42

Name- William O'Neill

Annual Earning- $98,160.96

Postition- Fire-4

City- Cumberland   

State- RI

Retirement Type- Accidental Disability

Retirement Date- August 22, 1990

Source: This information was secured through a FOIA request from the city of Providence.

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#41

Name- Paul Healy

Annual Earning- $98,183.28

Postition- Fire-4

City- Cranston  

State- RI

Retirement Type- Service

Retirement Date- October 20, 1993

Source: This information was secured through a FOIA request from the city of Providence.

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#40

Name- James Molloy

Annual Earning- $98,711.16

Postition- Fire-4

City- Providence   

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 18, 1987

Source: This information was secured through a FOIA request from the city of Providence.

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#39

Name- Livia Miller

Annual Earning- $99,193.80

Postition- Fire-4

City- Warwick 

State- RI

Retirement Type- Beneficiary

Retirement Date- May 1, 1997

Source: This information was secured through a FOIA request from the city of Providence.

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#38

Name- Joseph Battista

Annual Earning- $99,271.08

Postition- Fire-4

City- Johnston

State- RI

Retirement Type- Accidental Disability

Retirement Date- April 29, 2004

Source: This information was secured through a FOIA request from the city of Providence.

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#37

Name- Robert Kerfoot

Annual Earning- $100,140.36

Postition- Fire-4

City- Cranston

State- RI

Retirement Type- Accidental Disability

Retirement Date- March 24, 1994

Source: This information was secured through a FOIA request from the city of Providence.

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#36

Name- Ralph Ricci

Annual Earning- $100,357.44

Postition- Fire-4

City- Providence

State- RI

Retirement Type- Accidental Disability

Retirement Date- April 28, 1994

Source: This information was secured through a FOIA request from the city of Providence.

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#35

Name- Henry Latek

Annual Earning- $100,502.52

Postition- Fire-4

City- Providence

State- RI

Retirement Type- Service

Retirement Date- June 30, 1995

Source: This information was secured through a FOIA request from the city of Providence.

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#34

Name- Joseph Bradley

Annual Earning- $100,898.52

Postition- Fire-4

City- Whitefield

State- NH

Retirement Type- Accidental Disability

Retirement Date- November 20, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#33

Name- Ronald Johnson

Annual Earning- $102,098.64

Postition- Fire-4

City- North Scituate

State- RI

Retirement Type- Accidental Disability

Retirement Date- May 1, 2003

Source: This information was secured through a FOIA request from the city of Providence.

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#32

Name- Gloria Pisaturo

Annual Earning- $103,385.76

Postition- Police-5

City- Warwick

State- RI

Retirement Type- Beneficiary

Retirement Date- December 1, 2002

Source: This information was secured through a FOIA request from the city of Providence.

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#31

Name- Edmond Malloy

Annual Earning- $103,575.72

Postition- Police-5

City- Chepachet

State- RI

Retirement Type- Accidental Disability

Retirement Date- September 5, 1990

Source: This information was secured through a FOIA request from the city of Providence.

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#30

Name- John Reposa

Annual Earning- $104,665.44

Postition- Fire-4

City- Jamestown

State- RI

Retirement Type- Accidental Disability

Retirement Date- June 21, 1995

Source: This information was secured through a FOIA request from the city of Providence.

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#29

Name- Pasquale Rocchio

Annual Earning- $105,238.32

Postition- Police-5

City- North Providence

State- RI

Retirement Type- Service

Retirement Date- August 22, 1989

Source: This information was secured through a FOIA request from the city of Providence.

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#28

Name- David Deignan

Annual Earning- $105,609.36

Postition- Police-5

City- Providence

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#27

Name- Lee Podedworny

Annual Earning- $106,838.16

Postition- Fire-4

City- South Kingstown

State- RI

Retirement Type- Accidental Disability

Retirement Date- July 23, 1992

Source: This information was secured through a FOIA request from the city of Providence.

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#26

Name- Nancy Donahue

Annual Earning- $107,757.24

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Beneficiary

Retirement Date- July 1, 2005

Source: This information was secured through a FOIA request from the city of Providence.

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#25

Name- Domenic Pono

Annual Earning- $107,850.72

Postition- Fire-4

City- Cranston

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#24

Name- John Murphy

Annual Earning- $107,892.84

Postition- Fire-4

City- Providence

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#23

Name- Robert Carlson

Annual Earning- $108,555.36

Postition- Fire-4

City- Greenville

State- RI

Retirement Type- Accidental Disability

Retirement Date- April 24, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#22

Name- Robert Emmett

Annual Earning- $109,256.16

Postition- Police-5

City- Cranston

State- RI

Retirement Type- Service

Retirement Date- November 13, 1990

Source: This information was secured through a FOIA request from the city of Providence.

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#21

Name- Thomas Doyle

Annual Earning- $109,329.24

Postition- Fire-4

City- West Warwick

State- RI

Retirement Type- Accidental Disability

Retirement Date- August 26, 1988

Source: This information was secured through a FOIA request from the city of Providence.

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#20

Name- Joseph Errico

Annual Earning- $109,611.60

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Service

Retirement Date- June 30, 1995

Source: This information was secured through a FOIA request from the city of Providence.

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#19

Name- Edward MacDonald

Annual Earning- $110,225.64

Postition- Fire-4

City- Johnston

State- RI

Retirement Type- Accidental Disability

Retirement Date- May 26, 1994

Source: This information was secured through a FOIA request from the city of Providence.

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#18

Name- Alfred Lamothe

Annual Earning- $110,505.96

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Accidental Disability

Retirement Date- September 6, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#17

Name- Ernest Silva

Annual Earning- $112,796.28

Postition- Fire-4

City- Ft. Myers

State- FL

Retirement Type- Accidental Disability

Retirement Date- April 24, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#16

Name- Edward Dolan

Annual Earning- $113,126.04

Postition- Fire-4

City- North Kingstown

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#15

Name- Paul Marianetti

Annual Earning- $113,331.60

Postition- Fire-4

City- Ormond Beach

State- FL

Retirement Type- Accidental Disability

Retirement Date- November 17, 1994

Source: This information was secured through a FOIA request from the city of Providence.

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#14

Name- Rosemary Clark

Annual Earning- $114,725.64

Postition- Police-5

City- Chepachet

State- RI

Retirement Type- Beneficiary

Retirement Date- August 1, 2004

Source: This information was secured through a FOIA request from the city of Providence.

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#13

Name- John Gannon

Annual Earning- $117,318.60

Postition-Police-5

City- Coventry

State- RI

Retirement Type- Accidental Disability

Retirement Date- January 24, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#12

Name- Marcia Moise

Annual Earning- $119,791.20

Postition- Fire-4

City- Jupiter

State- FL

Retirement Type- Beneficiary

Retirement Date- April 1, 1997

Source: This information was secured through a FOIA request from the city of Providence.

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#11

Name- Robert Read

Annual Earning- $123,105.00

Postition- Fire-4

City- Cranston

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#10

Name- Alfred Bertoncini

Annual Earning- $123,599.16

Postition- Fire-4

City- Smithfield

State- RI

Retirement Type- Service

Retirement Date- December 19,1994

Source: This information was secured through a FOIA request from the city of Providence.

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#9

Name- Victor Dichiara

Annual Earning- $126,845.28

Postition- Fire-4

City- East Greenwich

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 17, 1992

Source: This information was secured through a FOIA request from the city of Providence.

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#8

Name- Edmund Calcagni

Annual Earning- $135,702.72

Postition- Police-5

City- North Providence

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 29, 1990

Source: This information was secured through a FOIA request from the city of Providence.

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#7

Name- James Kelly

Annual Earning- $137,336.04

Postition- Fire-4

City- Greenville

State- RI

Retirement Type- Accidental Disability

Retirement Date- September 28, 1988

Source: This information was secured through a FOIA request from the city of Providence.

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#6

Name- Vincent Delisi

Annual Earning- $145,520.88

Postition- Fire-4

City- North Providence

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 17, 1992

Source: This information was secured through a FOIA request from the city of Providence.

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#5

Name- William Manchester

Annual Earning- $148,839.84

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Accidental Disability

Retirement Date- December 19, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#4

Name- William D'Iorio

Annual Earning- $156,870.60

Postition- Fire-4

City- Smithfield

State- RI

Retirement Type- Accidental Disability

Retirement Date- Novemver 29, 1990

Source: This information was secured through a FOIA request from the city of Providence.

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#3

Name- Anthony Sauro

Annual Earning- $161,487.24

Postition- Fire-4

City- Johnston

State- RI

Retirement Type- Accidental Disability

Retirement Date- July 5, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#2

Name- Robert Anthony

Annual Earning- $162,944.04

Postition- Fire-4

City- Smithfield

State- RI

Retirement Type- Accidental Disability

Retirement Date- September 25, 1991

Source: This information was secured through a FOIA request from the city of Providence.

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#1

Name- Gilbert McLaughlin

Annual Earning- $196,813.08

Postition- Fire-4

City- Warwick

State- RI

Retirement Type- Accidental Disability

Retirement Date- October 24, 1991

Source: This information was secured through a FOIA request from the city of Providence.

 
 

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