Under Caprio, RI Pension Fund Paid Among Lowest Fees in US
Friday, April 19, 2013
Rhode Island paid among the lowest pension fund investment management fees in the country in 2010 under General Treasurer Frank Caprio, according to a report issued by the Maryland Public Policy Institute.
Based on data taken from state fiscal year 2010, Rhode Island paid less in investment expenses as a percentage of beginning net assets than 37 states in the country, doling out $13.05 million in fees on $6.1 billion in beginning net assets on the year.
Currently, information on fees paid on Rhode Island public pension investments can be found in reports issued for monthly State Investment Commission meetings, under "investment fees, professional fees, and operating expenses." A copy of the most recent report from March 2013 can be found here.
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTAccording to Joy Fox, spokesperson with General Treasurer Gina Raimondo's office, "This a cash flow tool that reflects the directly billed management fees. Some other asset classes have fee structures that are not compatible with direct billing." She added, "Treasury requires every asset manager to sign a pledge, which includes banning the use of placement agents."
Recently, AFSCME (American Federation of State, County, and Municipal Employees) sent a request for "Access to Public Records" into the General Treasurer's office to see all documents showing management fees in basis points. The office responded by saying, that as allowed by law, it would have to charge $15 an hour for approximately 100 hours of work, and could not guarantee that the records constituted public records.
The Maryland Public Policy Institute is expected to be releasing an up-to-date report on investment management fees within the month.
State Policy Institute Highly Critical of Wall Street Management Fees
The MPPI Report was direct in its analysis of the management of the Maryland state retirement and pension system, which showed that it paid more in Wall Street fees relative to its net assets than 45 other state systems.
The report noted that in fiscal year 2011, Maryland had 25 percent of its investment portfolio in alternative investments, including private equity and real estate. "Alternative investments are less liquid, less transparent, and more volatile than conventional public stocks and bonds," the report stated, continuing, "It is questionable whether these investments provide higher returns than a similar risk adjusted portfolio of public equities."
For that year, MPPI found that the Maryland pension system paid $221 million in money management fees on reported net assets of $37.6 billion, though "fund management appeared to have yielded subpar results." During calendar year 2011, 84 percent of actively managed U.S. equity funds underperformed their benchmarks, according to S&P Dow Jones Indices.
As such, MPPI claimed, "There is substantial evidence that Wall Street managers are unable to beat passive equity index funds that cost much less in fees."
URI's Mazze Weighs In
URI Professor of Marketing and Supply Chain Management Edward Mazze offered his views on investment management -- and alternative investments.
"Look, when you're managing so many dollars, so many firms, so many investments, there are going to be customary fees," said Mazze. "These [hedge fund] firms exist in a marketplace. If their fees are too high and they're underperforming, they'll disappear."
Mazze noted that he believes there's a need for diversification of the Rhode Island pension fund portfolio. "What we found was that in the past, the rate of return projections were too high, so they needed to be lowered to reflect the reality of the situation. However, while underfunded liabilities have decreased, they're not doing so fast enough. Diversification is a good thing. Not all investments are created equal."
"I suspect though we're doing just as well as other states currently," said Mazze, regarding Rhode Island's current position.
American Federation of Teachers Takes 34 Hedge Funds to Task
On Thursday, the American Federation of Teachers unveiled a report shining a spotlight on certain hedge fund managers' "unsavory connections."
"Many of the organizations attacking defined benefit plans are funded by hedge fund and private equity managers, some of whom solicit investments from public sector pension plans," the report states.
It continues, "Some asset managers have directly backed initiatives that harm the retirement security of plan participants, to whom trustees have fiduciary responsibilities."
The report names the following companies as on its "investment watch list."
Anthos Capital
Elliott Management
Mason Capital Management
Appaloosa Management
Gilder, Gagnon, Howe & Co.
Pennant Capital
AQR Capital Management
HPB Associates
Pergamon Advisors
Browfields Capital
Ichan
Enterprises
Prescott Investors
Centaurus Advisors LLC
Invemed Associates
SAC Capital
Clayton Capital Partners
J. Fitzgibbons LLC
SLX Capital Management
Cohen, Klingenstein LLC
K2 Advisors
Stone-Kaplan Investments
Court Square Capital Partners
Khronos
ThirdPoint Capital
Dimensional Fund Advisors
Kiernan Ventures
Tiger Global Management
Donald Smith & Co.
Kingdon Capital Management
Tudor Investment Corp.
Eagle Capital Management
KKR & Co.
VenRo
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