State pension investment plan lost $471M in fiscal 2016

GENERAL TREASURER Seth Magaziner, who oversees the state’s portfolio comprising dollars from state employee pensions, told Providence Business News last month that fiscal 2016 was “a challenging year for all investors.” / PBN FILE PHOTO/MICHAEL SALERNO
GENERAL TREASURER Seth Magaziner, who oversees the state’s portfolio comprising dollars from state employee pensions, told Providence Business News last month that fiscal 2016 was “a challenging year for all investors.” / PBN FILE PHOTO/MICHAEL SALERNO

(Updated 11:43 a.m. to reflect corrected information)
PROVIDENCE – The state pension investment fund lost approximately $471 million in fiscal 2016, marking a 5.9 percent reduction to $7.5 billion compared with fiscal 2015.
The state reported a 0.3 percent loss on investment for the fiscal year ending June 30, according to the State investment Information Center, which is 0.1 percentage points more than the fund’s comparable benchmark portfolio, and 0.6 percentage points less than a standard 60/40 stock-and-bond portfolio. The latter ended the fiscal year with a 0.3 percent gain, according to the State Investment Information Center website.
The fund lost $26 million in the markets, and the remaining $445 million was paid out in retiree benefits, according to General Treasurer spokesman David Ortiz.
The state’s 0.3 percent loss is significantly less than its yearly target return of 7.5 percent, which is a public pension fund trend being played out throughout the country. General Treasurer Seth Magaziner, who oversees the state’s portfolio comprising dollars from state employee pensions, told Providence Business News last month that fiscal 2016 was “a challenging year for all investors.”
The second-year treasurer pointed to repeated turbulence in the global economy over the last fiscal year, including the Greek debt and Eurozone crisis, the Chinese economic slowdown – and concurrently drop in commodity prices – and the British referendum to leave the European Union: Brexit.
“It was a challenging year for all, and in Rhode Island we grappled with those challenges,” said Magaziner.
On the plus side, he added, the fund’s real estate and private-equity allocations performed relatively well.
He admits, however, that achieving the 7.5 percent assumed rate of return will “be challenging” moving forward. But argues Rhode Island’s assumption is lower than the national average. The state is currently reevaluating its assumed rate of return and asset allocation through an asset and liability study. By fall, Magaziner expects to know how the fund’s assets will be allocation moving forward.
Pension investments funds have become increasingly unpredictable. In 1995, pension investment funds allocated entirely in bonds had an expected rate of return of 7.5 percent, according to Callan Associates Inc. research. Today, achieving that same return would require a much riskier allocation, including the majority of funds being put into domestic and foreign equity markets – which bear greater volatility. The standard deviation – or expected volatility – for today’s pension funds is 17.2 percent compared with 6 percent in 1995, according to the research
As of June 30, the fund’s 10-year return totaled 4.8 percent.
Magaziner says the state will “remain focused on the long term and to be well-diversified.”
Due to a technical error on the state’s website, an earlier version of this story misstated the return of the state pension fund’s comparable benchmark portfolio. The percentage point difference between the two plans is now accurate.

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