The Rhode Island pension fund, hit by a woeful investment market, suffered a 10 percent drop or $600 million loss over the last three months. Yet the $5.5 billion fund is still up $44 million over last year and is three times bigger than it was a decade ago.
Like pension funds throughout the country, Rhode Island’s has enjoyed years of consistent growth — as much as 29.9 percent one year — but is now feeling the impact of the overall slump in the market.
“We are not in this for the short-term. Our members are going to work for 30 years and will be retired for another 30 years, so it’s the long-term that counts,” said James E. Thorsen, Rhode Island’s deputy general treasurer.
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The fund at just over $5.5 billion is roughly 1 percent higher than it was when the year started. In April, the fund had peaked by passing the $6 billion mark.
The pension system serves state employees, public school teachers and employees in half of the state’s communities.
Thorsen said while the losses are significant, the system fared well by diversifying.
“Emerging markets were hardest hit, because of international turmoil. Fortunately, we had less than 2 percent invested in that market,” he said.
The pension fund is invested in domestic stocks (52 percent), international stocks (13 percent), bonds and other fixed-income investments (33), and the remainder in real estate and alternative investments.
The fund, which was handled solely by Fleet National Bank 10 years ago, is today managed by two dozen investment groups, including Fleet. Thorsen said the idea of having a variety of money managers is to have diversity.
“We have spread the money about so we get exposure to different (investment) styles, which leads to diversity. That lowers the risk,” he said.
There is no doubt that the pension fund has prospered because of the investments made by the treasurer’s office. Since 1984 the fund has grown six-fold, enjoying an average yearly increase of 13.7 percent.
“During the last three or four years things have been very good for most institutional pension funds, but everybody recognizes that you have to invest for the long- term,” he said. “A drop of 10 percent in light of what has happened in the past is nothing to step out on a ledge about.”
Bruce S. Kosakowski agrees. He is director of the Boston office of Watson Wyatt Investment Consulting, a global company that works with hundreds of pension funds.
“If pension funds get concerned with short-term factors they may be motivated to make bad decisions,” he explained. “When the market dipped in October 1987, maybe one’s inclination was to pull out of the stock market. But, then there was a very quick rebound and the S & P generated 16.5 percent that year.
“Short-term responses to those conditions would have produced very unhappy results,” he added.
Just like the Rhode Island pension plan’s average gains in the last 10 years, the hits that it is taking in recent months are quite similar to those found nationally.
“We are telling all of our clients that no matter how disconcerting the latest events may seem it is really important to stick to your long-term strategy,” Kosakowski. “In order to enjoy the more attractive returns that the market can produce you have to be in for the long haul.”
He added that investors have been hit hard in the past few weeks because of the drastic dips in the stock market, but the problem has existed for at least a couple months.
“It has been a really interesting year in that 1998 saw some historic highs in the market, but it has been driven by relatively few stocks,” he explained. “A look at the market and it is very robust, but there have been still a lot of stocks that have lost value.”
Thorsen said the state’s pension fund’s value has been changing by as much as $200,000 a day in either direction since volatility on the market arose.
He said it is impossible to know where the pension fund will be valued by year’s end.
“When the stock market goes up by 200 points in one day…. It would be foolish for me to think about what it will end up like at the end of the year,” he said.
Thorsen said while there should not be much concern from a “quarter to quarter horizon,” his office is constantly studying its investment strategies.
“Short-term fluctuations are not something we pay a whole lot of attention to, but on a daily basis we are evaluating our portfolio. We have to,” he added.
