Seth Magaziner serves as Rhode Island’s general treasurer, a position he has held since 2015. His duties include overseeing state finances, including the state pension fund, which has received multiple recognitions in 2020 for its strong performance relative to other public pension funds.
PBN: The state pension hit a year-end record at the end of 2020, despite the volatility caused by the pandemic. To what do you attribute that success?
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MAGAZINER: My priority as treasurer is to support economic growth and financial stability for all Rhode Islanders. The state pension fund is the strongest it has been in years, which is good news for the 60,000 teachers, nurses, first responders and other public servants who rely on the pension for their retirement security, and also good news for all Rhode Island taxpayers who have a stake in the financial health of our state.
In 2016 we implemented a “Back to Basics” investment strategy for the pension that prioritizes long-term growth and stability and includes a crisis protection allocation to guard the pension fund against negative impacts during times of significant market volatility. The pension fund’s continued growth, ending the year at a historic all-time high of nearly $9.5 billion and outperforming 87% of our peer pension plans in FY2020, shows that the Back to Basics investment strategy is working.
PBN: What was the rationale behind this asset allocation strategy when it was implemented and why was it important to the pension fund performance in 2020?
MAGAZINER: Back to Basics is designed to deliver strong long-term growth for the pension fund, as well as stability in periods of market decline. We didn’t know when the next big market downturn would be, but we knew one would come someday and we wanted to make sure Rhode Island would be prepared. When COVID-19 began to spread in the United States last March and the S&P 500 declined by roughly 20%, the crisis protection allocation in the Rhode Island pension actually went up in value by 15%. This was a big driver in our outperformance relative to most other state pension systems.
PBN: How, more broadly, has the state’s strategy regarding investments changed over time? What prompted those changes?
MAGAZINER: The Back to Basics strategy is the product of an extensive review of the state’s pension investments that I launched in early 2016, which included some of the state’s leading investment experts. In addition to creating the crisis protection allocation, some of the other changes made under Back to Basics included significantly reducing the state’s exposure to high-fee hedge funds and emphasizing low-cost equity index funds and bond funds.
PBN: The state pension fund recently ended its controversial ties to Gov. Gina M. Raimondo’s former venture capital firm. Why was it so difficult to end the investment that had already expired previously, and what allowed that investment to end now?
MAGAZINER: The Point Judith Capital investment was made prior to my election to office and was one of the smallest investment positions in the pension system. As is typical with venture capital investments like Point Judith, the life of the investment was relatively long and illiquid. The Point Judith investment ended in late 2020, with all remaining assets distributed to investors and a final annualized investment return of roughly 5.5%.
PBN: Earlier in the pandemic, you advocated for a $300 million line of credit to bolster state coffers amid cash flow shortages. Do you foresee or plan to push for additional borrowing amid projections for continued deficits?
MAGAZINER: Since we acted to secure emergency short-term financing early in the pandemic, the state’s cash flow has stabilized. I am currently advocating in favor of the seven bond proposals on the special election ballot, which will ignite an economic recovery, create jobs and improve quality of life in Rhode Island for years to come.
In times of crisis, we must take bold action – and by voting in favor of these bond measures, we can put thousands of Rhode Islanders to work rebuilding our roads and bridges, expanding our supply of affordable housing, upgrading our ports and industrial spaces, protecting our natural landscapes, and so much more. Now is the time to take advantage of historically low interest rates and approve these measures to get Rhode Island back to work.
Nancy Lavin is a staff writer for the PBN. Contact her at Lavin@PBN.com.
