Rhode Island’s pension fund paid less than the national average in Wall Street fees during former Treasurer Frank Caprio’s time in office, according to a new study.

Rhode Island spent $13 million of its pension fund’s net assets on money-management fees in 2009-10, the study [pdf] by the Maryland Public Policy Institute and the Maryland Tax Education Foundation shows. That equaled 0.22% of assets, below the national average of 0.41% and the national median of 0.36%.

“There is substantial evidence that Wall Street managers are unable to beat passive equity index funds that cost much less in fees,” authors Jeff Hooke and Michael Tasselmyer wrote in their findings. Missouri, Pennsylvania and Hawaii spent the most on fees nationwide.

“If public pension funds were indexed to relevant markets rather than actively managed, the public pension systems … across the United States would save enormous amounts of money on fees, without undue harm to investment performance,” they wrote. “In fact, many Wall Street managers ‘shadow’ their target indexes with 70% to 80% of their investments in the same stocks (or bonds) as those in the index.”

In an interview with CNBC, Hooke suggested local pension overseers are dazzled by Wall Street, which he called “a formidable machine.” Keith Brainard of the National Association of State Retirement Administrators countered that pension funds “cannot invest solely in passive indexed accounts” if they want to be diversified.

A separate study [pdf] released by investment advisory firm Cliffwater LLC found the Rhode Island pension fund’s investments in private equity earned 9.9% in the 10 years ended June 30, 2011. That was above the national average of 9.3% but ranked 15th among the 23 funds that used private equity. Wisconsin’s pension fund topped the list with a 13.2% return from private equity for the 10-year period.

Overall Rhode Island’s pension fund wasn’t among the 10 top performers in the 2001-2011 period out of 69 state funds surveyed, according to Cliffwater. Massachusetts’ pension fund ranked No. 9 with a 6.5% return.

“The lesson of the past 10 years is that alternatives as a whole can potentially contribute significant value to state pension systems, though the types and selections of alternatives also impact results,” Cliffwater’s Stephen Nesbitt wrote in a summary of his findings.

“The traditional 1990s investment model that placed so much importance on manager selection within traditional stock and bond asset classes produced below average returns over the past 10 years and will likely do so going forward,” Nesbitt added. Rhode Island’s pension fund expects an average annual return of 7.5%.

• Related: Investment expert: ‘Getting 7.5% … is going to be a challenge’ (Oct. 28)