Taveras in WSJ story about pension funds wary of Wall St.June 21st, 2013 at 2:14 pm by Ted Nesi under Nesi's Notes, On the Main Site
The Wall Street Journal is pouring more fuel on the fire as Rhode Island continues to debate whether Treasurer Gina Raimondo is making the right move by investing more than $1 billion of the state’s pension assets in hedge funds, this time with an article today by Michael Corkery, a former Projo scribe, and Kristen Grind.
The WSJ discusses how Montgomery County, Pa., is moving almost all of its $470 million in pension assets into low-cost index funds run by Vanguard Group – mainly on the advice of John C. “Jack” Bogle, Vanguard’s legendary 84-year-old founder, who is an impassioned opponent of high investment fees.
As Corkery and Grind note, Montgomery County’s leaders aren’t alone:
Providence, R.I., Mayor Angel Taveras is similarly concerned, and asked a consultant to explore alternatives to his city pension’s 15% allocation to hedge funds. “To me, it’s a question of whether we can get the same performance for less risk and fewer fees,” says Mr. Taveras, who heads the pension investment board.
Most pensions aren’t ready to forsake Wall Street entirely. Desperate to hit high annual-return targets, but worried about big swings in the stock market, pensions have sought so-called alternative investments to reduce volatility.
Officials in Montgomery County and other experts admit that the index-fund approach increases the risk of volatility. …
For his part, Mr. Bogle says he has talked to other pension funds about the benefits of moving into indexing but says he waits for the funds to contact him first. “I will always see them,” he says.
That second-to-last paragraph captures the crux of Raimondo’s argument in favor of adding hedge funds: it’s a way to reduce the year-to-year swings in the value of the pension fund, which is still paying out more in annual benefits than it’s getting in contributions. Still, perhaps she should give Bogle a call.
• Related: Taveras invests 20% in hedge funds, more than Raimondo (May 8)