Taveras’s 13.4% pension return beats Raimondo’s 11.1%

August 13th, 2013 at 2:48 pm by under Nesi's Notes, On the Main Site

Providence is significantly outpacing the state of Rhode Island in the battle of the pension plans.

Providence’s $247-million pension fund, the second-largest in Rhode Island, earned a return of 13.4% during the 12 months ended June 30 – more than two percentage points better than the 11.1% earned by the $7.55-billion state fund over the same period, according to data obtained from the city by WPRI.com.

In fact, Providence’s pension investments have consistently performed better than Rhode Island’s over the last decade, a period during which Providence’s Board of Investment Commissioners has been chaired by Mayors Angel Taveras and David Cicilline, as this chart comparing their returns shows:

Taveras_Raimondo_pension_returns_2003_2013

Providence’s 2012-13 investment return not only beat Rhode Island’s – it also topped the Massachusetts pension fund’s 12.7% return and the California Public Employees’ Retirement System’s 12.5% return.

The investment earnings could have political implications, since the two elected officials in charge of the pension funds – Mayor Taveras and R.I. Treasurer Gina Raimondo – are both expected to challenge Lincoln Chafee for the Democratic gubernatorial nomination in 2014.

The difference between 13.4% and 11.1% may sound relatively small, but it’s significant when such large amounts of money are at stake. A rough back-of-the-envelope calculation suggests the Rhode Island pension fund would have added an additional $64 million last year if Raimondo had matched Taveras.

Ironically, Raimondo has come under withering criticism in recent months for moving more than $1 billion of Rhode Island’s pension assets into hedge funds – but Taveras has been earning better returns than her in recent years while having an even larger share of pension assets invested in hedge funds. As of June 30, Providence had 17.5% in hedge funds, while Rhode Island had 14.4% in them.

Taveras aides have emphasized, however, that he inherited the Providence pension fund’s asset allocation strategy from Cicilline and, unlike Raimondo, Taveras never made an affirmative decision to move into hedge funds. The mayor has said he is exploring whether Providence should reduce its exposure to hedge funds.

Providence needs all the help it can get to shore up its retirement system. The city’s pension fund is still just 36% funded in the wake of the landmark deal Taveras struck with retirees to reduce benefits, with an unfunded liability of roughly $739 million – roughly the size of the annual city budget.

Providence’s longtime investment consultant is Wainwright Investment Counsel of Boston, while the State Investment Commission’s lead consultant is Allan Emkin of Pension Consulting Alliance in Los Angeles. The state also uses Cliffwater LLC of Marina del Rey, Calif., to choose hedge funds.

• Related: Taveras in WSJ story about pension funds wary of Wall Street (June 21)

This post has been updated.

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26 Responses to “Taveras’s 13.4% pension return beats Raimondo’s 11.1%”

  1. rlewis says:

    2.3% of $7.2 billion = $165 million

    1. Ted Nesi says:

      Rhode Island’s plan pays out more to retirees than it takes in annually. You need to control for that. 2.3% of the net year-over-year increase = $64 million.

  2. Jackie says:

    Anyone look to see how Cranston is doing. There are Republicans too Ted!

  3. Bob says:

    The difference in returns are what gina needs to pay the hedge funds which are exorbitantly expensive….with no greater rate of returns and huge risks….of course her hedge fund friends are help funding her massive reelection kitty…so is she really thinking about what is best for the retirees who will never see a COLA under her pension reform?….I think not…. There is no fairness here….just gina with her large ego….I hope Tavares wipes her out in the primary……

    1. Joe says:

      Did you happen to notice the article said Providence had MORE invested in hedge funds than the State?

      1. Paul Vincent Zecchino says:

        Yes, I and many others surely did see that Tavares has more in hedge funds, which makes Raimondo’s losses all the more hinky, doesn’t it?

        Unlawfully withholding contractually owed COLA’s from retirees and handing those sums and more to hedge fund cronies who fund one’s chronic campaigning harms retirees and benefits, who? You? Me? That fat guy behind the tree?

        Retirees have been permanently harmed so that unnamed cowards at EnGougeRI, among others can benefit.

        That’s the elephant in the living room and no amount of ‘look, squirrel!’ red herring distractions will take citizens eyes off this injustice.

  4. jeff bibbles says:

    and when the market takes a 20% correction the hedge fund will come out better for the experience and the non hedge fund people will be screaming bloody murder.

    1. Rob Shaw says:

      Right. Not like hedge funds ever take corrections when the stock market does, right Jeff? I seem to remember Harvard and Yale endowments, which were heavy into hedge funds, taking a huge bath in 2008-09. So if we’re not getting market like return in the good years and we live with the threat of these funds completely hitting the skids if the economy goes south, remind us all why we’re in them again? Oh, yes, to funnel money to the hedge fund industry so they will contribute to the political campaigns of those making the decisions. Thanks for playing!

  5. janskor says:

    This is not shocking. We all know that anything Raimondo did with pension reform was for her benefit and the benefit of those with whom she associates. It never was for the benefit of retirees, the pension fund, or the taxpayers of Rhode Island. She deceived the people with her reforms. When you had wealthy people from other states, and big name investment people from New York praising her and donating monies to her, you had to know THEY were the chosen to benefit from her actions. And don’t kid yourself…monetarily she benefited from it as well.As you can see, it already is falling short of her so called expectations (lies).

  6. SteveD says:

    Let’s see, not only did Tavares screw 20 million payment last year….that 20 million lost an additional 260,800 dollars. And you want to know what the problem is? Over the years, the pension fund was short funded millions. The return on those millions would have been millions. But its the workers.

    1. John S says:

      Here, Here, STEVE. See my posts below. Have a good one

  7. Russ says:

    Of course the move to alternative investments is likely to show benefit years down the road. The returns on those investments are often out 10 years or more, exactly why pension funds can take advantage of them.

    But, hey, let’s chase yearly returns! What could go wrong? (and let’s hope neither Taveras or Raimondo is that short sighted)

  8. John S says:

    Ted, how come no comparison done, by you, on the fees Providence is paying hedge funds vs. RI fees? Not good, complete reporting in my book. Also, this is why I opted-out of the so-called “landmark deal with retirees”, and Active Unions that you also failed to mention. OUR’s (not Mayor’s) fund made 13.4%, but he stopped my RI Supreme Court (April 2007) ordered 5% COLA FOR LIFE award. Unless he files for bankruptcy, he has no legal right to not pay what the RI Supreme Court said Providence must pay. When we win, I pray they fine him personally for being a lawyer who is ignorant of the law and RI Supreme Court Authority OVER HIM.

    1. George says:

      So your going to fight to save your criminally high 5% COLA and you don’t care if it bankrupts the city. Well if you get your way and the city follows Detroit into bankruptcy you can finally be happy. Because without the negotiated concessions that is where Providence would already be. Listen to your brother retiree in Central Falls who said after the Receiver filed bankruptcy “But were not done negotiating” (it actually may have been a lawyer for the retiree’s and not a retiree)
      You don’t even know you should be ashamed of yourselves for ruining the city of Providence and the state. Completely deluded.

      1. John S says:

        George,

        You don’t know the facts or what you are talking about. This Mayor took from retirees and gave the active union members raises. If everyone employed by the City, even the Mayor, were all restricted from raises for the same time as me, then I would be all for it, but I won’t allow them to take from me, something I paid for so that they can give it to others.( Active employees, political hacks, and lets not forget the ultimate embarrassment ILLEGALS). They will never go bankrupt, the State of RI won’t let them.
        I never wanted the COLA and voted against it as an employee. The City FORCED me to take it and involuntarily took extra each week from my check and my kids mouths, to pay for it ……. SO YES I WANT IT and the only people that should be ashamed is the City and their corrupt politicians for NOT paying into the FUND what they were required to (like they did to me)…… If it was you, and you had b…s, and were just protecting your family, and your rights, I’m sure you would fight too. If not then you are an idiot and no need to reply to this post ……. thank you anyway !!!!

      2. SteveD says:

        I opted out also, although I am a 3 percent retiree. I only received 2 COLA’s before the freeze. But more importantly, I am worried about medicare.

      3. George says:

        John, The state of Rhode Island will let Providence go bankrupt. I’m sure at the union halls in Detroit the same was said. They were probably arrogant enough to say that the United States won’t let them go bankrupt. Why should people from the few towns that are solvent bail out the cities that have strangled taxpayers while diving into debt.
        It sounds like your bitter about our “defined benefit system”. So is everybody else. Lets return sanity to municipal services and move into a defined contribution system. A system where the city moves all employees into social security and a 401k match of 3%. That way the city will have to contribute about 10% to the employees retirement. And the taxpayers will know exactly what their city services are costing them. Not like the today where politicians buy votes by bankrupting the grandchildren of the citizens with lavish 5% COLA’s. Sorry nobody is going to feel sorry when there is a deputy fire chief making a $190,000 pension. A deputy chief that hasn’t worked in 22 years. Completely insane.

      4. John S says:

        George, I agree completely, but it should be applied prospectively not retroactively. people paid for benefits, whether they wanted them or not, and made life decisions based on those investment decisions. They shouldn’t have to suffer, now that they can’t work any longer, by having contractual promises broken. If we all agree to change the system, then OK …….. but THEY WANTED IT THIS WAY, SO NOW THEY CAN PAY. It may have the effect which is good ….. the people should pay attention to what their elected pols do, and make them do what they want or get rid of them …. but they kept voting in these dopes (Buddy for YEARS)… so let them pay NOW.

      5. George says:

        John, I agree it sucks to see 70 year old retired firefighters in Central Falls lose more than half their pension in bankruptcies. And I understand the anger and resentment you feel. It sucks that the GA wasn’t going to put the $12,900,000 surplus into the pension. Of course that’s liberals for you. Let somebody else pay for it later. Thank the lord for the fiscal conservatives that stopped it. In the long run the unions will see that their true allies were actually the politicians that said “no we can’t give you a raise we can’t afford it”. The unions quickly organized candidates and campaigned to remove the ADULTS that could do math. It happened last year in Warwick where WISE union members got a pro union candidate to replace a fiscally sane school board member. She then promptly voted them the new contract they wanted. The taxpayers of Providence really aren’t interested in the woes of the retired firefighters with $190,000 pensions. You will have a much more generous salary and retirement than any of the firefighters and police that are starting today. Hopefully when Providence goes bankrupt it’ll wake the politicians, unions and retiree’s up in Warwick and we can avoid bankruptcy. Although in ten years it may be the cities that went bankrupt that are doing better than cities with smart retiree’s that know what’s good for them. It would be nice to hear from a Central Falls retiree to see if they wish they had made the concessions.

    2. John S says:

      George, you are missing the main point of my contention …… If retirees don’t get what they are legally entitled to while Prov Mayor cries poverty, then don’t immediately give raises to active city employees who have the capability to increase their salary by numerous ways, i.e. details, court time, overtime, jobs on the side etc …… Eradicate all the illegals in the City/State and all the money and problems they create (violence, drugs, education costs, welfare, heating etc.) If they are so broke then EVERYONE SHOULD TAKE THE SAME DEAL ….. NO RAISES FOR 10 – 20 YEARS for any Providence City employees. If they want to do that, then I will accept the deal, but not until ……….. The$190k figure is one person only – who by the way is a POLITICAL HACK – Billionaire Joe Paolino passed this 5% COLA, knowing it was unsustainable, as I and others told them, but they forced me to pay for it, now I will force them to pay for it. If they go broke, tough s..t. The RI legislature has already given CF retirees 25% back …. do the research …… It was all a scam to use as a carrot to scare retirees into giving up benefits and in Providence 93% of retirees gave it back because of this bluff, so by the City having to pay me and other opt-outs (7% of retirees total) will no longer cause them to claim bankruptcy, and no Bankruptcy judge will uphold this. they got what they wanted, I say even more. The City, at hearings in Court said that if 10-15% opted-out, the total taking the deal will save the City from Bankruptcy ….. so 7% is even less than they thought they would get to accept it. I WILL NOT !!!!!!

  9. William Berube says:

    In June of 2012 Treasurer Raimondo shifted one quarter of the states pension fund into hedge funds and alternative investments, with $1 billion allocated to hedge funds and over $800 million for alternative investments. Because the treasurer refuses to disclose how much we are paying in fees for these new investments, and since we also don’t know what the Providence pension fund has in alternative investments other than hedge funds, it’s impossible to come to any reasonable conclusion as to why one of these pension plans may be performing better than the other based simply on a comparison of the hedge fund data supplied within this article.

    1. Paul Vincent Zecchino says:

      William Berube –

      A pleasure to read your as ever spot-on remarks. The Bloomberg connection becomes ever more clear by way of yesterday’s “New York Mayor Right For Once?” article, on the right hand side of the page on AmericanThinker dot com. You have to click ‘more’ at the bottom of the article listings to get the 13 August articles.

      They must be nervous about all this exposure: now the official Bloomberg line is that Detroit’s woes – all of them, every single one of them – are the result of paying pensions to retirees.

      My impression from the outset is that this ‘we can’t afford to pay unsustainable COLA’s to support lavish retiree lifestyles’ was just the camel’s nose in the tent.

      Bloomberg’s broad-brush blaming of retiree pensions, period, suggests they’ll start with ‘unsustainable COLA’s and if they get away with that they’ll start on the general pension payments.

      Bloomberg, supposedly a money expert who made at least some of his billions by his expertise in addition to just plain chance, has been mayor twelve years. His signature issues, some say fetishes, have been big gulp sodas, salt, and guns. In all this time, now that he’s on his way out, he warns about pensions? With his supposed financial acumen and time in office, NYC should have been rolling in clover by now, paying pensions for the adjacent states. But it isn’t.

      The way they go on, you can’t help but get the impression that they see COLA’s and perhaps some of the pensions as better paid to hedge fund cronies who launder some of it back to their campaign coffers, than to those to whom it’s contractually owed.

      These people are educated beyond their intelligence, imbued with an air of entitlement, apparently of the mindset that they’re fit to lord it over the rest of us.

      Thank you for stating the truth.

      Wonder where all the usual hedge fund shill-parrots are?

      1. George says:

        Paul, Your right. Mayor Bloomberg is wrong if he actually said that retiree benefits were responsible for every single one of Detroit’s woes. The unfunded pensions are only $9,000,000,000 of the cities $18,000,000,000 debt. But its great to see union members and retiree’s complain about money being influential in politics.

  10. William Berube says:

    Thanks Paul… it’s always a pleasure to read your informative posts as well. The shill parrots ‘are’ noticeably silent, aren’t they? I think the bloom is coming off the rose for both Raimondo and Bloomberg.

    Raimondo: Let them eat cake!
    Bloomberg: And let the cake be of low caloric content and of small portion so the commoners will not eat until they take ill. After all, they are like children who need our guidance.

  11. [...] R.I. Board of Education could get changed (again) … Providence’s pension investments earned 13.4% last year, surpassing the state’s 11.1% … Rhode Island unemployment rose to 8.9% as thousands [...]

  12. [...] Related: Taveras’s 13.4% pension return beats Raimondo’s 11.1% (Aug. [...]