The field of likely 2014 candidates for governor of Rhode Island has come sharply into focus over the last week thanks to three key announcements: Democrat Ernie Almonte’s switch to the treasurer’s race on Thursday, Republican Brendan Doherty’s decision to sit out the race on Friday, and Moderate Party founder Ken Block’s announcement this morning that he’s running again.

Almonte’s exit leaves Treasurer Gina Raimondo and Providence Mayor Angel Taveras as the two potential heavyweights in the Democratic primary, setting up a head-to-head clash between the two. Almonte’s absence could boost Raimondo, since both of them have reputations for pension truth-telling and fiscal responsibility, issues that appeal to moderates and conservatives; Taveras has a more wide-ranging portfolio.

That assumes, of course, both Raimondo and Taveras actually jump into the gubernatorial race. While the two Democrats are taking the steps necessary to mount campaigns, until there’s an official announcement the possibility remains that one of them won’t pull the trigger. Raimondo has $1.7 million already and her fundraising shows no sign of slowing, while Taveras has $560,779 and can tap the deep-pocketed network of former DSCC chief J.B. Poersch; a lengthy primary fight could be expensive and bruising.

On the Republican side, Doherty’s decision to take a pass – along with John Robitaille’s a few months back – is great news for Cranston Mayor Allan Fung, who’s made no secret of his interest in the governor’s office.

Doherty had the support of new party chairman Mark Smiley and could have assembled a campaign team easily; he also demonstrated real fundraising prowess in his congressional bid last year. Without a real primary, Fung can now spend the next 16 months raising money and preparing for a quick two-month general-election campaign once the Democratic candidate is picked. It almost worked for Robitaille in 2010.

Then there’s Ken Block.

The Moderate Party standard-bearer received 22,146 votes in 2010, good for 6.5% of the total. Put another way, Block garnered two-and-a-half times the 8,660 votes that gave Lincoln Chafee his margin of victory over Robitaille in the election. Republicans blame Block for Robitaille’s defeat, which Block contests, but there’s little doubt he makes the math harder for centrist and center-right candidates. A January PPP poll showed Block getting between 8% and 16% of the vote depending on his competition.

As for Chafee, it’s likely nobody was more pleased about Block’s announcement than the incumbent.

If Chafee remains an independent, which still seems probable, his best-case scenario is probably another four-way field: Chafee, Raimondo/Taveras, Fung, Block. But there’s no guarantee he can turn a crowded field into another victory – PPP put him in third place, with only about 20% of the vote, under that scenario, which suggests a Democrat or Fung could be 2014′s Chafee, winning with the support of just a third of the electorate.

The silver lining for Chafee is another finding from the PPP poll. In a hypothetical three-way contest with Chafee running as the Democratic nominee against Doherty and Block, his support reached 35%. Obviously that contest isn’t going to happen – but it suggests about one in three voters are still open to casting a ballot for Chafee depending on their other options. “Landslide Linc” he ain’t, but he has a path.

Of course, the most important fact of all is that it’s only May of 2013, with a year and a half left before voters choose the next governor. But make no mistake: what happens this year will have a big impact on who takes the oath of office in January 2015.

• Related: Minority turnout surged in RI in 2012; white vote slumped (May 9)

PROVIDENCE, R.I. (WPRI) – Moderate Party founder Ken Block will once again be the face of his party’s 2014 gubernatorial run, according to a website that went live this morning.

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But Arnold’s actual story is actually more interesting than that, according to the summer issue of WSJ.Money magazine.

Arnold, 39, closed his hedge fund last year and retired to begin giving away his $2.8-billion fortune, mainly through the Laura and John Arnold Foundation he and his wife founded:

Arnold and his wife, Laura, have a somewhat unique approach to giving. Most billionaires tend to write checks to good causes they’re part of, hospitals where they were treated or universities they attended. … Or there are donors who make sizable gifts to meet an obvious need in a community, such as hunger or education. But at a time when charitable giving in the U.S. is still down from its peak in 2007, the Arnolds want to try something new and somewhat grander. John says the goal is to make “transformational” changes to society.

The Arnolds want to see if they can use their money to solve some of the country’s biggest problems through data analysis and science, with an unsentimental focus on results and an aversion to feel-good projects — the success of which can’t be quantified. No topic is too ambitious: Along with obesity, the Arnolds plan to dig into criminal justice and pension reform, among others.

Among Arnold’s critics is Rhode Island’s own Mike Downey of AFSCME Council 94:

J. Michael Downey, president of Rhode Island’s biggest union of state employees, says he considered it a “wonderful Christmas present” when The Wall Street Journal reported in December that Arnold was helping to fund a pension-reform effort in concert with Gina Raimondo, the state’s Democratic general treasurer. Downey says he’d never heard of Arnold before the article appeared but sees Arnold’s Enron background as evidence that he cares less about workers than pursuing a Darwinian form of capitalism. “That’s how he operates,” Downey says. 
For his part, Arnold says he is “pro-worker” and that solving pension reform will only save jobs in the long run.

EngageRI isn’t the Arnolds’ only involvement in Rhode Island; their foundation is partnering with the Pew Center on the States to help cities and towns, including Pawtucket and Scituate, deal with their underfunded municipal pension plans. They’ve also donated $8,000 to Treasurer Gina Raimondo and her political action committee since last May, according to R.I. Board of Elections filings.

The entire WSJ article is worth a read. It managed to win Arnold praise from Gawker’s Hamilton Nolan, archenemy of plutocrats. “We salute, John Arnold, and your cold-blooded and dead-eyed approach to making this world a better place,” Nolan wrote in a post on Friday. “If every billionaire were like John Arnold, we would be slightly less apoplectic. (Momentarily).”

• Related: EngageRI raised $900K in 2011 and 2012, tax returns show (May 13)

(photo: Laura and John Arnold Foundation)

PROVIDENCE, R.I. (WPRI) – Former State Police superintendent and congressional candidate Brendan Doherty on Friday said he has no plans to run for statewide office in 2014, likely clearing a path for Cranston Mayor Allan Fung to run unopposed in a Republican primary for governor next year.

Read the rest of this story »

PROVIDENCE, R.I. (WPRI) – Former Auditor General Ernie Almonte announced Thursday that he’ll run for general treasurer in 2014, abandoning his long-shot bid for governor against Gina Raimondo and Angel Taveras.

Read the rest of this story »

• Related: Caprio calls ‘shove it’ remark ‘stupid,’ prepares comeback (May 14)

PROVIDENCE, R.I. (WPRI) - In his first TV interview since losing the 2010 governor’s race, former General Treasurer Frank Caprio told WPRI 12 he regrets his infamous comment that President Obama could take his endorsement and “shove it,” attributing the outburst to the frustrations of a losing campaign in its final weeks.

Read the rest of this story »

• Video: Watch the full Newsmakers with Frank Caprio (May 14)

PROVIDENCE, R.I. (WPRI) – Engage Rhode Island’s fundraising slowed significantly in 2012 compared with the prior year, when the advocacy group provided crucial support for the pension law pushed through by Treasurer Gina Raimondo, WPRI.com has confirmed. Its union opponents said they spent $80,000 in 2011.

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Providence has invested 19.75% of its total pension assets in hedge funds, the Taveras administration disclosed Tuesday after WPRI.com requested a breakdown of its investment portfolio.

Rhode Island’s state pension system has invested somewhat less in hedge funds – 14.6% of assets as of April – under a new investment strategy implemented by Treasurer Gina Raimondo soon after she took office in 2011.

Providence’s Board of Investment Commissioners, which is chaired by the mayor and oversees the city’s pension portfolio, started investing in hedge funds on the advice of its longtime financial consultant, Boston-based Wainwright Investment Counsel, Taveras spokesman David Ortiz told WPRI.com. The investment board meets roughly once a month.

Ortiz said the city was already investing nearly 20% of its money in hedge funds when Taveras succeeded now-Congressman David Cicilline in January 2011. Raimondo, by contrast, moved to add hedge funds to the state’s portfolio a few months after she took over from Frank Caprio that same year.

“The asset mix in Providence’s pension portfolio has remained essentially static since we took office,” Ortiz said. “We relied on the advice of Wainwright. They’ve managed the city’s portfolio for many years, and the fund has performed well relative to peers.”

Providence’s pension investments earned an 11.2% return during 2012, less than the 12.5% that the state’s investments earned, according to Ortiz and the State Investment Commission. Providence expects to earn an average return of 8.25% on its investments over the long term, while the state expects to earn 7.5%.

Ortiz said the Taveras administration didn’t have information available about the amount of fees it pays to hedge funds, although city officials “asked a while ago” for Wainwright to provide details.

“We’re awaiting reply,” he said.

Raimondo’s investment strategy has come under withering criticism over the last month from Forbes.com contributor Edward Siedle, president of Benchmark Financial Services, who argued in one post that “the smart pension money would steer clear of hedge funds, not pile into them.”

Robert Walsh, executive director of the National Education Association Rhode Island teachers union and a frequent Raimondo critic, quipped recently that the treasurer’s defense of her hedge-fund strategy might as well rely on “magic beans,” tweeting: “Top corporate pension funds have 2% in hedge, not 20%+.”

Taveras is now planning to review Providence’s heavy investment in hedge funds, according to Ortiz.

“Recently, compelling questions have been raised about hedge funds and other nontraditional investments by public retirement systems,” he said. “We’ve asked Wainwright for more information about those kinds of investments in Providence’s pension fund, including the fees paid to investment managers.”

Coincidentally, Raimondo said during her 2010 campaign that Providence’s pension fund invested $1 million in Point Judith Capital, the venture capital firm she co-founded, after Wainwright approached Point Judith and then recommended the investment to the Board of Investment Commissioners.

Providence’s pension fund is significantly smaller than the state of Rhode Island’s. Their assets totaled $326.5 million and $7.2 billion, respectively, as of June 30. Following the adoption of separate overhauls pushed through by Taveras and Raimondo, the city’s pension plan is 36% funded and the state’s plan is 59% funded.

• Related: Raimondo puts 14% in hedge funds, 10 times US median (April 29)

(photo: Ted Nesi/WPRI)

Rhode Island’s $7.7 billion pension fund earned 9.81% during the 12 months ended March 31, according to Bank of New York Mellon Corp., its custodial bank. By comparison, the median public-sector plan with assets of at least $5 billion earned 10.5% over the same period, Wilshire Associates Inc. reported Tuesday.

Raimondo has acknowledged her new investment strategy, approved unanimously by the investment commission in 2011, could reduce the state’s investment return somewhat, but argues it will benefit the state in the long run by reducing risk and volatility.

“The improvements made by the State Investment Commission to the investment portfolio were designed to deliver strong, long-term returns, while reducing risk to provide a secure retirement for public employees and retirees,” Raimondo spokeswoman Joy Fox told WPRI.com. “The SIC’s strategies should be evaluated against long-term returns, not against any particular immediate snapshot.”

Rhode Island’s pension investments also grew more slowly over the three years and five years ended March 31 compared with the median plan of at least $5 billion, according to Wilshire and BNY Mellon. However, Rhode Island’s return over the 10-year period ended March 31 was 8.78%, better than the median plan’s 8.59%. Rhode Island’s plan also beat the internal benchmark it uses for comparison purposes:

The median plan’s performance published by Santa Monica-based Wilshire comes from its Wilshire Trust Universe Comparison Service, which tracks more than 1,700 public and private investment plans that control more than $3.4 trillion in assets. A Wilshire spokeswoman declined to disclose how many of those are public plans with at least $5 billion worth of assets.

• Related: Raimondo puts 14% in hedge funds, 10 times US median (April 29)

PROVIDENCE, R.I. (WPRI) – Treasurer Gina Raimondo continued to raise campaign cash at a rip-roaring pace during the first three months of 2013, far outpacing the other leading candidates for the state’s top job.

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Raimondo, as chair of the State Investment Commission, won unanimous approval in June 2011 of a new allocation strategy for the pension fund’s $7.7 billion in assets that added hedge funds to the portfolio for the first time. As of June 30, 13.9% of Rhode Island’s pension assets were invested in hedge funds.

By comparison, the median state pension plan in the U.S. allocates just 1.4% of its assets to hedge funds, according to a February study of 134 state retirement systems by Wilshire Associates, a Santa Monica-based investment adviser.

However, that number masks wide variation among different plans, with the share of the individual systems invested in hedge funds ranging from zero to as much as 26.5%, according to Wilshire.

Hedge funds are privately managed alternative investments that are only open to sophisticated investors. The Hedge Fund Association says they “can use one or more alternative investment strategies, including hedging against market downturns, investing in asset classes such as currencies or distressed securities, and utilizing return-enhancing tools such as leverage, derivatives, and arbitrage.”

The nation’s largest state pension system, the California Public Employees’ Retirement System (CalPERS), invests only 2% of its assets in hedge funds. At the other end of the spectrum, the top-performing Missouri State Employees’ Retirement System (MOSERS) invests 30.9% of its assets in hedge funds. The Massachusetts Pension Reserves Investment Trust (PRIT) invests 9.4% in hedge funds.

The usefulness of hedge funds is a subject of debate. Asset-management firm Research Affiliates published a critical study last week that concluded: “Sadly, most diversified portfolios of hedge funds have largely failed to live up to their promises, delivering less diversification than investors were encouraged to expect, paired with inadequate returns, especially with their current swollen asset base.”

Raimondo defended the state’s strategy in an interview, saying the hedge funds will reduce the state portfolio’s volatility by exposing it to alternative assets such as commodities and currencies while reducing its correlation with the stock market, though it will also mean higher fees and lower returns.

“Yes, we may give up a little upside,” Raimondo told WPRI.com. “We’ve decided as a team on the State Investment Commission, given how risky the world is and how underfunded our plan is, it’s a prudent decision to maybe give up a little bit of upside in order to protect from the crash on the downside.” Rhode Island’s pension system lost $2.1 billion during the crash of 2007-09 and last year paid out more than it took in.

• Related: Chart: How Raimondo has changed RI’s pension investments (April 4)

Once again, business and labour share a huge stake in our cities’ fortunes, and the consequences for both if we fail to stabilise our finances and set a course for growth will be devastating. Yet amid the solutions proposed, no one argues that the two sides must work together to restructure the finances of troubled states and cities. …

If the nation is to enter a new era of opportunity and growth, our government, company executives, labour leaders and employees have to co-operate on matters of common interest. They need not abandon their principles, but they must create a climate where dialogue and compromise are possible, and mutual sacrifice may be negotiated. One thing is certain: the path of stalemate leads nowhere. We need to take a new direction now.

Rhode Island has moved about $1 billion of its $7.6-billion state pension fund into hedge funds over the past 18 months, a move that General Treasurer Gina M. Raimondo defended against critics Wednesday during a meeting of the state Investment Commission. …

On Tuesday, Raimondo’s office provided The Providence Journal with records showing that the state paid $15.8 million in fees to 19 hedge funds for the eight months ending June 30, 2012. But the office could not immediately produce how much has been paid since then, given how the records are kept. Those fees aren’t in the detailed monthly investment reports produced for Investment Commission meetings, because they are not directly billed to the state. …

Raimondo, in an interview, said that hedges in such investments as currencies, agricultural commodities and precious metals are designed to move against the stock market, and provide a better alternative to lower-yielding Treasury notes that reaped more years ago. Noting that the pension fund lost $2 billion in the ’08 crash, Raimondo said an analysis showed the loss would have been $1.5 billion with hedge funds in the portfolio.

• Related: Chart: How Raimondo has changed RI’s pension investments (April 4)

Rhode Island General Treasurer Gina Raimondo has experienced a meteoric rise to fame that most politicians can only envy.

Raimondo, a 41-year-old former venture capitalist, was virtually unknown in 2010 when she coasted to victory as a Democratic candidate in a deep-blue state. Soon the new treasurer surprised almost everyone by engineering the most sweeping overhaul of a public-pension system ever enacted. By the time her reforms became law in November 2011 she was one of the most popular politicians in Rhode Island, and the subject of adulatory coverage in both the New York Times and the Wall Street Journal.

Even before the pension process was over, there was growing speculation that Raimondo might run for governor in 2014, in no small part because the incumbent who signed the pension law — independent ex-Republican Lincoln Chafee — has had an approval rating in the 20s for most of his term in office. It has become clear in recent months that the treasurer is likely to throw her hat into the ring.

Read the rest on Bloomberg.com.

Raimondo and 41 of her fellow state treasurers sent a letter [pdf] last week to the top Republican and Democrat on the U.S. House Ways and Means Committee, emphasizing “the importance of maintaining the current tax exemption for municipal bond interest” as they consider plans to overhaul the U.S. tax code.

The letter was organized by the National Association of State Treasurers, which describes itself as “a bipartisan organization of state treasurers and other finance officials with similar duties.” The group said tax-free municipal bonds save states and municipalities an average of 25% to 30% on interest costs.

“The tax-exempt bond market has worked effectively for over a century,” Virginia State Treasurer Manju Ganeriwala, the association’s president, said in a statement. “Let’s not dismantle something that works.”

Raimondo, a Democrat, is considering a run for governor in 2014. Here’s her signature on the letter:

Cranston, R.I. (WPRI) – Cranston Mayor Allan Fung has hired a veteran Republican political operative to help craft a likely campaign for governor in 2014, WPRI.com has confirmed.

Patrick Sweeney, who ran Republican Barry Hinckley’s unsuccessful bid for U.S. Senate in 2012 and previously served as executive director of the Rhode Island GOP, was brought in on Apr. 1 as a consultant for the mayor of Rhode Island’s third-largest city.

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Providence Mayor Angel Taveras raised nearly $177,000 in the first quarter of 2013 as he gears up for a likely run for governor next year, WPRI.com has learned.

The first-term Democrat posted his second-best fundraising period since taking office in 2011 and now has more than $560,000 cash on hand. Only General Treasurer Gina Raimondo, who may challenge Taveras in a Democratic primary in 2014, has more in her campaign war chest (Raimondo has not released her first quarter figure, but she had $1.36 million in the bank as of Dec. 31).

“The mayor is excited about the momentum and all the support he has received,” campaign finance director Peter Baptista told WPRI.com. Baptista said Taveras will be meeting with high profile Democrats around the country in the coming months.

Taveras’ new fundraising tally was announced in the same week that California Congresswoman Loretta Sanchez hosted a Los Angeles fundraiser for the mayor. Sanchez told the Orange County Register she is “glad to support him as he seeks higher office.”

“Angel Taveras is a smart, innovative leader, and I consider him to be a rising star in our party,’ Sanchez told the Register in an e-mail. “Last month, Mayor Taveras was selected from more than 300 mayors across the country as the winner of Michael Bloomberg’s Mayors Challenge. His winning idea is to address the ‘word gap’ faced by children in underserved communities by tracking their words through technology – just one example of his fresh thinking.”

Sanchez’s fundraiser will not be counted until Taveras’ second quarter campaign finance report.

Taveras isn’t expected to make a final decision regarding his political future until later this year, but polls show he and Raimondo are the two most popular politicians in the state. Gov. Lincoln Chafee, who is considered the most vulnerable governor in the country, has indicated he plans to run for re-election.

Dan McGowan ( dmcgowan@wpri.com ) covers politics and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

More than 90 people have RSVP’d to say they’re planning to attend the event at the Firglade Avenue home of Maryellen Butke, the prominent education activist and 2012 state Senate candidate, and her partner, Jo O’Connell. Suggested contributions start at $50.

The host committee for the event includes Democratic Congressman David Cicilline, Treasurer Gina Raimondo, House Speaker Gordon Fox and Pawtucket Sen. Donna Nesselbush, a lead sponsor of the marriage bill. Also on the list are real-estate developer Buff Chace and Xay Khamsyvoravong, who was former Treasurer Frank Caprio’s campaign manager.

The Rhode Islanders United for Marriage campaign staff will provide attendees with an update on the status of marriage legislation at the State House. Advocates got a boost Sunday when Senate President M. Teresa Paiva Weed announced she expects a vote before the end of this month.

Butke’s 12-year-old son made national headlines when he testified in support of same-sex marriage last month. “There has been such a groundswell of support for marriage equality,” she told WPRI.com in an email. “I feel so moved by what is happening locally and nationally. This is a major sea change.”

Union leaders hosted their own fundraiser for Rhode Islanders United for Marriage on Monday.

Former General Treasurer Frank Caprio is helping to raise money for the campaign of his successor, Gina Raimondo, as she prepares for a possible run for governor in 2014, WPRI.com has confirmed.

Asked in an interview Friday whether Caprio is helping her with fundraising, Raimondo replied: “Is he helping me with fundraising?” After pausing, she said: “He’s … yes.”

Caprio, who placed third when he was the Democratic nominee for governor in 2010, declined to comment when reached by phone on Friday. The former treasurer and state lawmaker is no longer a registered Democrat, WPRI.com revealed last fall.

Raimondo has collected more than $2 million in donations since she opened her campaign account in December 2009, a WPRI.com analysis of R.I. Board of Elections filings shows. She had $1.36 million on hand as of Dec. 31. Caprio spent $2.7 million on his 2010 campaign for governor.

Caprio is now a managing director at the Providence office of Chatham Capital, an Atlanta-based investment firm that provides mezzanine debt for midsize companies and whose investors include pension funds.

Raimondo, who succeeded Caprio in January 2011, said the Rhode Island Treasury has no business relationship with Chatham Capital. “We do not do business with them,” she told WPRI.com.

Caprio chaired the State Investment Commission when it agreed to invest $5 million from the Rhode Island pension fund with Raimondo’s former venture-capital firm, Point Judith Partners, in September 2007. The state has funded $4.4 million of that comment as of March.

Raimondo, who made the presentation to the commission on behalf of Point Judith, said the investment was made through the pension fund’s normal process. “The investment advisor – Pacific Corporate Group, I believe it was called – was looking for venture capital allocation, and we applied, we went through the due diligence process and we were selected,” she said.

Raimondo’s office said Tuesday that the state has gotten a 12% realized return on its Point Judith investment and has cashed in 22% so far, clarifying an earlier figure the treasurer provided.

This post has been updated.

By Dan McGowan

Senate Majority Whip Maryellen Goodwin on Thursday is expected to be named the Providence Democratic City Committee’s fourth chairperson in 28 months, WPRI.com has learned.

Goodwin, one of the most well-respected lawmakers on Smith Hill, will replace Lauren Nocera, a progressive Democrat who served as Mayor Angel Taveras’ campaign manager in 2010. Nocera, who is departing less than halfway into her four-year term, said she plans to continue working on “issues about which I care deeply, including improving the lives of transgender people, urban agriculture, and policy issues related to recovery from addiction.”

“I am delighted that Senator Goodwin has agreed to serve as the chairwoman of the city committee,” Nocera told WPRI.com. “Senator Goodwin has a proven track record of leadership and understands the importance of bringing people together to move our party and our city forward. She has my full confidence and support as she assumes her term as chair; I wish her the best of luck and look forward to working with her.”

Former councilman, state representative and congressional candidate David Segal, who has a new book coming out, is also resigning as treasurer of the committee, Nocera said. Jenna Karlin, the political director for Unite Here Local 217, is expected to replace Segal.

Although the relevance of the city committee has been questioned in recent years – in 2010, under Joan Badway, it overwhelmingly endorsed Steven Costantino for mayor – Goodwin takes the helm less than 17 months before what could be a busy election season for Providence Democrats.

With Mayor Taveras and General Treasurer Gina Raimondo, a city resident, considered likely candidates for governor in 2014, the city committee may find itself in a position position to endorse a candidate in both the governor’s and mayor’s race.

Thursday’s vote will take place at Asian Palace on the East Side, marking the end of a tradition of holding city committee elections at the Rosario Society Hall in Silver Lake.

Dan McGowan ( dmcgowan@wpri.com ) covers politics, education and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

He may not be ready to confirm that he’s running for governor in 2014, but Providence Mayor Angel Taveras certainly appears to be putting the pieces together for a statewide campaign.

Taveras is in Los Angeles today where Congresswoman Loretta Sanchez is hosting a fundraising for the first-term mayor, according to campaign finance director Peter Baptista. Records show Sanchez previously contributed $1,000 to Taveras’s mayoral campaign in 2010.

In addition to the fundraiser, Baptista said Taveras plans to meet with “major Democratic donors” while he’s in California.

Taveras had just over $413,000 in his campaign account as of Dec. 31, trailing only General Treasurer and likely Democratic primary opponent Gina Raimondo among those considering a run for governor. Raimondo had $1.36 million in her war chest by the end of 2012.

The fundraising trip out west comes a week after the Providence City Council unanimously approved a pension settlement with the city’s police and fire unions and retirees that Taveras says will save the city $18 million. If they do run against each either, Taveras will likely tout his pension changes efforts over Raimondo’s statewide reforms, which are currently tied up in court.

Aside from Taveras and Raimondo, Cranston Mayor Allen Fung, former Congressional candidate Brendan Doherty, former Congressman Bob Weygand and Moderate Party Chairman Ken Block are considering a run for the state’s top job. Gov. Lincoln Chafee has indicated he intends to seek re-election.

Chafee on Monday was named the most vulnerable governor in country for 2014 by the New York Times’ FiveThirtyEight blog.

Dan McGowan ( dmcgowan@wpri.com ) covers politics and the city of Providence for WPRI.com. Follow him on Twitter: @danmcgowan

Edward “Ted” Siedle launched a blistering attack on Treasurer Gina Raimondo in a Forbes.com post Thursday that suggested her changes to Rhode Island’s $7 billion pension system are leading to a “Wall Street feeding frenzy.” Raimondo’s critics seized on Siedle’s broadside immediately, while others wanted to know more about his charges.

Raimondo responded to the Forbes piece Friday in an interview with WPRI.com, defending the State Investment Commission she chairs for moving aggressively to create and expand a portfolio of hedge funds. This transcript has been lightly edited for length and clarity.

Let’s jump right to it. Did you read the article, and what was your reaction?

I did read it. It’s not an article – it’s an opinion blog, and obviously there’s a number of inaccuracies, and I disagree with the overall tone of the blog.

Did the author ever reach out to you or your office, do you know?

No.

So there was no effort to discuss it?

No.

Looking for a thesis in the article, Siedle writes: “There’s no prudent, disciplined investment program at work here – just a blatant Wall Street gorging, while simultaneously pruning state workers’ pension benefits.” I know you’ll disagree with that, but what’s your response?

Ted, we’ve talked about this before. The State Investment Commission has a clear strategy. That strategy is to produce strong long-term returns while reducing risk, and to ensure retirement security. That is exactly what we’ve been doing, and the results speak for themselves.

You’ve reoriented the pension fund to invest much more money in alternative investments. Is this what other pension funds are doing, moving to alternatives? Is it a search for yield with interest rates low? How does this fit with what you’re seeing among your peers elsewhere in the country?

Yes. It is right in line with best practices throughout the industry. In fact, the average across state pension plans is 22% of total assets are in alternatives, and Rhode Island’s pension system is at 22%. So what we’re doing is in line with best practices.

[TN: Raimondo's spokesman said the average cited uses data from Clearwater Investment Management and state CAFRs, or comprehensive annual financial reports.]

It’s our job to be innovative and to be constantly looking to do our best and be better and reduce risk and increase returns. That’s exactly what we’ve done and that’s exactly what we’re going to continue to do. You and I have talked about this before, and it was in State of the Treasury, which came out months ago – we have a strategy. We have an underfunded plan, so we need to reduce risk.

That was one of the things that was interesting here. Siedle said the shift in the investment portfolio will “inevitably dramatically increase both risk and fees.” Talk about risk first. I can see why people would think that if you’re going into alternative investments rather than equities, you’d be increasing risk – isn’t that the fact here?

No, in fact we’ve decreased risk by more than 10%.

How? I know this is complicated stuff, but how can you explain it for the layman?

Here’s the important point. A lot of people got hurt in the stock market of 2008 and 2009, and this pension system lost more than 25% of its value. We don’t want that to happen again. There was an awful lot of risk in this portfolio, and I think everyone can relate to that – a lot of people got hurt and lost a lot of money when the U.S. stock market crashed. What we are trying to do, and what our strategy’s been, is to make sure our whole portfolio isn’t 100% correlated with the U.S. stock market, so that if we do have another crash in the U.S. stock market, hopefully we won’t lose 25% of the value – because we can’t afford that, because people’s pensions are on the line.

On fees, Colorado’s pension fund says its expenses total less than 0.4% of assets per year. Do you know what the figure is for Rhode Island?

No – you’ve got to be very careful with apples to apples in this, so I don’t know what Colorado means when they say that. But here’s what I can tell you: everything we do is in line with best practices – and by the way, it’s very important to remember we rely on our investment consultants. Every one of these hedge fund investments was done by a unanimous vote of the State Investment Commission after months of due diligence, in line with our asset allocation, which we voted on. All the fees that we paid are industry-standard. So everything we’re doing is in line with we should be doing. And it is transparent.

What about fees, though? There’s been a lot of attention paid to the higher fees that sometimes come with alternative investments. Is that a concern? Have you put anything in place to make sure we’re not getting gouged under the radar by fees charged with these alternative investments?

Look, you’re always concerned to make sure that we don’t pay excessive fees. But what we’re trying to do here is we’re trying to buy a little bit of insurance, and so, like in anything, you have to pay for that insurance. But, again, everything we’re investing in are brand-name firms with a proven track record – and we always get the best fees. In consultation with our investment advisers, we negotiate wherever possible to make sure that the state of Rhode Island receives among the best fees of other investors.

One of the things Siedle asks about the alternative investments is, “how high will the allocation to alternatives go over time – 40%-50%?” I presume that’s not the plan.

No. Like I said, we’re right in line – if you do a survey for state pension systems, the average allocation to alternatives is 22%, and Rhode Island’s allocation is 22%. We have an asset allocation policy, and we operate in compliance with that policy.

When was the current allocation plan adopted?

June of 2011.

Another criticism from Siedle is that the estimate of the value of the alternative investments is coming from the managers of the funds, whose pay is based on the investment performance. He questions the reliability of those appraisals. What do you say to that?

Again, it’s our job to be constantly monitoring these, and certainly if we were to ever have reason to have concern about that, we would act on it. We take a rigorous approach in everything we do – a rigorous approach to selection as well as a rigorous approach to monitoring. And when warranted we evaluate the benchmarks to make sure that they’re hitting the returns that we need. So it’s something we have our eye on and that we’re constantly monitoring, and we have a rigorous approach. I think that’s an area where we have a good process in place.

Do you know if any placement fees have been paid in connection with these alternative investments?

They have not. We have a policy here not allowing placement agents, and one of the things that I’ve instituted is an investor pledge – all of the investors that want to do business with us have to sign a pledge saying that, number one, they don’t use placement agents, and number two, that they don’t make contributions to my campaign. So those are facts.

And I will say, as you know because we’ve covered this before, we’ve taken a number of steps, which I’m proud of, to increase transparency, to increase accountability and to go above and beyond what’s required. This investor pledge is one example of that. Our investor relations portal, which I launched a year or so ago, put everything online – including our investments and the fees. So there really is no basis for this.

Really? Where are the fees?

If you go onto our investor relations portal, all the minutes and all the SIC [State Investment Commission] materials are there. And by the way, as you know, every SIC meeting is public, all the stuff is published in SIC reporting materials.

Is Cliffwater the state’s hedge fund consultant?

Yes.

Does the state have multiple hedge fund consultants or just one?

Nope, just Cliffwater.

On those hedge funds, how is the performance so far broadly speaking? I know this was put in place less than two years ago, but is it working? And how do you decide that? What are the metrics? It is a significant shift, even if it is in line with what others are doing as you said.

As you say, it’s a young program, so it’s early going – but we’re pleased. So far the performance has exceeded the index by over 2% annually.

Let me back up. Alternative investments is both hedge funds and private equity. By the way, the state’s been investing in private equity for 10-plus years. This is not new. Certainly it was happening long before I got here, and they’ve had a good track record in it. So that’s not news. Over the last 10 years the state’s private-equity investments have earned an annualized return that exceeds the S&P 500 index by 5%, and the hedge funds – again, early returns – but have exceeded the index by over 2%.

Exceeded the S&P 500 Index or the hedge fund fund-of-funds?

The hedge fund fund-of-funds.

Also, the overall return of the pension system, the one-year return is 9.2% and the three-year return is 9.7% [as of Feb. 28, 2013]. So we are doing exactly what we should be doing and exactly what we said we would do, which is delivering strong returns at a lower level of risk and therefore providing greater retirement security to public employees – and all the while doing that in a highly professional, transparent process, consistent with best practices all around the country.

What about the “revolving door” issue? I hear it raised a lot about your office – you came out of finance, former Chief Investment Officer Ken Goodreau left to work for an alternative investment manager, the new CIO comes from hedge fund research at JP Morgan – isn’t it understandable that people would be skeptical of all that after what’s happened in the financial sector in recent years?

I think people should be a lot more worried if we were hiring people to manage these assets that didn’t have finance experience. What you want is people managing money that know how to do it and that come out of the industry. And by the way, again, this is not unusual. There are senior investment professionals – Massachusetts, for instance, which has a strong track record in their pension, they have a number of professionals on staff managing their pension fund that have come out of the finance industry – Connecticut, New York, New Jersey.

Look, there is no place for problematic conflicts of interest or bad behavior. But it is a good thing that people who have a strong investment track record want to work for the state to help us do the best we can to manage money for our public employees.

Siedle writes that you recently hired “18 more hedge fund managers.” Is that number correct?

Yes, that is correct. Well, it’s not more -

Oh, right – they’re the only hedge fund jobs, because Rhode Island didn’t invest in hedge funds before.

Right.

He says this is a way of “greatly increasing operational and investment risk, and dramatically increasing investment management fees.” That’s wrong, in your view?

Yes. It’s reduced the risk. Like I said, if you look at the risk, the volatility in our portfolio, it’s less now than it was before we had this hedge-fund portfolio.

And by the way, Ted, I have been on record saying this for a long time – it was in State of the Treasury, I have talked about it at every public Investment Commission meeting for over a year – this is an active strategy to reduce the risk in the portfolio so that we don’t again feel the pain of 2008 and 2009. And so far, it’s working – we have strong returns with less risk. We’re monitoring it, but so far it’s working and it’s doing what we said it would do.

[At this point Raimondo's spokesman said we were almost out of time.]

I want to go then to Point Judith Capital. [This was Raimondo's former venture capital firm, which received a $5 million commitment from the pension fund in 2007, under former Treasurer Frank Caprio.] What were the returns like at Point Judith, and are the pitchbooks, portfolio holdings and investment returns available publicly from Point Judith?

I’m not sure. Again, I wasn’t here when that investment was made -

Well you were, but you were on the other side of it.

Right. Exactly. The returns, all that stuff is public, so whatever they submit, just like any other private equity firm, whatever they submit on a quarterly basis would be public. They submit quarterly reports on their investment performance, and we have that and that would be public. I have to say I don’t know it off the top of my head.

How did the initial opportunity for Point Judith to go before the State Investment Commission and get that $5 million commitment come about? You don’t just show up that day to the meeting, obviously.

Basically, through the process. The investment advisor – Pacific Corporate Group, I believe it was called – was looking for venture capital allocation, and we applied, we went through the due diligence process and we were selected.

How was the performance of Point Judith?

It was top quartile at the time [in 2007].

Do you have any sense of how Point Judith’s performance has been sense then and how the state’s investment has fared?

It’s a strong performer. They’ve produced strong returns. It’s still a little bit early. Those kinds of firms have a 10-year investment life cycle, so they’re maybe halfway through the cycle.

Is that why Rhode Island had only funded $4.4 million of the $5 million commitment as of March?

Exactly. That is totally standard – that’s the way it works. They do what’s called a capital call.

[An aide provided Raimondo with documents about Point Judith II, the fund Rhode Island invested in.]

As I suspected they have solid performance, a realized return of 22% – so a 22% realized return, but again, they’re halfway through the fund. Early returns are strong, but like any of these private equity holdings, you have to wait until the fund is done to see how they’ve performed.

[Update: Raimondo's spokeswoman provided a correction on April 9, saying the Point Judith II fund has a 12% return; 22% is the amount that has been cashed in.]

One thing that appears to be incorrect in the Forbes piece is that the Point Judith II investment stopped being reported on your website in October 2012. It’s in the March 2013 SIC document. It looks like nothing has changed with those disclosures recently?

Correct.

Finally, the Engage Rhode Island question.

You’re being portrayed in this piece and by a lot of your critics as the handmaiden of Wall Street – doing all this, acting like you’re looking out for public employees but instead just creating a windfall for financiers. Clearly if you run for governor or even run for treasurer again, that’s going to be the critique of you. Are you concerned Engage Rhode Island is going to be an anchor around your neck?

Look, this is politics. Here’s what I know. I know that we’ve increased the retirement security for public employees in Rhode Island. I know that we had to make some tough choices to do that. I’m proud of the work we’ve done. And I have a much higher degree of confidence that teachers’ and public employees’ pensions are actually going to be there because of the work we’ve done. So those are the facts, and we’re going to continue to do that kind of work – politics aside. •

• Related: Chart: How Raimondo has changed RI’s pension investments (April 4)

Ted Nesi ( tnesi@wpri.com ) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi

This post has been updated.

Rhode Island’s political Twittersphere lit up late Thursday after Forbes.com posted a blistering attack on Treasurer Gina Raimondo by Edward “Ted” Siedle, an outside contributor to the site, entitled “Rhode Island Public Pension ‘Reform’ Looks More Like Wall Street Feeding Frenzy.” Siedle isn’t a novice: he’s been quoted about pension management by outlets including The Wall Street Journal and The New York Times.

There’s much to dissect in Siedle’s tough critique, and Raimondo’s office will undoubtedly need to respond in the coming days. One of his points isn’t up for debate, however: the treasurer has significantly restructured the pension fund’s investment portfolio, as Raimondo herself discussed in the recent Institutional Investor cover story about her that apparently attracted Siedle’s attention.

Raimondo has continued the pension fund’s move out of domestic and international equity investments, which began under her predecessor Frank Caprio, with a corresponding 16% jump in the share of the fund invested in alternatives – private equity, real return and hedge funds. Here’s a chart showing the change:

The chart looks at 2006, before Caprio took office; 2010, Caprio’s final full year in charge; and 2012, Raimondo’s first. To put the percentages in perspective, in dollar terms the pension fund’s alternative investments jumped from $393 million on June 30, 2010, to $1.6 billion two years later.

Raimondo has said in the past that the move to an arguably more aggressive investment strategy is necessary because of the pension fund’s significant shortfall – it was about 60% funded after the 2011 overhaul, and only 48% before the new law passed. She thinks big returns are needed to fill the gap.

“In government there is a view that the status quo is safe,” Raimondo told Institutional Investor. “But when it comes to investing, doing nothing is making a decision to do something.”

The Rhode Island Clean Water Finance Agency’s motto declares, “Clean Water for Rhode Island is Our Only Business.” But that won’t be true for much longer if Treasurer Gina Raimondo and House Speaker Gordon Fox have their way.

Raimondo and Fox will hold a press conference Thursday morning where they’ll propose adding a new Municipal Road and Bridge Revolving Fund to the water agency’s portfolio of programs. They’ll be joined by Senate President Teresa Paiva Weed and municipal leaders, making this as close to a sure thing as any new legislative proposal can be.

So, you ask, what is the R.I. Clean Water Finance Agency?

The short answer: RICWFA is a quasi-public state agency, similar to better-known entities like the R.I. Economic Development Corporation and the R.I. Airport Corporation. While the Clean Water Finance Agency has a relatively low profile, it plays a key part in financing the maintenance of Rhode Island’s water system. Its basic role is to provide subsidized and low-interest loans to local governments that they use to fund water-infrastructure projects of all sizes.

RICWFA opened in July 1990 to fill the void left by sharp reductions in federal aid for local sewer projects. Governor Sundlun expanded its mission in 1993, and Governor Carcieri lowered some of its interest rates in 2004 as part of his push to clean up Narragansett Bay. RICWFA has been growing fast in recent years: its total bond indebtedness jumped from $577 million in 2007 to $707 million in 2012, and as of June 30 it had funded $1.25 billion in low-interest loans.

RICWFA works a bit like a bank. The initial money in its revolving loan funds – its base of capital for lending to municipalities – has come from state bond referendums and federal grants. The R.I. Department of Environmental Management and the R.I. Department of Health each maintain Project Priority Lists, updated annually, that list which local water projects are eligible for RICWFA loans; the departments must also grant Certificates of Approval to specific projects before the agency will fund them. The loan money gets transferred to the communities as they incur project costs and then gets paid back by water ratepayers, usually over 20 years. When money gets paid back with interest, RICWFA can use the proceeds to make new loans – hence “revolving.”

While the details haven’t been released yet, it appears Raimondo and Fox want to turn the Clean Water Finance Agency into more of a state infrastructure bank. If the General Assembly passes legislation to create their proposed Municipal Road and Bridge Revolving Fund by July, presumably RICWFA could quickly go borrow money – perhaps as much as $50 million to $70 million – to capitalize the fund and start making loans. (Like other quasi-publics, RICWFA isn’t required to get voter approval to take on additional debt.) It’s possible the R.I. Department of Transportation could play a similar role to DEM and DoH by creating the Project Priority List that determines eligibility for loans.

It’s easy to see RICWFA’s appeal to Raimondo and Fox.

The agency is lean – its most recent annual report mentioned only seven employees, and it spent less than $2 million on administration and professional fees in the 2010-11 fiscal year. It’s a rare Rhode Island public body with a strong reputation, as evidenced by its AAA bond rating. It hasn’t been hit by the same turnover as organizations like the EDC: Anthony Simeone, RICWFA’s executive director, has been there since 1994, and its longtime board chairman is James Hagerty, a senior banking executive at Washington Trust. Raimondo is represented on the board by Chris Feisthamel, the former Citizens executive who serves as her chief operating officer at Treasury.

The politics are interesting, as well. This looks like another clear sign that Fox trusts Raimondo to come up with innovative policy ideas he can get behind, and with the 2014 campaign around the corner, it won’t be missed that Paiva Weed is joining the two of them for the announcement but Governor Chafee isn’t. Economically, the new fund should be able to get shovel-ready projects going before too long if the proposal moves quickly, which will create badly needed construction jobs that will be popular with private-sector labor unions – all in time for next year’s election. And it’s another way for Raimondo to fulfill her promise to use the dividend from the pension overhaul to support public spending, burnishing her Democratic credentials.

That said, there are lots of questions to be asked about the Raimondo-Fox proposal.

First of all, can local taxpayers afford this? RICWFA loans are usually repaid by a dedicated revenue stream – water bills – while roads and bridges are funded out of property taxes. As always with debt, it’s important to ask whether future income will make debt payments affordable – will Rhode Island’s economy be strong enough in the future to repay the loans? Doing a cost-benefit analysis is also important: will the projects last long enough to make it worth borrowing to fund them now? (Some will certainly answer yes: Providence just borrowed $40 million to fix its streets.)

Another risk is that since the new fund will use state money, it won’t get the same level of oversight the federal government provides for RICWFA’s water funds. And even though RICWFA’s borrowing isn’t legally backed by state taxpayers, we’re seeing in the case of 38 Studios that state leaders are loathe to actually allow a default on any loans connected to state government.

All in all, this should be interesting. To learn more, check out RICWFA’s 2011 annual report [pdf].

If the Rhode Island Supreme Court affirms Judge Taft-Carter’s Decision, it will reverse its own precedent on the unmistakability doctrine, and create new constitutional law which will differ from federal court precedent and the precedent of the majority of state courts in this country. … If the judiciary can require a legislature to bind itself forever through one legislative act, which can never be revisited, the judiciary is thereby given too much power. Thus, it is important to hold from a separation of powers perspective that, unless the legislature’s intent to create contractual rights against the state is unmistakably clear, it should be free to amend its own legislation in the future.

Read the entire PDF here. For an alternative view, check out this from RWU Law’s Michael Yelnosky.

• Related: Mediation to continue in RI pension suit after judge gets update (Feb. 28)

Raimondo spokeswoman Joy Fox told WPRI.com the SEC probe, which the treasurer disclosed shortly after she took office in early 2011, isn’t complete despite the passage of more than two years. The treasurer’s office has said it’s barred from discussing details about the investigation.

On Monday, Illinois agreed to a settlement with the SEC over allegations the state misled investors about the health of its underfunded pension system. Illinois admitted no wrongdoing and was not fined or penalized. A similar outcome was reached in a 2010 SEC case against New Jersey.

In Illinois’ case, the SEC praised steps the state’s government has taken in recent years to improve the way it discloses its pension liabilities – suggesting Rhode Island could benefit from the dramatic actions local leaders have taken on pensions since 2011, as well.

Governor Chafee’s 2012-13 budget request estimated the entire cost of the SEC investigation to Rhode Island at $276,000, shared between the treasurer’s and governor’s offices.

PROVIDENCE, R.I. (WPRI) – More than half of Rhode Island voters support allowing same-sex marriage in the state, while most opponents of the idea say it conflicts with their religious beliefs, according to a new poll released Thursday by Brown University.

The poll also found Gov. Lincoln Chafee’s approval rating is a dismal 26%. ”Lincoln Chafee still has not been able to move his numbers after over two years as governor,” WPRI 12 political analyst Joe Fleming said.

Read the rest of this story »

The sparring ahead of the 2014 governor’s race has begun.

A day after Rhode Island Public Radio reported that likely gubernatorial candidate General Treasurer Gina Raimondo is bringing in veteran political operative Andrew Roos as her chief of staff, Moderate Party Chairman Ken Block accused Raimondo of hiring a campaign manager on the state’s dime.

“If this person has no relevant experience for running the treasurer’s office and is there mainly as a campaign manager then that person’s salary should not be at taxpayer expense,” Block, a potential candidate for governor himself, told WPRI.com.

Roos, who managed Myrth York’s unsuccessful campaign for governor in 2002, is leaving a Google’s elections and issue advocacy division in Washington D.C. to join Raimondo’s staff. Joseph Pratt, Raimondo’s current chief of staff, has been moved to deputy treasurer/chief of administration.

But Block said campaign managers should be paid out of campaign finance accounts.

“It would be absurd for taxpayers to have to pay a large salary for a campaign operative with no relevant executive experience for one of our statewide elected officials,” Block said. “Last I knew the treasurer had plenty of campaign cash to pay for these services.”

Raimondo spokeswoman Joy Fox did not respond directly to Block’s comments, but said the treasurer is ”committed to having the strongest, most diverse team possible to help deliver results for Rhode Islanders.”

Although she has deflected questions about her political future, Raimondo has established herself as the early favorite in the governor’s race, ahead of Providence Mayor Angel Taveras and current Gov. Lincoln Chafee. The Democrat had more than $1.3 million in her campaign account as of Dec. 31, more than Chafee, Taveras and Block combined.