PROVIDENCE, R.I. (WPRI) - Rhode Island's state pension fund earned 11.1% in the 2012-13 fiscal year, a big improvement over its 1.4% rise the prior year as a worldwide market rebound boosted returns, Treasurer Gina Raimondo's office announced Wednesday.
The Rhode Island pension fund's assets totaled $7.55 billion as of June 30, an increase of $309.3 million compared with a year earlier, according to data compiled by Bank of New York Mellon, the state's custodial bank.
"We're obviously pleased with the 11-percent-plus return for the year, net of all expenses, and with quite a bit lower risk," Raimondo told the R.I. State Investment Commission during their monthly meeting at the State House. "I think the strategy's working and we should proceed as we have been."
The 11.1% return came in below the 11.3% return of the fund's benchmark over the same period. It was also less than Massachusetts' 12.7% return or CalPERS' 12.5% increase. The Russell 3000 Index, which measures the performance of the nation's largest companies, earned 21.5% in the 12 months ended June 30.
Raimondo emphasized that she has reduced the pension fund's overall risk. "We're looking at risk-adjusted return, so it's 11% with significantly less risk than we've had in the last five to 10 years," she said. "It's a very challenging time to manage money but we're very pleased."
The pension fund continued to pay out far more than it takes in over the last year.
Retirees received $924 million in benefits from the fund during 2012-13, while active employees and taxpayers deposited $479 million into the fund, the data shows. The aim of the state's investment strategy is partly to close that nearly half-billion-dollar gap with robust market returns.
"We still have an underfunded system with more retirees than actives, and my number-one job is retirement system, to make sure people's pension checks are there when they need them," Raimondo said.
"When you have a system where you're sending out more than you're taking in, we have to be vigilant about managing the risk and the return, so that we promise with integrity to people in the system, the pension check will be there when they need them, she said.
The commission's long-term target for the pension fund is an average annual investment return of 7.5% before inflation, or 4.75% after inflation. The commission projects inflation will average 2.75% a year.
Raimondo pushed through a landmark overhaul of the pension system in 2011 that suspends retirees' cost-of-living increases for roughly two decades and moves active employees into a new hybrid plan that includes a 401k-style account. Unions sued to overturn the law, and the two sides have been in court-ordered mediation behind closed doors since February.
Attorneys in the case are scheduled to meet Aug. 6 with R.I. Superior Court Judge Sarah Taft-Carter, who is handling the suit, to update her on the progress of the talks. It will be their sixth status conference since mediation began.
While the new law reduced Rhode Island's long-term pension shortfall by roughly $3 billion, the state still has significantly less money than it needs to meet future commitments. The retirement benefits of state employees and teachers, the two largest groups, were 58% funded as of June 30, 2012, with an unfunded liability of $4.5 billion.
As of June 30, the pension fund's assets were invested 47% in global public equities, 15% in U.S. traditional fixed income, 14% in hedge funds, 7% in private equity, 5% in cash and cash equivalents, 5% in credit, 3% in inflation-linked fixed income and 3% in real estate, according to BNY Mellon's data.
Raimondo has faced relentless criticism of her investment strategy in recent months from Edward "Ted" Siedle, an outside contributor to Forbes.com recently hired by the state's largest public-sector union to examine her work, because of her decision to move $1.08 billion of the state's pension assets into hedge funds since 2011.
BNY Mellon projects the pension fund spent $17.4 million on direct investment fees and other operating expenses in 2012-13. Anne-Marie Fink, Rhode Island's chief investment officer, said information about the amount of indirect fees the fund paid to hedge funds wasn't available yet.
"We don't have the comprehensive numbers yet, just because it takes a little while to get everything together and get the points all finalized," Anne-Marie Fink, Rhode Island's chief investment officer, told the commission. She said she expects to have the data available at the panel's next meeting.
Separately, the 8-member investment panel voted to put up to $25 million in a new buyout fund being put together by CVC Capital Partners Ltd., a private-equity firm. CVS said Monday the new CVC Capital Partners VI Fund had secured 10.5 billion euros from investors.
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