Embattled Rhode Island Pension Reformer Running for Governor

Gina Raimondo, the state treasurer whose pension overhaul drew criticism from unions, Rolling Stone, Forbes, and elsewhere, will be pursuing a higher office.

(December 19, 2013) – The treasurer of Rhode Island, whose three-year term has been fraught with controversy over pension reforms, has decided to run for governor.

Gina Raimondo announced her campaign in a December 18 video.

“I know pension reform was—and is—a hard thing for many people,” she said, with a Christmas tree visible in the background. “But it was harder still to think about what would have happened to those pensions if we didn’t save them—which we did… It’s opened up the possibility that Rhode Island can make investments in its schools and in job creation—investments that would have been impossible just three years ago.”

However, she argued that pension shortfalls are still too large to implement those investments, and "the best way to build on our work together over the last three years is to seek the Democratic nomination for governor.”

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Under Raimondo’s leadership, Rhode Island cut $3 bullion from its unfunded liability by freezing the cost of living adjustments, hiking retirement ages, and shifting employees into hybrid defined contribution/defined benefit programs.

Simultaneously, the now-$8 billion public retirement system began rebalancing assets from traditional classes to alternatives. Raimondo, a former venture capitalist who helped establish Point Judith Capital, was severely criticized in Forbes and Rolling Stone for the increased fees this entailed—or “Wall Street Feeding Frenzy” as columnist and investigator Edward Siedle put it.

"There's no prudent, disciplined investment program at work here—just a blatant Wall Street gorging, while simultaneously pruning state workers' pension benefits," wrote Siedle in his blistering first op-ed about the new investment strategy.

Raimondo defended the investment strategies as a diversifier and source of alpha to help remedy the fund's significant unfunded liabilities.

"Everything we're investing in are brand-name firms with a proven track record—and we always get the best fees,” her spokesperson said in a statement. “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."

The treasurer’s fundraising will begin in earnest in January, according to her campaign manager.

(December 19, 2013) — Investor appetite for risk-on strategies has seen record flows into hedge funds, according to data from eVestment and Morningstar.

Flows into hedge funds were positive for a fifth consecutive month in November, according to data from eVestment. New allocations of $15.3 billion brought the five-month total of inflows to $68.5 billion.

The flow data was mirrored by Morningstar’s latest findings, although its data showed the new money was flowing into multi-strategy hedge funds and out of single strategy vehicles.

On aggregate, single-strategy hedge funds experienced net outflows of $1.7 billion in October, with the systematic futures category leading the losses for the second straight month with outflows of $972 million, adding to its growing loss of $9.2 billion for the year through October.

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By contrast, multi-strategy hedge funds received net inflows of $976 million. The multi-strategy hedge fund category has raised $1.7 billion since January 2013, driven by increased demand for diversified alternative offerings.

Both Morningstar and eVestment noted investors were piling into equity investment strategies, often at the expense of credit ones.

US equity-based hedge fund strategies profited from favourable economic reports and expectations of a rising US dollar. As an illustration, the Morningstar MSCI North America Hedge Fund Index increased 1.2% for the month, and the Morningstar MSCI Small Cap Hedge Fund Index, which represents small-cap long-short equity strategies, rose 1.9% in November. The Russell 2000 Index, which focusses on small caps, also climbed 4.0%.

European equity-focused hedge funds also increased modestly after the European Central Bank unexpectedly cut interest rates in November. The Morningstar MSCI Europe Hedge Fund Index advanced 1% in November and 10.5% for the year to date.

eVestment also found that equity strategies were more popular—taking the majority of new assets in November, driven by investors seeking alternative exposure to stocks. Allocations to long/short equity funds in November were the largest in more than 50 months, since August 2009.

“The turnaround of investor interest towards equity exposure has been significant, and appears to be at the expense of credit exposure,” the report said.

“In the months from May 2010 to June 2013, investor flows to equity outpaced credit only four times. In the five months since the end-of-taper alarm and ensuing US treasury rate spike, monthly equity flows have outpaced credit three times.”

Having said that, credit strategy assets rose in November, marking a reversal of October’s redemptions, but only at a muted pace. Investors allocated $3.5 billion into the space during the month, significantly below their prior 12-month average inflow of $7.1 billion.

eVestment found emerging market hedge fund flows to be positive again in November, the sixth month of positive flows in the last seven.

But Morningstar’s returns analysis showed emerging market hedge funds had endured a tough end to 2013: its unhedged MSCI Emerging Markets Index declined 1.5%, due to greater exposure to Brazil, Russia, and India, but its analysts believe hedge funds performed far worse.

“Slowing economic growth in emerging markets weighed on hedge funds in November,” AJ D’Asaro, fund analyst at Morningstar, said. “Hedge funds concentrating in emerging markets, especially those focused on Brazil, Russia, India, China, and South Africa, lost more than expected.”

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