Rhode Island Halves Hedge Fund Allocation

Rhode Island’s state pension will halve its hedge fund allocation over the next two years following a unanimous vote by the state investment council, the fund announced Wednesday.

“While our pension system has achieved positive performance and beaten our benchmark, I believe that we can do better.”The move, part of a “Back to Basics” rethink of the $8 billion portfolio, will pull $500 million out of hedge funds to be reallocated to “more traditional asset classes” including low-cost index funds, said General Treasurer Seth Magaziner.

“While our pension system has achieved positive performance and beaten our benchmark since I took office, I believe that we can do better,” Magaziner said. “Our ‘Back to Basics’ approach will improve returns through common sense investments that have proven they can deliver growth and stability.”

The Back to Basics project will see “a majority” of the Employees’ Retirement System of Rhode Island portfolio invested “in strategies designed to produce strong returns over time,” the treasurer said in a statement. While growth and income strategies will be made up of index funds, the rest of the portfolio will be given over to assets “designed to protect the pension system against market risks such as inflation and volatility.”

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Magaziner added that the changes were predicted to bring in stronger performance as well as “save millions for taxpayers and strengthen retirement security for our public employees.”

Rhode Island is the latest public fund to reduce its exposure to hedge funds in recent years. Chief among those heading for the exit were the California Public Employees’ Retirement System, which announced its decision to cut its $4 billion allocation entirely in 2014, and the New York City Employees’ Retirement System, which said in April it would scrap a $1.7 billion hedge fund portfolio.

So far this year, the Rhode Island pension has added $334 million through investment gains and contributions, the fund said. These above-benchmark returns came despite the departure of CIO Anne-Marie Fink in June, as she left to join a family office.

Michigan State University’s (MSU) inaugural CIO has made his first senior hires, the university confirmed Tuesday.

Phil Zecher, who was appointed the $2.2 billion endowment’s first CIO in December, has announced the hiring of two investment directors: Julia Lee and Allen Huang.

Lee joins the fledgling investment office from the South Carolina Retirement System, where she focused on private equity and co-investments. Previously, she was a portfolio manager and convertible bonds trader for insurance company Allstate’s investment division.

Huang, meanwhile, was previously director of fixed income at the Indiana Public Retirement System, where he managed $11 billion in fixed income portfolios for system’s defined benefit and defined contribution plans. Huang’s responsibilities had included asset allocation, manager selection and evaluation, investment guideline and contract negotiation, and portfolio monitoring.

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Huang’s prior roles include positions at Barclays and GE Capital.

“We are very pleased to have Allen and Julia join the MSU team,” Zecher said. “Each has significant experience both as allocators and on the direct investing side, which was important to me.”

Before Zecher’s appointment at the end of last year, the MSU endowment had been run by the university’s board of trustees and vice president of finance, along with outsourced-CIO and consultant Cambridge Associates.

Zecher, an MSU alum, had previously served on the MSU Foundation’s board of directors and board of trustees’ investment advisory subcommittee.

“The endowment has grown significantly over the last decade and so has the complexity of managing the investments,” Zecher said upon his appointment last December. “Having a CIO role will allow us to grow our internal talent and capabilities to identify investment opportunities that we might not have seen in the past.”