Rhode Island Pension Fund Hits Record but Misses Benchmark in 2021

The Rhode Island pension fund’s investment portfolio returned 17.27% net of fees for the year ended Dec. 31, 2021, to lift its total asset value to an all-time high of approximately $10.79 billion. Although it was the state pension fund’s highest calendar year return since 2009, and more than double its target return of 7.0%, the performance missed its benchmark’s return of 17.8%.

However, despite underperforming its benchmark for the year, the fund has outperformed its benchmark over the medium- and longer-term with three-, five-, and 10-year annualized returns of 15.2%, 11.3%, and 9.4%, respectively, compared with 14.7%, 11.1%, and 9.2%, respectively, for its benchmark during the same time periods.

“Our ‘Back to Basics’ investment strategy is helping the pension fund reach historic all-time highs while consistently outperforming our peers,” Rhode Island General Treasurer Seth Magaziner said in a statement.

Under the Back to Basics investment strategy, which Magaziner launched in 2016, the pension fund reduced its investment in hedge fund strategies by more than $500 million within two years and reallocated the money to more traditional asset classes that emphasize growth and stability over the long term.

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The pension fund’s annualized return for 2021 easily outperformed a portfolio of 60% stocks and 40% bonds, which returned 10.2% during the year. It also beat a 60/40 portfolio for the month of December, as the pension fund grew 3.04%, compared with 2.3%.

As of the end of 2021, the pension fund’s asset allocation was 56% in growth, 30.7% in stability, 12.1% in income, and the remaining 1.3% is classified as “other.” Among the growth assets, the fund is approximately 25.2% invested in US equities, 12.9% in private equities, 11.2% in international developed equities, and 4.6% in emerging markets equities.

The most significant change in the portfolio’s asset allocation from 2020 was made to its private equity allocation, which the pension fund increased by more than 50% from an 8.5% allocation a year earlier. The pension fund has more than doubled its allocation to the asset class since the end of 2017, when private equity accounted for only 5.9% of the investment portfolio.