Rhode Island Pension Returns 3.8% in 2020 to Hit Record-High Asset Value

After a strong fourth quarter rebound, Rhode Island’s pension fund returned 3.8% net of fees for the fiscal year ending June 30, doubling its benchmark’s return of 1.9%, and closing the year with just under $8.5 billion in assets under management (AUM), a record year-end high for the state.

The state’s Office of the General Treasurer said the Rhode Island pension system outperformed 95% of US pension plans in the first quarter of calendar year 2020 during the COVID-19 market crisis, citing Investment Metrics. The Treasurer’s office attributed the strong performance to the implementation of a “Crisis Protection Class” that earned 15.1% when global stock markets suffered double-digit declines.

The Crisis Protection Class, which accounts for approximately 10% of the portfolio, was created in 2016 as part of state Treasurer Seth Magaziner’s “Back to Basics” plan, which moved some of the pension’s underperforming hedge fund assets into more traditional growth and stability assets. When the markets tanked in March, those assets helped minimize the pension fund’s losses. The annual return was also boosted by a strong April, May, and June, during which the fund returned 8.3%.

The fund’s portfolio, which has a target return of 7% reported three-, five-, and 10-year annualized returns of 6.1%, 5.9%, and 7.8%, respectively, ahead of its benchmark’s returns of 5.3%, 5.3%, and 7.7%, respectively, during the same time periods. Although the 10-year return was ahead if its target return, it is down a full percentage point from the same time last year when it was 8.8%. Meanwhile, a 60/40 blended portfolio of stocks and bonds would have returned 6.2%, 5.9%, and 7.3%, respectively, in the past three, five, and 10 years annually.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

The portfolio’s asset allocation is 54.5% in growth, 33.5% in stability, and 11% in income. The growth asset class is comprised of 25.7% US equity, 13.4% international developed equity, 7.9% private equity, 5% emerging market equity, and 1.7% non-core real estate, with the remainder in opportunistic private credit.

Rhode Island CIO Departs for Washington Hospital System

Rhode Island Pension Plan Holds Down Losses Thanks to Treasuries, Algorithms

Tags: Back to Basics, Coronavirus, COVID-19, Crisis Protection Class, Pension, Rhode Island, Seth Magaziner

A strong rebound by global equities in the second quarter helped Canadian defined benefit (DB) plans and pooled funds recover most of their investment losses from the early days of the COVID-19 pandemic, according to the Northern Trust Canada Universe and Morneau Shepell.

“Despite the level of volatility witnessed over the last several months, Canadian pension plans are tracking in a positive direction,” Katie Pries, CEO and president of Northern Trust Canada, said in a statement. “Although there still remains a heightened level of uncertainty in the current environment as the pandemic continues to run its course, plan sponsors continue to persevere as they navigate on a path to sustainability.”

As global financial markets rallied in the second quarter, the median plan in the Northern Trust Canada Universe, which tracks the performance of Canadian institutional investment plans that subscribe to the firm’s performance measurement services, returned 9.9% for the second quarter.

Canadian Equities, as measured by the S&P/TSX Composite, saw a robust 17% gain for the quarter, with the majority of all sectors earning strong gains, while US equities clawed their way back from recent lows as the S&P 500 rose 15.3% in Canadian dollars for the quarter. And international developed markets, as tracked by the MSCI EAFE Index, closed out the quarter with a 10.1% return in Canadian dollars, while the MSCI Emerging Markets index rose 13.1% in Canadian dollars during the quarter, with all sectors earning positive gains.

Want the latest institutional investment industry news and insights? Sign up for CIO newsletters. 

Meanwhile, Morneau Shepell reported that diversified pooled fund managers returned 11% before management fees for the second quarter, falling short of the benchmark portfolio of 55% equity and 45% fixed income by 1.2%. The funds are down 0.8% since the beginning of the year.

“The speed and magnitude of both the first-quarter sell-off and the subsequent rebound have been unprecedented,” Jean Bergeron, partner for the Morneau Shepell Asset & Risk Management consulting team, said in a statement. “However, the higher solvency liability caused by the decrease in interest rates means that pension fund financial positions fell by an average of 3% to 10% compared to the beginning of the year.”

In the second quarter of 2020, pooled managers earned returns of 6.6% on bonds, which was 0.7% higher than the benchmark index. During the quarter, short-term, mid-term, and long-term bond indices returned 2.2%, 4.8%, and 11.2%, respectively. The high-yield bond index posted a return of 7.6%, while the real return bond index provided a 6.2% return.

Morneau Shepell’s Performance Universe, which covers just over 300 funds managed by nearly 45 investment management firms, are based on returns provided by leading portfolio managers, including independent investment management firms, insurance companies, trust companies, and financial institutions. The returns are calculated before deduction of management fees.