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State of Rhode Island Terminates Hedge Fund Investments

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Back in 2013 I warned about Rhode Island’s pension fund investments in high-fee hedge funds, writing here:

It has allocated 25% of its plan to alternative investments, or hedge funds and private equity. Enormous fees are paid to these guys for an investment that a) is illiquid and b) has a subjective price.

There are a lot of retired teachers out there who have no idea how poorly their money is being invested.

Again earlier this year I reiterated this warning:

The state of Rhode Island has been a big-time investor, through its pensions, in hedge funds. Retired teachers who depend on this money for retirement should not be invested in hedge funds. It’s as simple as that.

Unfortunately in the world of public pensions big committees and chest thumping rule the day. Egos and resume building cloud judgement. And performance takes a hit.

It’s no surprise that hedge funds are coming under attack. Assets are heading out the door.

And now the inevitable has come to pass. Yesterday Rhode Island’s pension fund announced which seven hedge funds it had decided to terminate its relationship with. The state voted to reduce its hedge fund exposure last month because, as Bloomberg reports the “funds’ high fees are eating into returns and some of the investment pools provide less diversification than expected.”

Now, in this case I really hate to say I told you so, because the decision to throw caution to the wind and invest in high-fee hedge funds with teachers’ money is going to cost them, and taxpayers the most. Focusing on fees and lowering the cost of your investments is something we do regularly at Richard C. Young & Co., Ltd. If you haven’t already signed up for our client letter, please do so, it’s free even for non-clients. You’ll get a peek at the low-cost investment philosophy we espouse.

I want to hear from you at ejsmith@youngresearch.com.

Magaziner: RI will move $500M in pension money out of hedge funds

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E.J. Smith

Editor-in-Chief
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com.