2/3/2014 7:59 AM - Kip McDanie
Is Rhode Island Rigorous or Retributive?
Last week while in Utah for my annual ski trip, my inbox pinged with a regular Google Alert I receive for pension investments. I saw this Reuters title with interest:
Loeb's Hedge Fund Third Point to Lose Rhode Island as Client
The article began:
Billionaire hedge fund investor Daniel Loeb will be losing Rhode Island as a client after the state's pension fund found his Third Point LLC too risky for its taste and decided to pull all of its money out.
The state's Investment Commission, which directs how the state's $8 billion pension fund is invested, voted unanimously on Monday to redeem $74.3 million from Third Point, Joy Fox, a spokeswoman for Rhode Island Treasurer Gina Raimondo, said on Friday.
For those who have followed the public pension discussion in America, this should ring some bells. You’ll remember this, from Bloomberg last summer:
Daniel Loeb, founder of Third Point LLC, is escalating a battle between hedge-fund managers and American Federation of Teachers President Randi Weingarten over public-worker pensions.
Loeb, who manages $13.6 billion, had fellow hedge-fund chiefs Paul Tudor Jones, David Tepper and Paul Singer applauding in the ballroom of Manhattan’s Mandarin Oriental Hotel last month as he donated an extra $1 million to a group of charter schools to show his opposition to the head of the second-biggest U.S. teachers union.
Politics, or smart investment? According to Rhode Island, it’s the latter. From Reuters:
"The purpose of the hedge fund portfolio is to reduce the (pension) fund's overall sensitivity to equity market moves," [Raimondo spokesperson] Fox told Reuters in an email, adding "This fund has the highest equity market sensitivity within the state's hedge fund allocation. With this vote, the commission is further reducing the beta risk within this portion of the portfolio."
But there is also this:
Loeb performed well for Rhode Island last year, earning a 24.71% return, which ranked Third Point as the state's best performing hedge fund in 2013, according to state documents.
Here’s my take: If this was done to actually create a ‘hedged’ portfolio, kudos to Rhode Island. Too often, it seems, institutional hedge fund portfolios act like equity portfolios on steroids. I think that the smartest public pensions know—and are now acting upon this belief—that they must decide whether they want these investments to blow out the lights or help them ride through rough times.
Either Rhode Island is extremely far-sighted and rigorous in managing it’s hedge fund portfolio—or they’re punishing Loeb for his criticism of their existence. Keep in mind, also that Treasurer Raimondo is running for Governor.
I have no insight into which it is, but I’d love to hear yours. Email me here. |
