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.

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.